Fom Mba (MM)

MBA I SEM(MM) FUNDAMENTALS OF MANAGEMENT UNIT - I
Concept and Characteristics Of Management

Management is an art of getting things done through others. Management is toplan, organize, direct and control the
resources of the organization for obtainingcommon objectives or goals. It is with resources like material,
money,machinery, methods, manufacturing and marketing.
Management principles are universal in nature. Management is necessary for all types of organizations, such as public
sector, private sector, govt. department, hotel, hospital, hostels, institutes, require management for several growth and
expansion.
Definitions-In the words of Henry Fayol, “To manage is to forecast and to plan, to organise, to command, to co-
ordinate and to control”.
In the words of Koontz and O’Donnel, “Management is defined as the creation and maintenance of an internal
environment in an enterprise where individuals working together in groups can perform efficiently and effectively
towards the 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.
Characteristics or Nature of management can be highlighted as -
 Management is Goal-Oriented: The success of any management activity is accessed by its achievement of
the predetermined goals or objective. Management is a purposeful activity. It is a tool which helps use of human &
physical resources to fulfill the pre-determined goals.
 Management integrates Human, Physical and Financial Resources: In an organization, human beings
work with non-human resources like machines. Materials, financial assets, buildings etc. Management integrates
human efforts to those resources. It brings harmony among the human, physical and financial resources.
 Management is Continuous: Management is an ongoing process. It involves continuous handling of
problems and issues. It is concerned with identifying the problem and taking appropriate steps to solve it. For
achieving this target various policies have to be framed but this is not the end. Marketing and Advertising is also to be
done. For this policies have to be again framed. Hence this is an ongoing process.
 Management is all Pervasive: Management is required in all types of organizations whether it is political,
social, cultural or business because it helps and directs various efforts towards a definite purpose.Whether it is a small
business firm which may be engaged in trading or a large firm like Tata Iron & Steel, management is required
everywhere irrespective of size or type of activity.
 Management is a Group Activity: Management is very much less concerned with individual‘s efforts. It is
more concerned with groups. It involves the use of group effort to achieve predetermined goal of management of
ABC & Co. is good refers to a group of persons managing the enterprise
 Organized Activities: Management is a process of organized activities. Groups of people cannot be involved
in the performance of activities without organized activities. Management comes into existence where a group of
people are involved in achieving a common objective.
 Existence of Objectives: The existence of objectives is a basic criterion of every human organization. The
organizational objectives are the desired state of affairs which an organization attempts to realize. This realization of
objectives is sought through the coordinated efforts of the people constituting an organization.
 Decision-making: Management process involves decision making at all levels. Decision-making describes
the process by which a course of action is selected as the way to deal with a specific problem.
CH Institute of Management & Commerce Page 1

 Relationship among resources: The essence of management is integration of various organizational

resources. Resources include money, machine, materials, and people. Management is concerned with the proper
utilization of human resources which, in turn, utilize other resources
 Multidisciplinary: Management is multidisciplinary because it includes knowledge/information from various
disciplines- economics, statistics, maths, psychology, sociology, ecology, operations research, history, etc.
 Management is dynamic: Management has framed certain principles, which are flexible in nature and
change with the changes in the environment in which an organization exits.
 Relative, Not Absolute Principles: Management principles are relative, not absolute, and they should be
applied according to the need of the organization. A particular management principle has different strengths in
different conditions. Therefore, principles should be applied according to the prevailing conditions.
 Management is Universal: Management is a universal phenomenon. However, management principles are
not universally applicable but are to be modified according to the needs of the situation.
Is Management a Science or an Art?Judging from thecharacteristics of science, it may be observed that:

1. Management is a systematized body of knowledge and its principles have evolved on the basis of observation.
2. The kind of experimentation (as in natural sciences) cannot be accompanied in the area of management since
management deals with the human element.
3. In management, it is not possible to define, analyse and measure phenomena by repeating the same conditions over
and over again to obtain a proof.
The above observation puts a limitation on management as a science. Management like other social sciences can be
called as “inexact science”.
Judging from the characteristics of art, it may be observed that:
1. Management while performing the activities of getting things done by others is required
to apply the knowledge of certain underlying principles which are necessary for every art.
2. Management gets perfection in the art of managing only through continuous practice.
3. Management implies capacity to apply accurately the knowledge to solve the problems,
to face the situation and to realise the objectives fully and timely.
The above observation makes management an art and that to a fine art.
Management is both a science as well as an art. The science of management provides certain general principles which
can guide the managers in their professional effort. The art of management consists in tackling every situation in an
effective manner. As a matter of fact, neither science should be over-emphasised nor should be the art discounted; the
science and the art of management go together and are both mutually interdependent and complimentary.
Management as Profession - Management has been regarded as a profession by many while many have suggested
that it has not achieved the status of a profession. Schein concluded that by some criteria management is indeed a
profession, but by other criteria it is not. Today we can see many signs that management is working towards increased
professionalism.
Functions of Management
Various management scholars studied different organizations at different times; they identified the functions of
management in their own ways. According to Koontz and O’ Donnell, ―The most useful method of classifying
managerial activities is to group them around the functions of planning, organizing, staffing, directing, and
controlling. ― They think that coordination is not a separate function but is the essence of management. Thus, for the
sake of analysis of there management process, we can classify the management functions into the following
categories:-
1. Planning- It is the basic function of management. It deals with chalking out a future course of action & deciding in
advance the most appropriate course of actions for achievement of pre-determined goals. According to KOONTZ,
―Planning is deciding in advance – what to do, when to do & how to do. It bridges the gap from where we are &
where we want to be. A plan is a future course of actions. It is an exercise in problem solving & decision making.

Planning is determination of courses of action to achieve desired goals. Thus, planning is a systematic thinking about
ways & means for accomplishment of pre-determined goals. Planning is necessary to ensure proper utilization of
human & non-human resources. It is all pervasive, it is an intellectual activity and it also helps in avoiding confusion,
uncertainties, risks, wastages etc. Budgeting Planning involves the following steps-
(i) Determination of objectives; (ii) Forecasting; (iii) Formulation of policies and programmes
(iv) Preparation of schedules
Planning pervades at all the levels of organization. But the scope of planning is not the same at each level of
organization. Higher the level of organization, the broader the scope of planning. Planning may be long term and short
term.
2.Organizing - It is the process of bringing together physical, financial and human resources and developing
productive relationship amongst them for achievement of organizational goals. According to Henry Fayol, ―To
organize a business is to provide it with everything useful or its functioning i.e. raw material, tools, capital and
personnel‘s‖. To organize a business involves determining & providing human and non-human resources to the
organizational structure. Organizing as a process involves:
1. Identification of activities.
2. Classification of grouping of activities.
3. Assignment of duties.
4. Delegation of authority and creation of responsibility.
5. Coordinating authority and responsibility relationships.
3.Staffing - It is the function of manning the organization structure and keeping it manned. Staffing has assumed
greater importance in the recent years due to advancement of technology, increase in size of business, complexity of
human behavior etc. The main purpose o staffing is to put right man on right job i.e. square pegs in square holes and
round pegs in round holes. According to Kootz&O‘Donell, ―Managerial function of staffing involves manning the
organization structure through proper and effective selection; appraisal & development of personnel to fill the roles
designed the structure‖. Staffing involves:
1. Manpower Planning (estimating man power in terms of searching, choose the person and giving the right place).
2. Recruitment, selection & placement.
3. Training & development.
4. Remuneration. 5. Performance appraisal. 6. Promotions & transfer.
4. Directing - It is that part of managerial function which actuates the organizational methods to work efficiently for
achievement of organizational purposes. It is considered lifespark of the enterprise which sets it in motion the action
of people because planning, organizing and staffing are the mere preparations for doing the work. Direction is that
inert-personnel aspect of management which deals directly with influencing, guiding, supervising, motivating sub-
ordinate for the achievement of organizational goals. Direction has following elements:
Supervision- implies overseeing the work of subordinates by their superiors. It is the act of watching & directing
work & workers.
Motivation- means inspiring, stimulating or encouraging the sub-ordinates with zeal to work. Positive, negative,
monetary, non-monetary incentives may be used for this purpose.
Leadership- may be defined as a process by which manager guides and influences the work of subordinates in
desired direction.
Communication - is the process of passing information, experience, opinion etc from one person to another. It is a
bridge of understanding.
5. Controlling - It implies measurement of accomplishment against the standards and correction of deviation if any to
ensure achievement of organizational goals. 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.

According to Theo Haimann, ―Controlling is the process of checking whether or not proper progress is being made
towards the objectives and goals and acting if necessary, to correct any deviation‖.
According to Koontz &O‟Donell ―Controlling is the measurement & correction of performance activities of
subordinates in order to make sure that the enterprise objectives and plans desired to obtain them as being
accomplished‖. Therefore controlling has following steps:
a. Establishment of standard performance.
b. Measurement of actual performance.
c. Comparison of actual performance with the standards and finding out deviation if any.
Roles of a Manager -
To meet the many demands of performing their functions, managers assume multiple roles. A role is an organized set
of behaviors. Henry Mintzberg has identified ten roles common to the work of all managers. The ten roles are divided
into three groups: interpersonal, informational, and decisional.
Interpersonal Roles -The three interpersonal roles are primarily concerned with interpersonal relationships.
Figurehead Role - the manager represents the organization in all matters of formality. The top level manager
represents the company legally and socially to those outside of the organization. The supervisor represents the work
group to higher management and higher management to the work group.
Liaison Role - the manger interacts with peers and people outside the organization. The top level manager uses the
liaison role to gain favors and information, while the supervisor uses it to maintain the routine flow of work.
Leader Role - defines the relationships between the manger and employees.
Informational Roles -Thus, the three informational roles are primarily concerned with the information aspects of
managerial work.

Monitor role - the manager receives and collects information.

Disseminator Role - the manager transmits special information into the organization. The top level manager receives
and transmits more information from people outside the organization than the supervisor.
Spokesperson Role - the manager disseminates the organization's information into its environment. Thus, the top
level manager is seen as an industry expert, while the supervisor is seen as a unit or departmental expert.
Decisional Roles–
Entrepreneur role - the manager initiates change.
Disturbance handler role - the manger deals with threats to the organization.
Resource allocator role - the manager chooses where the organization will expend its efforts.
Negotiator role - the manager negotiates on behalf of the organization. The top level manager makes the decisions
about the organization as a whole, while the supervisor makes decisions about his or her particular work unit.
Taylor’s Scientific Management

According to Taylor, ―Scientific Management is an art of knowing exactly what you want your men to do and seeing
that they do it in the best and cheapest way‖. In Taylors view, if a work is analysed scientifically it will be possible to
find one best way to do it. Hence scientific management is a thoughtful, organized, dual approach towards the job of
management against hit or miss or Rule of Thumb.
1 -Separation of planning and doing:
a. Taylor suggests the separation of planning from actual doing.
b. Taylor says that sulrrvisor should done the planning.
c. The workers only concentrate on doing the work

2. Functional foremanship :
a. Taylor developed a theory called ftnctional foremanship based on specialization of
b. In this system eight foreman were involved to direct and control the activities of the
workers.
2. Scientific Selection, Training & Development of Workers

a. There should be scientifically designed procedure for the selection of workers.

b. Physical, mental & other requirement should be specified for each and every job.
c. Workers should be selected & trained to make them fit for the job.
d. The management has to provide opportunities for development of workers having better capabilities.
e. According to Taylor efforts should be made to develop each employee to his greatest level and efficiency &
prosperity.
3. Job analysis:Every job that requires minimum movements and less cost and least time is the best
way of doing the job. This can be determined by motion, time and fatigue study
(a) Time study:
The movement, which takes minimum time, is the one. This helps in firms the fair work for a
(b) Motion study:
Taylor suggested that eliminating wasteful movements and performing only necessary movements.
(c)Fatigue study:
Employees are physical as well as mental fatigue easily. Fatigue study indicates
the amount and frequency of rest required in completing the job. Taylor suggests a fair day' s
work requiring certain movements and periods to complete it.
4. Financial incentives:
a. Financial incentives can motivate the workers to put in their maximum efforts.
b. According to this scheme a worker who completes the normal work gets wages at
higher rate.Who does not complete gets at a lower rate.
c. Taylor has suggested that wages should be based on individual performance and not
on the position which he occupies.
5. Economy:
a. Scientific management enhances profit and economy.
b. The economy and profit can achieved by making the resources more productive as
well as by eliminating the wastages.
Limitations of Scientific Management- Taylor’s scientific management was criticized not only by the workers and
managers but also by the psychologists and the general public. The main grounds of Limitations are given below:
1. The use of the word ‘Scientific’ before ‘Management’ was objected because what is actually meant by scientific
management is nothing but a scientific approach to management.
2. Taylor advocated the concept of functional foremanship to bring about specialization in the organisation. But this is
not feasible in practice as a worker can’t carry out instructions from eight foremen.

3. Scientific management is production-centered as it concentrates too much on the technical aspects of work and
undermines the human factor in industry.
4. Scientific Management ignores social and psychological needs of workers as it treats them as extension of
machines devoid of any feelings and emotions. 5. Trade unionists regarded the principles of scientific management as
the means to exploit labour because the wages of the workers were not increased in direct proportion to productivity
increases.
Fayol’s Principle of Management

Concept of Management: Henry Fayol is considered the father of modern theory of general and industrial
management. He divided general and industrial management into six groups:
1. Technical activities: Production, manufacture, adaptation.
2. Commercial activities: Buying, selling and exchange.
3. Financial activities: Search for and optimum use of capital.
4. Security activities: Protection of property and persons.
5. Accounting activities: Stock-taking, balance sheet, cost, and statistics.
6. Managerial activities: Planning, organisation, command, coordination and control.
These six functions had to be performed to operate successfully any kind of business. He, however, pointed out that
the last function i.e., ability to manage, was the most important for upper levels of managers.
Fayol’s Principles of Management: The principles of management are given below:
1. Division of work: Division of work or specialization alone can give maximum productivity and efficiency. Both
technical and managerial activities can be performed in the best manner only through division of labour and
specialization.
2. Authority and Responsibility: The right to give order is called authority. The obligation to accomplish is called
responsibility. Authority and Responsibility are the two sides of the management coin. They exist together. They are
complementary and mutually interdependent.
3. Discipline: The objectives, rules and regulations, the policies and procedures must be honoured by each member of
an organisation. There must be clear and fair agreement on the rules and objectives, on the policies and procedures.
There must be penalties (punishment) for non-obedience or indiscipline. No organisation can work smoothly without
discipline - preferably voluntary discipline.
4. Unity of Command: In order to avoid any possible confusion and conflict, each member of an organisation must
received orders and instructions only from one superior (boss).
5. Unity of Direction: All members of an organisation must work together to accomplish common objectives.
6. Emphasis on Subordination of Personal Interest to General or Common Interest: This is also called principle
of co-operation. Each shall work for all and all for each. General or common interest must be supreme in any joint
enterprise.

7. Renumeration: Fair pay with non-financial rewards can act as the best incentive or motivator for good
performance. Exploitation of employees in any manner must be eliminated. Sound scheme of remuneration includes
adequate financial and non-financial incentives.
8. Centralization: There must be a good balance between centralization and decentralization of authority and power.
Extreme centralization and decentralization must be avoided.
9. Scalar Chain: The unity of command brings about a chain or hierarchy of command linking all members of the
organisation from the top to the bottom. Scalar denotes steps.
10. Order: Fayol suggested that there is a place for everything. Order or system alone can create a sound organisation
and efficient management.
11. Equity: An organisation consists of a group of people involved in joint effort. Hence, equity (i.e., justice) must be
there. Without equity, we cannot have sustained and adequate joint collaboration.
12. Stability of Tenure: A person needs time to adjust himself with the new work and demonstrate efficiency in due
course. Hence, employees and managers must have job security. Security of income and employment is a pre-
requisite of sound organisation and management.
13. Esprit of Co-operation: Esprit de corps is the foundation of a sound organisation. Union is strength. But unity
demands co-operation. Pride, loyalty and sense of belonging are responsible for good performance.
14. Initiative: Creative thinking and capacity to take initiative can give us sound managerial planning and execution
of predetermined plans.
Limitations of Process of Fayol’s Theory -
1. There is no single classification of managerial functions acceptable to all the functional theorists. There is also lack
of unanimity about the various terms such as management and administration, commanding and directing, etc.
2. The functionalists considered their principles to be universal in nature. But many of the Notes principles have failed
to deliver the desired results in certain situations.
3. The functional theorists did not consider the external environment of business.
4. Fayol overemphasized the intellectual side of management. He felt that management should be formally taught, but
he did not elaborate the nature and contents of management education.
Max Weber’s Bureaucratic Theory
Max Weber (1864-1920), a German sociologist contributed his views on bureaucracy to the management thought. His
primary contribution includes his theory of authority structure and his description of organisations based on the nature
of authority relations within them. Essentially, it was Weber’s contention that there are three types of legitimate
authority which are as follows:
1. Rational-legal authority: Obedience is owed to a legally established position or rank within the hierarchy of a
business, military unit, government, and so on.
2. Traditional authority: People obey a person because he belongs to certain class or occupies a position
traditionally recognized as possessing authority, such as a real family.
3. Charismatic authority: Obedience is based on the followers belief that a person has some special power or appeal.

Weber’s theory ‘bureaucracy’ recognizes rational-legal authority as the most important type in organisations. Under
traditional authority, leaders are not chosen for their competence, an charismatic authority is too emotional and
irrational. A bureaucratic organisation which is based on rational-legal authority display the following features:
1. Division of Work: There is a high degree of division of work at both the operative and administrative levels. This
leads to specialization of work.
2. Hierarchy of Positions: There is a hierarchy of authority in the organisation. Each lower position is under the
control of a higher one. Thus, there is unity of command. The bureaucratic structure is hierarchical in nature. It is like
a pyramid in which quantity of authority increases as one moves up the ladder in the organisation.
3. Rules and Regulations: The rules, regulations and procedures are clearly laid down by the top administration.
Their benefits are as under: (a) They standardize operations and decisions. (b) They serve as receptacles of past
learning. (c) They protect incumbents and ensure equality of treatment.
4. Impersonal Conduct: There is impersonality of relationships among the organisational members. The decisions
are entirely guided by rules and regulations and are totally impersonal. There is no room for emotions and sentiments
in this type of structure.
5. Staffing: The personnel are employed by a contractual relationship between the employee and employer. The
tenure of service is governed by the rules and regulations of the organisation. The employees get a salary every
months which is based on the job they handle and also the length of service.
6. Technical Competence: The bureaucrats are neither elected not inherited, but they are appointed through selection
and the basis of selection is their technical competence. Promotions in bureaucracies are also based on technical
qualifications and performance.
7. Official Records: The administration of a bureaucratic organisation is supported by an efficient system of record-
keeping. The decisions and activities of the organisation are formally recorded and preserved safely for future
reference This is made possible by extensive filing system. The filing system makes the organisation independent of
individuals. The official records serve as the memory of the organisation.
Limitationsof Max Weber’s Bureaucracy Theory - It is not free of flaws. It may lead to many undesirable
consequences such as:
1. The rules may be followed in letter and not in spirit. Thus, instead of providing guidelines, the rules may become
source of inefficiency. The rules may be misused or misinterpreted by the persons concerned with the implementation
of rules. Red tapism and technicalism may follow as a result.
2. Bureaucracy does not consider informal organisation and inter-personal difficulties.
3. Bureaucracy discourages innovation because every employee is supposed to act as per rules and regulations or to
the secondary goals.
4. Goal displacement may take place in a bureaucratic organisation. The bureaucrats may give priority to rules and
regulations or to the secondary goals.
5. The bureaucratic structure is tall consisting of several layers of executives. Thus, communication from the top level
to the lowest level will take a very long time.
The Human Relations School And System Theory

The human relations approach is concerned with recognition of the importance of human element in organisations. It
revealed the importance of social and psychological factors in determining workers’ productivity and satisfaction. It
was instrumental in creating a new image of man and the work place The neo-classical or human relations approach
put stress on inter-personal relations and informal groups at the work-place. The human relationists argued that
achievement of organisational objectives is impossible without the willing cooperation of people and such cooperation
cannot be automatically secured or ordered. It has to be consciously achieved. The neo-classical approach advocated
peopleorientedorganisation structure which will integrate both informal and formal organisations. The basic tenets of
neo-classical theory or human relations approach are as under:
1. The business organisation is a social system.
2. The behaviour of an individual is dominated by the informal group of which he is a member.
3. An individual employee cannot be motivated by economic incentives alone. His social and psychological needs
must be satisfied to improve the level of motivation.
4. In an organisation, it is ultimately cooperative attitude and not the more command which yields result.
5. Management must aim at developing social and leadership skills in addition to technical skills. It must take interest
in the welfare of workers.
6. Morale and productivity go hand in hand in an organisation.
Hawthrone Studies In 1927, a group of researchers led by George Elton Mayo and Fritz J. Roethlisberger at the
Harvard Business School were invited to join in the studies at the Hawthorne Works of Western Electric Company,
Chicago. The experiment lasted upto 1932. Earlier, from 1924 to 1927, the National Research Council made a study
in collaboration with the Western Electric Company to determine the effect of illumination and other conditions upon
workers and their productivity.
1. Illumination Experiment: This experiment was conducted to establish relationship between output and
illumination. The output tended to increase every time as the intensity of light was improved. But the output again
showed an upward trend when the illumination was brought down gradually from the normal level. Thus, it was found
that there is no consistent relationship between output of workers and illumination in the factory. There were some
other factors which influenced the productivity of workers when the intensity of light was increased or decreased.
2. Relay Assembly Room Experiment: In this experiment, a small homogeneous work-group of girls was
constituted. Several new elements were introduced in the work atmosphere of this group. These included shorter
working hours, rest pauses, improved physical conditions, friendly and informal supervision, free social interaction
among group members, etc. Productivity and morale increased considerably during the period of the experiment.
Morale and productivity were maintained even if improvements in working conditions were withdrawn. The
researches concluded that socio-psychological factors such as feeling of being important, recognition, attention,
participation, cohesive workgroup, and non-directive supervision held the key for higher productivity.
3. Bank Wiring Observation Room Experiment: This experiment was conducted to study a group of workers under
conditions which were as close as possible to normal. This group comprised of 14 workers. After the experiment, the
production records of this group were compared with their earlier production records. There were no significant
changes in the two because of the maintenance of ‘normal conditions’. However, existence of informal cliques in the
group and informal production norms were observed by the researchers. The Bank Wiring Experiment led to the
following observations: (a) Each individual was restricting output. (b) The group had its own “unofficial” standards of
performance. (c) Individual output remained fairly constant over a period of time. (d) Departmental records were
distorted due to differences between actual and reported output or between standard and reported working time.

4. Mass Interview Programme: The researchers interviewed a large number of workers with regard to their opinions
on work, working conditions and supervision. Initially, a direct approach was used whereby interviewers asked
questions considered important by managers and researchers. Later, this approach was replaced by an indirect
technique where the interviewer simply listed to what the employees had to say. The findings confirmed the
importance of social factors at work in the total work environment.
Contributions of Human Relations Approach or Hawthorne Studies- The human relationists proposed the
following points as a result of their findings of the Hawthorne experiments:
1. Social System: The organisation in general is a social system composed of numerous interacting parts. The social
system defines individual roles and establishes norms that may differ from those of the formal organisation.
2. Social Environment: The social environment on the job affects the workers and is also affected by them.
Management is not the only variable. Social and psychological factors exercise a great influence on the behaviour of
workers. Therefore, every manager should adopt a sound human approach to all organisational problems.
3. Informal Organisation: The informal organisation does also exist within the frame work of formal organisation
and it affects and is affected by the formal organisation.
4. Group Dynamics: At the workplace, the workers often do not act or react as individuals but as members of
groups. The group determines the norms of behaviour for the group members and thus exercises a powerful influence
on the attitudes and performance of individual workers. The management should deal with workers as members of
work group rather than as individuals.
5. Informal Leader: The informal leader sets and enforces group norms. He helps the workers to function as a social
group and the formal leader is rendered ineffective unless he conforms to the norms of the group.
6. Communication: Two-way communication is necessary because it carries necessary information downward for the
proper functioning of the organisation and transmits upward the feelings and sentiments of people who work in the
organisation. It will help in securing workers’ cooperation and participation in the decision-making process. Workers
tend to be more productive when they are given the opportunity to express their feelings, opinions and grievances.
This also give them psychological satisfaction.
7. Non-economic Rewards: Money is only one of the motivators, but not the sole motivator of human behaviour. The
social and psychological needs of the workers are very strong. So non-economic rewards such as praise, status,
interpersonal relations, etc. play an important role in motivating the employees. Such rewards must be integrated with
the wages and fringe benefits of the employees.
8. Conflicts: There may arise conflicts between the organisational goals and group goals. Conflicts will harm the
interest of workers if they are not handled properly. Conflicts can be resolved through improvement of human
relations in the organisation.
Criticism of Human Relations Approach -The human relations approach has been criticized on the following
grounds:
1. Lack of Scientific Validity: The human relationists drew conclusions from Hawthorne studies. These conclusions
are based on clinical insight rather than on scientific evidence.
2. Over-emphasis on Group: The human relations approach over-emphasises the group and group decision-making.
3. Over-stretching of Human Relations: It is assumed that all organisational problems are amenable to solutions
through human relations.

4. Limited Focus on Work: The human relations approach lacks adequate focus on work.
5. Over-stress on Socio-psychological Factors: The human relations approach undermines the role of economic
incentives in motivation and gives excessive stress on social and psychological factors.
6. Conflict between Organisational and Individual Goals: It view conflict between the goal of the organisation and
those of individuals as destructive.
Systems Approach - The systems approach is based on the generalization that an organisation is a system and its
components are inter-related and inter-dependent. “A system is composed of related and dependent elements which,
when in interactions, form a unitary whole. It is simply an assemblage or combination of things or parts, forming a
complex whole. Its important feature is that it is composed of hierarchy of sub-systems. The world as a whole can be
considered to be a systems in which various national economies are sub-system. In turn, each national economy is
composed of its various industries, each industry is composed of firms, and of course, a firm can be considered a
system composed of sub-systems such as production, marketing, finance, accounting and so on”. Thus, each system
may comprise several sub-systems and in turn, each sub-system be further composed of sub-systems.
An organisation as a system has the following characteristics:
1. A system is goal-oriented.
2. A system consists of several sub-systems which are interdependent and inter-related.
3. A system is engaged in processing or transformation of inputs into outputs.
4. An organisation is an open and dynamic system. It has continuous interface with the external environment as it gets
inputs from the environment and also supplies its output to the environment. It is sensitive to its environment such as
government policies, competition in the market, technological advancement, tastes of people, etc.
5. A system has a boundary which separates it from other systems.
Open System Concept A system may be closed or open. A closed system is self-dependent and does not have any
interaction with the external environment. Physical and mechanical systems are closed systems. A closed system
concentrates completely on internal relationships, i.e. interaction between subsystems only. Because of lack of
interaction with environment, it is unable to monitor changes occurring in the external environment. On the other
hand, an open system has active interface with the environment through the input-output process as shown in figure. It
can respond to the changes in the environment through the feedback mechanism. That is why modern authors consider
organisation as an open system.
An open system obtains inputs, such as raw materials, layout, capital, technology and information, from the
environment. Operations are performed upon the inputs and combined with the managerial process to produce
desirable outputs which are supplied to the environment (i.e., customers). Through a feedback process, the
environment’s evaluation of the output becomes part of the inputs for further organisational activity. If the
environment is satisfied with the output, business operations continue. If it is not, changes are initiated within the
business systems so that requirements of the customers are fully met. This is how an open system responds to the
forces of change in the environment.

Contingency Approach
The contingency theory stresses that there is no one best style of leadership which will suit every situation. The
effectiveness of a particular leadership style will vary from situation to situation. For instance, participative leadership
may be more effective in an organisation employing professional personnel in a high technology operation in an
atmosphere of nonmaterialistic orientation and free expression. On the other hand, authoritarian leadership would be
more effective in an organisation which employs unskilled personnel on routine tasks in social values oriented
towards materialism and obedience to authority.
 Contingency approach guides the managers to be adaptive to environmental variables. In other words, the
managers should develop situational sensitivity and practical selectivity.
 Contingency approach suggests the managers to condone environmental contingencies while choosing their
style and techniques.
 Contingency approach is an improvement over systems approach. It not only examines the relationships of
sub-systems of the organisation, but also the relationship between the organisation and its environment.
 It identifies the nature of inter-dependencies and the impact of environment of organisational design and
managerial style
 Each organisation is to be studied as a unique entity.
 It follows an action-oriented approach and so is pragmatic. It is based on empirical studies.
 It rejects the blind application of the classical principles of management.
 The impact of environment on the organisation structure and managerial style is the major concern of
contingency approach.
Developing Excellent Managers

An effective manager must possess certain skills in the areas of planning, organising, leading, controlling and
decision-making in order to process activities that are presented to him from time to time.
1. Technical skill: It is the ability to use the tools, procedures or techniques of a specialised field. Technical skill is
considered to be very crucial to the effectiveness of lower level managers because they are in direct contact with
employees performing work activities within the firm. For instance, the success of a drilling supervisor of an oil rig
depends a great deal on his technical knowledge of drilling. However, as one moves to higher levels of management

within the organisation, the importance of technical skill diminishes because the manager has less direct contact with
day-to-day problems and activities. Thus, the president of an oil company does not need to know much of the
technical details of drilling for oil or how to refine it.
2. Human skill: It is the ability to work with, understand and motivate other people. This skill is essential at every
level of management within the organisation, but it is particularly important at lower levels of management where the
supervisor has frequent contact with operating personnel.
3. Conceptual skill: It is the mental ability to coordinate and integrate the organisation’s interests and activities. It
refers to the ability to see the ‘big picture’, to understand how a change in any given part can affect the whole
organisation.
4. Design skill: Koontz and Weihrich added one more skill to the above list. Design skill is the ability to solve
problems in ways that will help the organisation. At higher levels, managers should be able to do more than see a
problem, to design a workable solution to a problem in the light of realities they face. If managers merely see a
problem and become problem watchers they will fail.
5. Institution building skills: According to Prof. Pareek (1981), top level executives perform eight key roles while
building institutions of lasting value, as indicated below:
(a) Identity creating role: Top level executives must create an identity for their organisations in the market place. Such
an impact can be created by serving employees through excellent welfare measures, developing enviable marketing
skills or fostering technological innovations. In short, they must ‘carve out a niche’ for themselves in the market
place.
(b) Enabling role: Top level executives must develop their resources (men, materials, equipment and other facilities)
in the service of an organisation. A good work atmosphere must be created where employees would feel like
contributing their best to the organisation.
(c) Synergising role: Synergy means that the whole is greater than the sum of the parts. In organisational terms,
synergy means that as separate departments within an organisation cooperate and interact, they become more
productive than if each had acted in isolation.
The qualities of an excellent manager are-
1. Demonstrates integrity - A manager should walk the talk. The old saying, "Lead by example" is the first quality
that makes a manager a stand out.
2. Deals honestly and diplomatically - A manager, who owns their mistakes, deals openly, and honestly with others,
earns the respect of those they are trying to lead.
3. Demonstrates flexibility - A manager who is responsive to the needs of the business AND the needs of
employees, is able to keep his team on target and yet achieve the goals of the business.
4. Shows commitment and reliability - A manager who delivers their promises shows their team that they are
reliable and promotes trust.
5. Listens effectively - A manager who 'seeks first to understand, then to be understood' (Dr Steven Covey) is a
manager who will always have their finger on the pulse of the business.
6. A good negotiator - A manager who comes to the table prepared to give a little that the outcome is a positive one
for everyone, will not only earn the respect of his employees but be guaranteed of the opportunity for further
negotiations in the future.

7. A thorough planner - 'If you fail to plan, you plan to fail.' This saying is especially true for managing. A manager
is a coach to their team and the team are looking to them for the game plan
8. Is fair - A manager who doesn't take sides, show favoritism or victimize those they are supervising, will earn their
trust and in turn, will have more personal power to influence their team for good.
9. Knows how to have fun and has a good sense of humor - A manager who is able to promote a safe and happy
work environment where appropriate fun is embraced, will ensure the retention of staff.
10. Seeks to understand their workers - A manager who is able to accurately assess the skills, abilities and
personalities of their work team, will be able to develop individual managers to maximize their effectiveness and help
them reach their potential, whilst focusing their efforts on the goal.
Important Questions
Define Management. Discuss the Characteristics or Nature of Management.

Explain how Management is a combination of Science and Art.
Explain the various functions and Responsibilities of a Manager.
Explain The Taylor’s Scientific Management Theory.
Write a short note on Fayol’s Principles of Management with suitable examples.
What is the Bureaucratic theory given by Max Weber. Discuss advantages and disadvantages.
Discuss Human Relations School of Management Thought and Hawthorne Studies.
Discuss the Contingency Theory Of Management.
What are the Skills and Qualities of an excellent Manager.
Case Studies
1)You are working as a manager in a steam company xyz ltd. Due to the financial problem in the organization ,
company is unable to pay the salary from last two month .Due to this crises employees are in major grievance, leaving
the job because of insecurity . This type of suitation is facing by the company first time so there is no historic data
available to solve the major problem. Employees are the asset for any organization , if grievance is not going to
handle properly then is will going to harm the organization . As manager s work is also to solve the grievance in the
organization answer the following
1. What steps should the manager take in this situation .
2. “Here a manager becomes leader”. Comment on this statement.
3. What are the qualities of a manager?

MBA I SEM FUNDAMENTALS OF MANAGEMENT UNIT - II
Planning
A plan is a forecast for accomplishment. It is a predetermined course of action. It is today’s projection for tomorrow’s
activity. In other words, to plan is to produce a scheme for future action, to bring about specified results at a specified
cost, in a specified period of time. Management thinkers have defined the term, basically, in two ways:
1. Based on futurity: “Planning is a trap laid down to capture the future” (Allen). “Planning is deciding in advance
what is to be done in future” (Koontz). “Planning is informed anticipation of future” (Haimann). “Planning is
‘anticipatory’ decision-making” (R.L. Ackoff).
2. As a thinking function: “Planning is a thinking process, an organised foresight, a vision based on fact and
experience that is required for intelligent action” (Alford and Beatty)
“Planning is deciding in advance what to do, how to do it, when to do it and who is to do it.” – Koontz and O’Donnell
Characteristics of Planning - Planning has a number of characteristics:
1. Planning is goal-oriented: All plans arise from objectives. Objectives provide the basic guidelines for planning
activities. Planning has no meaning unless it contributes in some positive manner to the achievement of predetermined
goals.
2. Planning is a primary function: Planning is the foundation of management. It is a parent exercise in management
process. It is a preface to business activities.
3. Planning is all-pervasive: Planning is a function of all managers. It is needed and practised at all managerial
levels. Planning is inherent in everything a manager does. Managers have to plan before launching a new business.
4. Planning is a mental exercise: Planning is a mental process involving imagination, foresight and sound judgment.
Planning compels managers to abandon guesswork and wishful thinking.
5. Planning is a continuous process: Planning is continuous. It is a never-ending activity. Once plans for a specific
period are prepared, they are translated into action.
6. Planning involves choice: Planning essentially involves choice among various alternative courses of action.
7. Planning is forward looking: Planning means looking ahead and preparing for the future. It means peeping into
the future, analysing it and preparing for it.
8. Planning is flexible: Planning is based on a forecast of future events. Since future is uncertain, plans should be
reasonably flexible.
9. Planning is an integrated process: Plans are structured in a logical way wherein every lower-level plan serves as a
means to accomplish higher level plans. They are highly interdependent and mutually supportive.
10. Planning includes efficiency and effectiveness dimensions: Plans aim at deploying resources economically and
efficiently. They also try to accomplish what has been actually targeted. The effectiveness of plans is usually
dependent on how much it can contribute to the predetermined objectives.
Significance Of Planning - In a complex business situation, planning helps managers meet the challenges posed by
the environment, while at the same time minimizing the risks associated with them. Planning is a prerequisite not only
for achieving success but also for surviving in a complex and competitive world.

Planning is very important in all types of organizations. It forces organizations to look ahead and decide their future
course of action so as to improve their profitability. Organizations that plan in advance are more likely to succeed than
those which fail to plan for the future. Planning is the first step in the management process. It ensures that the
employees of an organization carry out their work in a systematic and methodical manner. It also helps coordinate and
control various tasks and makes sure that resources are used optimally.
1. Focuses Attention on Objectives
2. Offsets Uncertainty and Risk
3. Provides Sense of Direction
4. Provides Guidelines for Decision-making
5. Increases Organizational Effectiveness
6. Provides Efficiency in Operations
7. Ensures Better Coordination
8. Facilitates Control
9. Encourages Innovation and Creativity 10. Facilitates Delegation
The Planning Process
Planning is a vital managerial function. It is intellectually demanding. It requires a lot of time and effort on the part of
planners. They must adopt a systematic approach so as to avoid pitfalls, errors and costly mistakes which may upset
the whole business later on. Such a systematic approach may consist of the following steps:
1. Establishing objectives: The first step in the planning process is to identify the goals of the organisation. The
internal as well as external conditions affecting the organisation must be thoroughly examined before setting
objectives. The objectives so derived must clearly indicate what is to be achieved, where action should take place,
who is to perform it, how it is to be undertaken and when is it to be accomplished. In other words, managers must
provide clear guidelines for organisational efforts, so that activities can be kept on the right track.
2. Developing premises: After setting objectives, it is necessary to outline planning premises. Premises are
assumptions about the environment in which plans are made and implemented. Thus, assumptions about the likely
impact of important environmental factors such as market demand for goods, cost of raw materials, technology to be
used, population growth, government policy, etc. on the future plans are made. The demand for fuel efficient vehicles
in the late 1980s has compelled virtually all automobile manufacturers in India to go in search of collaborative
agreements with foreign manufacturers from Japan, Germany, USA, etc. Plans should be formulated by the
management, keeping the constraints imposed by internal as well as external conditions in mind.
3. Evaluating alternatives and selection: After establishing the objectives and planning premises, the alternative
courses of action have to be considered. Liberalisation of imports and the use of high technology in recent times has
encouraged manufacturers to produce colour television sets, electronic sets, electronic equipments, videos, computers,
fuelefficient vehicles, etc. Thus, changes in government policy, technology, competition, etc. pose several alternatives
before manufacturers, from time to time, regarding the product they should manufacture. Such alternatives have to be
carefully evaluated against factors like costs, associated risks involved, benefits likely to arise, availability of spare
capacity, etc. The pros and cons as well as the consequences of each alternative course of action must be examined
thoroughly before a choice is made.

4. Formulating derivative plans: After selecting the best course of action, the management has to formulate the
secondary plans to support the basic plan. The plans derived for various departments, units, activities, etc., in a
detailed manner are known as ‘derivative plans’. For example, the basic production plan requires a number of things
such as availability of plant and machinery, training of employees, provision of adequate finance, etc. To ensure the
success of a basic plan, the derivative plans must indicate the time schedule and sequence of performing various tasks.
5. Securing cooperation and participation: The successful implementation of a plan depends, to a large extent, on
the whole-hearted cooperation of the employees. In view of this, management should involve operations people in the
planning activities. Suggestions, complaints and criticisms from operating personnel help management rectify the
defects in plans and set things right in the beginning itself. Involvement of subordinates in planning has the unique
advantage of getting a practical view of those closer to the scene of operations. According to Koontz, ‘plans have to
be set in an atmosphere of close participation and a high degree of concurrence’. Participation enables employees to
give their best to plans. They are also motivated to carry out the plan to the best of their ability.
6. Providing for follow-up: Plans have to be reviewed continually to ensure their relevance and effectiveness. In the
course of implementing plans, certain facts may come to light that were not even thought of earlier. In the light of
these changed conditions, plans have to be revised. Without such a regular follow-up, plans may become out-of-date
and useless. Moreover, such a step ensures the implementation plans along right lines. Management can notice
shortcomings in time and initiate suitable remedial steps. A continuous evaluation of plans also helps to develop
sound plans in future, avoiding mistakes that have surfaced while implementing the previous plans.
Principles of Planning
Koontz has given some principles that make a plan successful.
1. Principle of contribution to objectives: Every plan should help in the achievement of organisational objectives.
2. Principle of primacy of planning: Planning should precede all the other functions of a managerial process.
3. Principle of pervasiveness of planning: Planning should be pervasive in nature otherwise the functionaries might
just not stick to the plan.
4. Principle of flexibility: By flexibility of a plan is meant its ability to switch gears, change direction to adapt to
changing situations without incurring unnecessary costs.
5. Principle of periodicity: Plans should be integrated and interconnected in such a way as to achieve the stated
objectives well in time.
6. Principle of planning premises: Every plan should be based on carefully considered assumptions, known as
planning premises.
7. Principle of limiting factor: While choosing an appropriate course of action among different alternatives, the
limiting or critical factor (such as money, manpower, machinery, materials, management) should be recoginised and
given due weightage. When ignored, the critical factor would seriously impact the process of planning and make it
impossible to achieve goals.
Types of Planning
Plans commit individuals, departments, organisations, and the resources of each to specific actions for the future.
Effectively designed organisational goals fit into a hierarchy so that the achievement of goals at low levels permits the
attainment of high-level goals. This process is called a means-ends chain because low-level goals lead to
accomplishment of high-level goals. Three major types of plans can help managers achieve their organisation’s goals:
strategic, tactical, and operational. Operational plans lead to the achievement of tactical plans, which in turn lead to

the attainment of strategic plans. In addition to these three types of plans, managers should also develop a contingency
plan in case their original plans fail.
1. Operational plans: The specific results expected from departments, work groups, and individuals are the
operational goals. These goals are precise and measurable.
Examples: (a) Process 150 sales applications each week
(b) Publish 20 books this quarter.
Thus an operational plan is one that a manager uses to accomplish his or her job responsibilities. Supervisors, team
leaders, and facilitators develop operational plans to support tactical plans. Operational plans can be a single-use plan
or an ongoing plan
a) Single-use plans: These plans apply to activities that do not recur or repeat. A one time occurrence, such as a
special sales program, is a single-use plan because it deals with the who, what, where, how, and how much of an
activity. Example: A budget: Because it predicts sources and amounts of income and how much they are used for a
specific project.
(b) Continuing or ongoing plans: These are usually made once and retain their value over a period of years while
undergoing periodic revisions and updates.
2. Tactical plans: A tactical plan is concerned with what the lower level units within each division must do, how they
must do it, and who is in charge at each level. Tactics are the means needed to activate a strategy and make it work.
Tactical plans are concerned with shorter time frames and narrower scopes than are strategic plans. These plans
usually span one year or less because they are considered short-term goals. Long-term goals, on the other hand, can
take several years or more to accomplish. Normally, it is the middle manager’s responsibility to take the broad
strategic plan and identify specific tactical actions.
3. Strategic plans: A strategic plan is an outline of steps designed with the goals of the entire organisation as a whole
in mind, rather than with the goals of specific divisions or departments. Strategic planning begins with an
organisation’s mission. Strategic plans look ahead over the next two, three, five, or even more years to move the
organisation from where it currently is to where it wants to be. Requiring multilevel involvement, these plans demand
harmony among all levels of management within the organisation. Top-level management develops the directional
objectives for the entire organisation, while lower levels of management develop compatible objectives and plans to
achieve them. Top management’s strategic plan for the entire organisation becomes the framework and sets
dimensions for the lower level planning.
4. Contingency plans: Intelligent and successful management depends upon a constant pursuit of adaptation,
flexibility, and mastery of changing conditions. Strong management requires a “keeping all options open” approach at
all times - that’s where contingency planning comes in. Contingency planning involves identifying alternative courses
of action that can be implemented if and when the original plan proves inadequate because of changing circumstances.
Keep in mind that events beyond a manager’s control may cause even the most carefully prepared alternative future
scenarios to go awry. Unexpected problems and events frequently occur. When they do, managers may need to
change their plans. Anticipating change during the planning process is best in case things don’t go as expected.
Management can then develop alternatives to the existing plan and ready them for use when and if circumstances
make these alternatives appropriate.

Advantages & Limitations of Planning

Advantages of Planning -
1. Planning facilitates management by objectives.
a. Planning begins with determination of objectives.
b. It highlights the purposes for which various activities are to be undertaken.
c. In fact, it makes objectives more clear and specific.
d. Planning helps in focusing the attention of employees on the objectives or goals of enterprise.
e. Without planning an organization has no guide.
f. Planning compels manager to prepare a Blue-print of the courses of action to be followed for accomplishment of
objectives.
g. Therefore, planning brings order and rationality into the organization. h.
2. Planning minimizes uncertainties.
a. Business is full of uncertainties.
b. There are risks of various types due to uncertainties.
c. Planning helps in reducing uncertainties of future as it involves anticipation of future events.
d. Although future cannot be predicted with cent percent accuracy but planning helps management to anticipate future
and prepare for risks by necessary provisions to meet unexpected turn of events.
e. Therefore with the help of planning, uncertainties can be forecasted which helps in preparing standbys as a result,
uncertainties are minimized to a great extent.
3. Planning facilitates co-ordination.
a. Planning revolves around organizational goals.
b. All activities are directed towards common goals.
c. There is an integrated effort throughout the enterprise in various departments and groups.
d. It avoids duplication of efforts. In other words, it leads to better co-ordination.
e. It helps in finding out problems of work performance and aims at rectifying the same.
4. Planning improves employee’s moral.
a. Planning creates an atmosphere of order and discipline in organization.
b. Employees know in advance what is expected of them and therefore conformity can be achieved easily.
c. This encourages employees to show their best and also earn reward for the same.
d. Planning creates a healthy attitude towards work environment which helps in boosting employees moral and
efficiency.

5. Planning helps in achieving economies.

a. Effective planning secures economy since it leads to orderly allocation ofresources to various operations.
b. It also facilitates optimum utilization of resources which brings economy in operations.
c. It also avoids wastage of resources by selecting most appropriate use that will contribute to the objective of
enterprise. For example, raw materials can be purchased in bulk and transportation cost can be minimized. At the
same time it ensures regular supply for the production department, that is, overall efficiency.
6. Planning facilitates controlling.
a. Planning facilitates existence of certain planned goals and standard of performance.
b. It provides basis of controlling.
c. We cannot think of an effective system of controlling without existence of well thought out plans.
d. Planning provides pre-determined goals against which actual performance is compared.
e. In fact, planning and controlling are the two sides of a same coin. If planning is root, controlling is the fruit.
7. Planning provides competitive edge.
a. Planning provides competitive edge to the enterprise over the others which do not have effective planning. This is
because of the fact that planning may involve changing in work methods, quality, quantity designs, extension of work,
redefining of goals, etc.
b. With the help of forecasting not only the enterprise secures its future but at the same time it is able to estimate the
future motives of it‘s competitor which helps in facing future challenges.
c. Therefore, planning leads to best utilization of possible resources, improves quality of production and thus the
competitive strength of the enterprise is improved.
8. Planning encourages innovations.
a. In the process of planning, managers have the opportunities of suggesting ways and means of improving
performance.
b. Planning is basically a decision making function which involves creative thinking and imagination that ultimately
leads to innovation of methods and operations for growth and prosperity of the enterprise.
Disadvantage of Planning -
Internal Limitations There are several limitations of planning. Some of them are inherit in the process of planning like
rigidity and other arise due to shortcoming of the techniques of planning and in the planners themselves.
1. Rigidity
a. Planning has tendency to make administration inflexible.
b. Planning implies prior determination of policies, procedures and programmes and a strict adherence to them in all
circumstances.
c. There is no scope for individual freedom.

d. The development of employees is highly doubted because of which management might have faced lot of difficulties
in future.
e. Planning therefore introduces inelasticity and discourages individual initiative and experimentation.
2. Misdirected Planning
a. Planning may be used to serve individual interests rather than the interest of the enterprise.
b. Attempts can be made to influence setting of objectives, formulation of plans and programmes to suit ones own
requirement rather than that of whole organization.
c. Machinery of planning can never be freed of bias. Every planner has his own likes, dislikes, preferences, attitudes
and interests which is reflected in planning.
3. Time consuming
a. Planning is a time consuming process because it involves collection of information, its analysis and interpretation
thereof. This entire process takes a lot of time specially where there are a number of alternatives available.
b. Therefore planning is not suitable during emergency or crisis when quick decisions are required.
4. Probability in planning
a. Planning is based on forecasts which are mere estimates about future.
b. These estimates may prove to be inexact due to the uncertainty of future.
c. Any change in the anticipated situation may render plans ineffective.
d. Plans do not always reflect real situations inspite of the sophisticated techniques of forecasting because future is
unpredictable.
e. Thus, excessive reliance on plans may prove to be fatal.
5. False sense of security

a. Elaborate planning may create a false sense of security to the effect that everything is taken for granted.
b. Managers assume that as long as they work as per plans, it is satisfactory.
c. Therefore they fail to take up timely actions and an opportunity is lost.
d. Employees are more concerned about fulfillment of plan performance rather than any kind of change.
6. Expensive
a. Collection, analysis and evaluation of different information, facts and alternatives involves a lot of expense in terms
of time, effort and money
b. Accoring to Koontz and O‘Donell,‘ Expenses on planning should never exceed the estimated benefits from
planning.
External Limitations of Planning–
1. Political Climate- Change of government from Congress to some other political party, etc.

2. Labour Union- Strikes, lockouts, agitations.

3. Technological changes- Modern techniques and equipments, computerization.
4. Policies of competitors- Eg. Policies of Coca Cola and Pepsi.
5. Natural Calamities- Earthquakes and floods.
6. Changes in demand and prices- Change in fashion, change in tastes, change in income level, demand falls, price
falls, etc.
Important Questions
Q.1 Write a short note on Planning.
Q.2 Planning is a function of every manager. Explain.
Q.3 What are the steps in Planning Process?
Q.4 Describe the various Principles of Planning.
Q.5 What are the different types of Plans. Explain briefly.
Q.6 What are the different Advantages and Disadvantages of Planning?
Case Studies
1) The management hired new employee for there newly opened consultancy firm . All the employees are new, as
expected they do not know each very well. Unfortunately , the hiring process of the company is not by batch.
Sometimes the company will only chose one among the applicant that will pass the examination . In this the sole
applicant as always need to adjust with her co-employee. During this period , she is not assured if she is playing her
role in developing teamwork in the company . Let us take that for granted the work or transaction happen only in
computer. In this working environment , developing teamwork is less possible . All the workers are busy meeting
deadlines and don‘t have to relax . Because of the suitations , workers are not given the time to know each other very
well, although they have little communication throught computer.
Solve the case study by SWOT Analysis Method.

MBA I SEM FUNDAMENTALS OF MANAGEMENT UNIT - III
Objectives and Its Types

Organizational objectives are strategically set objectives that outline expected results and guide employees’ efforts.
3 types of organizational objectives are strategic, tactical, and operational objectives. Purposes of organizational
objectives are to provide direction to employees of the organization.Strategic objectives are set by and for top
management of the organization. Tactical objectives are for middle managers to focus on the actions necessary to
achieve objectives. Operational objectives are for lower-level managers to tackle shorter-term issues.
Objectives are critical to organizational effectiveness as they serve as an objective for the employees and they work to
achieve it.Organizational objectives differ in three different criteria; level, area, and time frame. Let’s look at these
criteria’s of objectives :-
Level - Organizational goal differs in the level of the organization structure or hierarchy.
The organization structure consist of there part; top-level, mid-level and lower-level or first-line managers.
For each level, the objectives should be different and more specific; suitable for the level.
“Increase profit and market share” is a suitable goal for top-level managers but not for the lower-level managers.
“Increase output by 12%” is a suitable goal for lower-level managers.
Area - Organizations set different objectives for different areas more specifically different departments.
An organization may have many departments within its structure; marketing, finance, operations, accounts, human
resource, legal and more.
Each department should have a different goal; which specifies the departments about their task but is in line with the
whole organization’s goal.
Time Frame - Organizations have many objectives across different time frames. “Open 500 branch across the
country” is a suitable long-term goal for a bank; “LC issue should increase by 50% within six months” short-term
goal for a bank.
The difference in objectives required because of the organization’s level, area or department, and time frame.
Types of Organizational Objectives
Based on 3 three criteria’s objectives can be categorized into three types.
3 types of organizational objectives are;
1. Strategic Objectives.
2. Tactical Objectives.
3. Operational Objectives.
Strategic Objectives - Strategic objectives are objectives set by and for top management of the organization. These
objectives are made by focusing on broad general issues.
Strategic objectives or strategies are usually long-term and from this goal, other objectives are made and set for
different time-frames and areas.
Tactical Objectives - Tactical objectives are set for middle managers. These objectives focus on how to
operationalize actions necessary to achieve the strategic objectives.

Middle managers of various departments are usually responsible for their attainment.
Tactical objectives are set by the middle managers, but often top-managers set tactical objectives for the middle
managers.
Ad by Valueimpression
Operational Objectives - Operational objectives are set by and for lower-level managers. Operational objectives are
usually made to tackle shorter-term issues associated with the tactical objectives and lower-managers are responsible
for their attainment.
The 3 levels of objectives within an organization form a hierarchy of objectives, with lower-level objectives forming a
means-end chain with the next level of objectives.
Importance and purpose of organizational objectives

Organizational objectives, often used interchangeably, are the ends toward which activity is aimed. Objectives are the
desired outcomes for individuals, groups, or entire organizations.
They represent not only the endpoint of planning but also the end toward which all other managerial functions are
aimed.
Objectives are set to a particular time and thus the same objective is not repeated year after year, month after month or
day after day.
Objectives are critical to organizational effectiveness as they serve several purposes.
Organizations have several different kinds of objectives, all of which must be appropriately managed.
4 reasons why objectives are important:-
1. Objectives Provide Guidance and Direction.
2. Objectives Intensely Planning and Actions
3. Objectives Motivate.
4. Objectives Help in Control.
These are explained below;
Objectives Provide Guidance and Direction - Objectives provide guidance and a unified direction for people in the
organization.
They show the employees where the organization is going and why getting it is important.
Objectives simply define what the organization wants.
Objectives Intensely Planning and Actions - Goal-setting does intensely affect aspects of planning. Effective goal
setting facilitates good planning and good planning facilitates future goal setting
.Objectives are desired outcomes for organizations and plans are the best-perceived ways to reach them. So a proper
goal helps set a proper plan.

Objectives Motivate - Objectives also can serve as a motivational source for employees. Objectives should be
specific and moderately difficult can inspire people to work harder, especially if attaining the goal is going to result in
rewards.
For objectives to be a tool of motivation; the organization requires an effective reward system and a friendly work
environment.
Objectives Help in Control - Objectives act as a mechanism for control and evaluation. Performance can be
measured and evaluated in the future in terms of how successfully today’s objectives are accomplished.
Objectives can serve these purposes and much more; if people in charge of setting objectives can overcome the
barriers and set them properly and effectively.
Setting Objectives
Setting objectives helps a company to progress and plan for the future. Objective setting is the planning and research
management does in order to increase employee skills and assess and improve performance. Understanding objective
setting can help you improve your company's capability, from the individual to the departmental level. In this article,
we explain what objective setting is, the types of objectives and how you can implement objective setting into your
company.
Objective setting is when an organization plans goals and how to meet them on a realistic timescale. Objectives help
define what each department's and employee's responsibilities are within the organization. Setting objectives is part of
establishing expectations for employees and managing them, which is also called the performance management
process.
How to set Objectives:
In order to set objectives for your department, consider the following steps:
1.Simplify your goals:
While your achievements may be complex, try to simplify your goals. Consider keeping your goal-planning within a
specified time margin. When explaining goals to the team, organize your goal in such a way that each team member
clearly understands their part in the goal.
2.Ensure your goals are Specific:
When setting objectives, consider alternatives for reaching your desired results. Once you've realized the best way
you can reach these results, illustrate a detailed plan on how to achieve the objective. Concise objectives can help a
team understand how they can complete their goals.
3.Explain your objectives to the right members:
When explaining your objectives to employees, consider explaining only to those who need to understand the
objective. Each employee involved in your plan can understand their part of the plan rather than the plan as a whole.
Those higher in management may benefit from higher-level objective plans, while other employees may need to only
understand what policies they may change and how that change can benefit the entire company.
4. Ensure your goal is measurable :
Employees easily understand goals that are measurable. Consider making sure your goal is a measurable number
instead of a general objective. Employees can perceive "We can make $1000 more." a little better than "We can
increase profit." Measuring your goals also helps you understand when you have reached them.

5. Divide your goals into smaller goals :

When working with large goals, it may help your team to divide these goals into smaller goals. Goals with many steps
help your employees understand the goal and celebrate their progress toward it. A department may feel more satisfied
by completing many small goals over a few weeks rather than a large goal after many small goals over a few weeks
rather than a large goal after many months.
6.Recognize every step of process :
A department may appreciate and celebrate finished deadlines. Not only can this raise employee morale, but it may
also strengthen your department's communication efforts in the future.
7. Motivate your employess toward realistic goals:
When creating your objectives, try making them realistic and attainable within your company's context. Some
management leaders prefer to employ stretch goals when they set objectives. Stretch goals are goals that exist beyond
the initial goal. For example, if your goal was to make $500, your stretch goal could be to make $555. Stretch goals
can help motivate a team that works well to complete a goal. Some managers provide monetary or vacation-based
rewards to the employee with the most progress towards a goal.
Management By Objectives
Management by Objectives (MBO) is a strategic approach to enhance the performance of an organization. It is a
process where the goals of the organization are defined and conveyed by the management to the members of
the organization with the intention to achieve each objective.
An important step in the MBO approach is the monitoring and evaluation of the performance and progress of each
employee against the established objectives. Ideally, if the employees themselves are involved in setting goals and
deciding their course of action, they are more likely to fulfill their obligations.
Steps in Management by Objectives Process -

1. Define organization goals - Setting objectives is not only critical to the success of any company, but it also serves
a variety of purposes. It needs to include several different types of managers in setting goals. The objectives set by the
supervisors are provisional, based on an interpretation and evaluation of what the company can and should achieve
within a specified time.
2. Define employee objectives - Once the employees are briefed about the general objectives, plan, and the strategies
to follow, the managers can start working with their subordinates on establishing their personal objectives. This will
be a one-on-one discussion where the subordinates will let the managers know about their targets and which goals
they can accomplish within a specific time and with what resources. They can then share some tentative thoughts
about which goals the organization or department can find feasible.
3. Continuous monitoring performance and progress - Though the management by objectives approach is
necessary for increasing the effectiveness of managers, it is equally essential for monitoring the performance and
progress of each employee in the organization.
4. Performance evaluation - Within the MBO framework, the performance review is achieved by the participation of
the managers concerned.

5. Providing feedback - In the management by objectives approach, the most essential step is the
continuous feedback on the results and objectives, as it enables the employees to track and make corrections to their
actions. The ongoing feedback is complemented by frequent formal evaluation meetings in which superiors and
subordinates may discuss progress towards objectives, leading to more feedback.
6. Performance appraisal - Performance reviews are a routine review of the success of employees within MBO
organizations.
Benefits & Weaknesses of MBO

Benefits of Management by Objectives
 Management by objectives helps employees appreciate their on-the-job roles and responsibilities.
 The Key Result Areas (KRAs) planned are specific to each employee, depending on their interest, educational
qualification, and specialization.
 The MBO approach usually results in better teamwork and communication.
 It provides the employees with a clear understanding of what is expected of them. The supervisors set goals
for every member of the team, and every employee is provided with a list of unique tasks.
 Every employee is assigned unique goals. Hence, each employee feels indispensable to the organization and
eventually develops a sense of loyalty to the organization.
 Managers help ensure that subordinates’ goals are related to the objectives of the organization.
Limitations of Management by Objectives

 Management by objectives often ignores the organization’s existing ethos and working conditions.
 More emphasis is given on goals and targets. The managers put constant pressure on the employees to
accomplish their goals and forget about the use of MBO for involvement, willingness to contribute, and growth of
management.
 The managers sometimes over-emphasize the target setting, as compared to operational issues, as a generator
of success.
 The MBO approach does not emphasize the significance of the context wherein the goals are set. The context
encompasses everything from resource availability and efficiency to relative buy-in from the leadership
and stakeholders.
 Finally, there is a tendency for many managers to see management by objectives as a total system that can
handle all management issues once installed. The overdependence may impose problems on the MBO system that it is
not prepared to tackle, and that frustrates any potentially positive effects on the issues it is supposed to deal with.
Important Questions
Q.1 Explain the meaning of Objectives and write about the different types of Objectives.
Q.2 Write a short note on MBO – Management By Objectives.
Q.3 Discuss the advantages and disadvantages of MBO.

MBA I SEM FUNDAMENTALS OF MANAGEMENT UNIT - V
ORGANIZING
Nature & Purpose of Organizing

Organizing is the function of management which follows planning. It is a function in which the synchronization and
combination of human, physical and financial resources takes place. All the three resources are important to get
results. Therefore, organizational function helps in achievement of results which in fact is important for the
functioning of a concern. According to Chester Barnard, ―Organizing is a function by which the concern is able to
define the role positions, the jobs related and the coordination between authority and responsibility. Hence, a
manager always has to organize in order to get results.
A manager performs organizing function with the help of following steps:-
1. Identification of activities - All the activities which have to be performed in a concern have to be identified first.
For example, preparation of accounts, making sales, record keeping, quality control, inventory control, etc. All these
activities have to be grouped and classified into units.
2. Departmentally organizing the activities - In this step, the manager tries to combine and group similar and related
activities into units or departments. This organization of dividing the whole concern into independent units and
departments is called departmentation.
3. Classifying the authority - Once the departments are made, the manager likes to classify the powers and its extent
to the managers. This activity of giving a rank in order to the managerial positions is called hierarchy. The
top management is into formulation of policies, the middle level management into departmental supervision and lower
level management into supervision of foremen. The clarification of authority helps in bringing efficiency in the
running of a concern. This helps in achieving efficiency in the running of a concern. This helps in avoiding wastage of
time, money, effort, in avoidance of duplication or overlapping of efforts and this helps in bringing smoothness in a
concern‘s working.
4. Co-ordination between authority and responsibility - Relationships are established among various groups to
enable smooth interaction toward the achievement of the organizational goal. Each individual is made aware of his
authority and he/she knows whom they have to take orders from and to whom they are accountable and to whom they
have to report. A clear organizational structure is drawn and all the employees are made aware of it.
Nature Or Characteristics Of Organizing
From the study of the various definitions given by different management experts we get the following information
about the characteristics or nature of organization,
Division of Work: Division of work is the basis of an organization. In other words, there can be no organization
without division of work. Under division of work the entire work of business is divided into many departments .The
work of every department is further sub-divided into sub-works. In this way each individual has to do the saran work
repeatedly which gradually makes that person an expert.
Coordination: Under organizing different persons are assigned different works but the aim of all these
persons happens to be the some - the attainment of the objectives of the enterprise. Organization ensures that the work
of all the persons depends on each other’s work even though it happens to be different. The work of one person starts
from where the work of another person ends. The non-completion of the work of one person affects the work of
everybody. Therefore, everybody completes his work in time and does not hinder the work of others. It is thus, clear
that it is in the nature of an organization to establish coordination among different works, departments and posts in the
enterprise.

ORGANIZING
Plurality of Persons: Organization is a group of many persons who assemble to fulfill a common purpose. A
single individual cannot create an organization.
Common Objectives: There are various parts of an organization with different functions to perform but all
move in the direction of achieving a general objective.
Well-defined Authority and Responsibility: Under organization a chain is established between different
posts right from the top to the bottom. It is clearly specified as to what will be the authority and responsibility of every
post. In other words, every individual working in the organization is given some authority for the efficient work
performance and it is also decided simultaneously as to what will be the responsibility of that individual in case of
unsatisfactory work performance.
Organization is a Structure of Relationship: Relationship between persons working on different posts in the
organization is decided. In other words, it is decided as to who will be the superior and who will be the subordinate.
Leaving the top level post and the lowest level post everybody is somebody's superior and somebody's subordinate.
The person working on the top level post has no superior and the person working on the lowest level post has no
subordinate.
Organization is a Machine of Management: Organization is considered to be a machine of management

because the efficiency of all the functions depends on an effective organization. In the absence of organization no
function can be performed in a planned manner. It is appropriate to call organization a machine of management from
another point of view. It is that machine in which no part can afford tube ill-fitting or non-functional. In other words,
if the division of work is not done properly or posts are not created correctly the whole system of management
collapses.
Organization is a Universal Process: Organization is needed both in business and non-business
organizations. Not only this, organization will be needed where two or mom than two people work jointly. Therefore,
organization has the quality of universality. (9) Organization is a Dynamic Process: Organization is related to people
and the knowledge and experience of the people undergo a change. The impact of this change affects the various
functions of the organizations. Thus, organization is not a process that can be decided for all times to come but it
undergoes changes according to the needs. The example in this case can be the creation or abolition of a new post
according to the need.
Importance of Organizing Function
1. Specialization - Organizational structure is a network of relationships in which the work is divided into units and
departments. This division of work is helping in bringing specialization in various activities of concern.
2. Well defined jobs - Organizational structure helps in putting right men on right job which can be done by selecting
people for various departments according to their qualifications, skill and experience. This is helping in defining the
jobs properly which clarifies the role of every person.
3. Clarifies authority - Organizational structure helps in clarifying the role positions to every manager (status quo).
This can be done by clarifying the powers to every manager and the way he has to exercise those powers should be

ORGANIZING
clarified so that misuse of powers does not take place. Well defined jobs and responsibilities attached helps in
bringing efficiency into managers working. This helps in increasing productivity.
4. Co-ordination - Organization is a means of creating coordination among different departments of the enterprise.
It creates clear cut relationships among positions and ensures mutual cooperation among individuals. Harmony of
work is brought by higher level managers exercising their authority over interconnected activities of lower level
manager. Authority responsibility relationships can be fruitful only when there is a formal relationship between the
two. For smooth running of an organization, the coordination between authority- responsibilities is very important.
There should be coordination between different relationships. Clarity should be made for having an ultimate
responsibility attached to every authority. There is a saying, ―Authority without responsibility leads to ineffective
behaviour and responsibility without authority makes person ineffective.‘‘ Therefore, coordination of authority-
responsibility is very important.
5. Effective administration – The organization structure is helpful in defining the jobs positions. The roles to be
performed by different managers are clarified. Specialization is achieved through division of work. This all leads to
efficient and effective administration.
6. Growth and diversification - A company‘s growth is totally dependant on how efficiently and smoothly a concern
works. Efficiency can be brought about by clarifying the role positions to the managers, co-ordination between
authority and responsibility and concentrating on specialization. In addition to this, a company can diversify if its
potential grows. This is possible only when the organization structure is well- defined. This is possible through a set
of formal structure.
7. Sense of security - Organizational structure clarifies the job positions. The roles assigned to every manager are
clear. Co- ordination is possible. Therefore, clarity of powers helps automatically in increasing mental
8. Scope for new changes - This scope for bringing new changes into the running of an enterprise is possible only
through a set of organizational structure.
Basis of Departmentation
Departmentation is the process which is used to group activities into units for purpose of administration at all levels.
By this process, the personnel and functions of an enterprise are departmentalized by division into separate units.
Dividing the work naturally means the identification of individual activities which have to be undertaken for attaining
the objectives of the enterprise. But once the various activities have been identified, it is necessary to group them
together on some logical basis. This process of grouping is known as departmentation.
The administrative units so created may be called as divisions, units, branches or by some other name. Each
department or division is a distinct area of activities over which a manager will be given authority and for which he is
responsible. The departments are agencies of management and simplify the tasks of the management within a
workable span.
Bases of Departmentation
There is no single best way of departmentation applicable to all organizations or to all situations. The pattern that will
be used will depend on the given situation and what managers believe will yield the best result for them in the
situation they face. However, there are a few basic methods for dividing responsibilities within an organization.
They are as follows:

ORGANIZING
1. Departmentation by Function
The most commonly accepted practice is the grouping of the activities in accordance with the functions of an
enterprise. The basic enterprise functions generally consist of production, marketing, finance, etc. This method is
more logical and hence present in almost all enterprises at some level.
 Merits of Departmentation by function

1. It is a logical and time proven method.
2. This method follows the principle of specialization.
3. Authority and responsibilities can be clearly defined and fixed.
4. Since the top managers are responsible for the end results, control shall become effective.
 Demerits of Departmentation by function

1. This type of departmentation shall develop a loyalty towards the functions and not towards the enterprise as a
whole.
2. Coordination of different functions shall become difficult.
3. Only the departmental heads are held responsible for defective work.
4. This pattern is not a best training ground for promotable top management people.
2. Departmentation by Territories
When the organization is large and geographically dispersed, departmentation on territorial basis is the best. This is
also considered suitable where the branches produce the same goods or perform similar services at various locations.
 Merits of Departmentation by Territory

Departmentation on territorial basis has many points to its credit.
1. This method is highly suitable when the needs of the local customers are to be satisfied effectively.
2. Certain economies of localized operation can be availed.
3. Sales activities can be conducted more effectively. Sales personnel can spend more time on sales rather than on
traveling.
4. The executives of territorial departments shall become thoroughly familiar with the key details and can take on the
spot decisions in times of emergency.
5. The department has an excellent training situation for all round managers needed in the future at higher levels.
 Demerits of Departmentation by Territory

1. This type of departmentation requires more persons with general managerial abilities needed in the future at higher
levels.
2. Coordination shall become difficult and the problem of maintaining top management control shall also acute.

ORGANIZING
3. Territorial grouping may sometime cause some problems if authority over financial matters is also decentralized.
3. Departmentation by Process
Activities can also be grouped according to the process involved or the equipment used, This form of departmentation
is often employed in manufacturing enterprises. It is also called equipment departmentation. Large retail or marketing
enterprises may also have process departments for receiving goods in stores, transportation, wrapping and delivery.
Departmentation by process is usually decided on the basis of costs that is mainly on economic considerations.
 Merits of Departmentation by Process

The following are the important merits of this type of departmentation:
1. It is suitable for all organizations irrespective of their size.
2. The equipment can be economically used to their maximum capacity.
3. It saves money and consequently reduce the cost of production.
4. Better timing and customer service can be ensured.
4. Departmentation by Product
This type of departmentation is desirable for large undertakings which deal with a variety of products or product lines.
To departmentalise on product basis means to establish each product or group of closely related products in a product
line as a relatively autonomous integrated unit within the overall framework of the company. Under this method, an
executive will be in charge of and responsible for all the activities relating to a particular product from production to
distribution.
 Merits of Departmentation on basis of Product

1. This pattern of departmentation facilitates the optimum use of specialized skill, labour and capital.
2. Various economies relating to production, assembly and handling can be availed.
3. All the activities connected with a particular product can be effectively coordinated.
4. Better timing and customer service can be ensured.
5. Responsibility can be fixed.
 Demerits of Departmentation on product basis

1. This type of departmentation will often result in unnecessary duplication of work and ultimately result in an
increase in the production cost.
2. The problem of maintaining head quarters control shall also be more acute.
3. Their pattern can also create difficulties in co-ordination with the organizational structure.
4. Successful managers will be tempted to acquire more and more powers and build up their own empire. This danger
can be averted by centralizing all major policy decisions.
5. Departmentation by Customer - Departmentation can also be made on the basis of customers served that is
customer departmentation. In this case, the firm shows its paramount interest in the welfare of the customer and
attention given to them. Under this method, the customers are divided into separate categories, such as distributors,

ORGANIZING
retailers and consumers, and the task of satisfying the needs of different categories of customers assigned to specific
departments.
 Merits of departmentation by customer

1. Customers are the key to any organization. Particularly in modern times, the needs of the customers should be
satisfied effectively. This pattern of departmentation aims to satisfy the customers in a better and effective way.
2. It is highly useful where a product or service of wide variety is offered through many marketing channels and
outlets.
 Demerits of departmentation by customer

1. There may not be enough work in each department. Hence, some salesmen have to remain idle.
2. Coordinating various departments will also pose many serious problems.
3. It may also develop an unequal development of customer groups in times of expansion and disappearance of certain
customer groups in times of recession.
4. It may also create a tendency to remain rigid. Consequently, it may also become difficult to adjust to the situation in
case there is a fluctuation in the activities of the enterprise.
6. Departmentation by Time
It is a common practice to departmentalize activities on time basis. Enterprise engaged in continuous process can
follow this pattern. We are familiar with the second shift, third shift, or night shifts, etc. Under this method, the
activities performed in each shift are similar and almost identical. But they are departmentalized on time basis. This
kind of departmentation is generally found in public utilities and manufacturing establishments.
7. Departmentation by Number:
In case of departmentation by number, activities are grouped on the basis of their performance by certain number of
persons. For instance, in the army, soldiers are grouped into squaders, battalions, companies, brigades and regiments
based on the number prescribed for each unit. However, this type of departmentation is not found in business
concerns.
Span of Management and Its Determinants
Span of management, also known as ‘span of control’, refers to the number of people a manager directly manages. In
a wider span of control, a manager has many subordinates who report to him. In a narrow span of control, a manger
has fewer subordinates under him.
In a classical type of organizational structure, which is the most common form, the effectiveness and efficiency of
operations is determined by the number of people under direct supervision of a manager. For most effective
operations, it is necessary to have the optimum number of subordinates to supervise.
The informal groups have a significant impact on the span of management. If the supervisor has cordial relations with
his subordinates and the subordinates are dedicated to their work for professional as well as social reasons, then more
subordinates can be assigned to each supervisor and less managerial time will be needed to deal with the subordinates.
Obviously , the number of subordinates that can effectively be managed for supervision and delegation of authority
would be finite and depend upon a number of factors.

ORGANIZING
Factors or Determinants of Span of Management

The span of control varies from individual to individual, time to time and place to place. The factors which determine
the span of control are discussed below:
1. Ability of the Managers: Individuals differ in various qualities like leadership, decision making and
communication. The span may be wider if the manager possesses these skills in greater degree as compared to others.
2. Time available for Supervision: The span should be narrow at the higher levels because top managers have less
time available for supervision. They have to devote the major portion of their time to planning, organising, directing
and controlling. Each top manager will delegate the task of supervision to his subordinates who have to devote
comparatively less time on the important functions of management.
3. Nature of Work: When the spans are narrowed, the levels in the organisation increase. This involves delegation of
authority and responsibility. If the work is of a routine and repetitive nature, it can easily be delegated to the
subordinates.
4. Capacity of Subordinates: If the subordinates are skilled, efficient and knowledgeable, they will require less
supervision. In such a case, the superior may go in for a wider span.
5. Degree of Decentralization: Under decentralization, the power to make decisions is delegated to the lower levels.
The span of management will be narrow in such cases so as to exercise more and more control.
6. Effectiveness of Communication: An effective system of communication in the organization favors large number of
levels because there will be no difficulty in transmission of information in spite of a large number of intervening
layers.
7. Control Mechanism: The span of control also depends upon the control mechanism being followed. Control may be
followed either through personal supervision or through reporting. The former favours narrow span and the latter
favours a wide span.
Line and Staff Relationship
In line and staff organisation, the line authority remains the same as it does in the line organisation. Authority flows
from top to bottom. The main difference is that specialists are attached to line managers to advise them on important
matters. These specialists stand ready with their speciality to serve line mangers as and when their services are called
for, to collect information and to give help which will enable the line officials to carry out their activities better. The
staff officers do not have any power of command in the organisation as they are employed to provide expert advice to
the line officers. The combination of line organisation with this expert staff constitutes the type of organisation known
as line and staff organisation. The 'line' maintains discipline and stability; the 'staff' provides expert information. The
line gets out the production, the staffs carries on the research, planning, scheduling, establishing of standards and
recording of performance. The authority by which the staff performs these functions is delegated by the line and the
performance must be acceptable to the line before action is taken. The following figure depicts the line and staff
organisation:

ORGANIZING
Types of Staff
The staff position established as a measure of support for the line managers may take the following forms:
1. Personal Staff: Here the staff official is attached as a personal assistant or adviser to the line manager. For
example, Assistant to managing director.
2. Specialised Staff: Such staff acts as the fountain head of expertise in specialised areas like R&D, personnel,
accounting etc. For example, R&D Staff.
3. General Staff: This category of staff consists of a set of experts in different areas who are meant to advise and
assist the top management on matters called for expertise. For example: Financial advisor, technical advisor etc.
Features of Line and Staff Organisation

1. Under this system, there are line officers who have authority and command over the subordinates and are
accountable for the tasks entrusted to them. The staff officers are specialists who offer expert advice to the line
officers to perform their tasks efficiently.
2. Under this system, the staff officers prepare the plans and give advise to the line officers and the line officers
execute the plan with the help of workers.
3. The line and staff organisationis based on the principle of specialisation.
Advantages or Merits of Line and Staff Organisation
1. It brings expert knowledge to bear upon management and operating problems. Thus, the line managers get the
benefit of specialised knowledge of staff specialists at various levels.
2. The expert advice and guidance given by the staff officers to the line officers benefit the entire organisation.
3. As the staff officers look after the detailed analysis of each important managerial activity, it relieves the line
managers of the botheration of concentrating on specialised functions.
4. Staff specialists help the line managers in taking better decisions by providing expert advice. Therefore, there will
be sound managerial decisions under this system.
5. It makes possible the principle of undivided responsibility and authority, and at the same time permits staff
specialisation. Thus, the organisation takes advantage of functional organisation while maintaining the unity of
command.

ORGANIZING
6. It is based upon planned specialisation.

7. Line and staff organisation has greater flexibility, in the sense that new specialised activities can be added to the
line activities without disturbing the line procedure.
Disadvantages or Demerits of Line and Staff Organisation

1. Unless the duties and responsibilities of the staff members are clearly indicated by charts and manuals, there may
be considerable confusion throughout the organisation as to the functions and positions of staff members with relation
to the line supervisors.
2. There is generally a conflict between the line and staff executives. The line managers feel that staff specialists do
not always give right type of advice, and staff officials generally complain that their advice is not properly attended
to.
3. Line managers sometimes may resent the activities of staff members, feeling that prestige and influence of line
managers suffer from the presence of the specialists.
4. The staff experts may be ineffective because they do not get the authority to implement their recommendations.
5. This type of organisation requires the appointment of large number of staff officers or experts in addition to the line
officers. As a result, this system becomes quite expensive.
6. Although expert information and advice are available, they reach the workers through the officers and thus run the
risk of misunderstanding and misinterpretation.
7. Since staff managers are not accountable for the results, they may not be performing their duties well.
8. Line mangers deal with problems in a more practical manner. But staff officials who are specialists in their fields
tend to be more theoretical. This may hamper coordination in the 9rganization.
Line-Staff Conflicts
Line and staff managers are supposed to work harmoniously to achieve the organizational goals. But their relationship
is one of the major sources of conflict in most organizations. Since such conflicts lead to loss of time and
organizational effectiveness, it is always desirable to identify the sources of such conflicts and initiate necessary
action to overcome them.
Theoretically, it is impossible to differentiate between line and staff functions and because of this, conflicts cannot be
avoided. However, line and staff conflicts can be grouped into three categories—conflicts due to line viewpoint,
conflicts due to staff viewpoint, and conflicts due to the very nature of line and staff relationships.
Conflicts due to Line Viewpoint:
1. Lack of accountability:
Line managers generally perceive that staff managers are not accountable for their actions. Such lack of accountability
on the part of staff leads to ignoring of the overall organizational objectives. Staff takes the credit for achieving the
results, which is actually achieved by the line people. But if anything goes wrong, they blame the line. Such
perception among the line managers is one of the most important sources of line and staff conflict.
2. Encroachment on line authority:

ORGANIZING
Line managers often allege that staff managers encroach upon their authority by giving recommendations on matters
that come within their purview. Such encroachments influence the working of their departments and often lead to
hostility, resentment, and reluctance to accept staff recommendations.
3. Dilution of authority:
Staff managers often dilute the authority and be- little the responsibilities of line managers. Line managers fear that
their responsibilities may be reduced and they even suffer from a feeling of insecurity.
4. Theoretical basis:
Staff being specialists, they generally think within the ambit of their specialization. They fail to relate their
suggestions to the actual reality and are unable to understand the actual dimensions of the problems. This is because
staff is cut-off” from the day-to-day operations. This results in impractical suggestions, making it difficult to achieve
organizational goals.
Conflicts due to Staff Viewpoint:

1. Lack of proper use of staff:
Staff managers allege that line managers often take decisions without any input from them. Line just informs staff
after taking decisions. This makes staff managers feel that line do not need staff. But even in such cases (where line
takes its own decisions without consulting staff), if anything goes wrong, staff is made responsible.
2. Resistance to new ideas:
Line managers resist new ideas as they feel implementing new ideas means something is
wrong with the present way of working. Such rigidity of line managers dissuades staff from
implementing new ideas in the organization and adds to their frustration.
3. Lack of proper authority:
Staff often alleges that despite having the best solutions to the problems being faced in their
areas of specialization, they fail to contribute to organizational goals. This is because the staff
lack the authority to implement the solutions and are unable to persuade the line managers
(who have the authority) to implement them.
Conflicts Due to the Very Nature of Line and Staff Relationships:
1. Different backgrounds:
Line and staff managers are usually from different backgrounds. Normally line managers are seniors to staff in terms
of organizational hierarchy and levels. On the contrary, staff managers are relatively younger and better educated.
Staff often looks down upon the line. Such complexes create an atmosphere of mistrust and hatred between the line
and staff.
2. Lack of demarcation between line and staff authority:
In practice it is difficult to make a distinction between line and staff authority. Overlapping and duplication of work
creates a gap between the authority and responsibility of line and staff. Each tries to shift the blame to the other.

ORGANIZING
3. Lack of proper understanding of authority:

Failure to understand authority causes misunderstandings between the line and staff. This leads to encroachment and
creates conflict.
To overcome the line and staff conflict, it is necessary for an organization to follow certain approaches:
1. Clarity in relationships:
Duties and responsibilities of both line and staff should be clearly laid down. Relationships of staff with the line and
their scope of authority need to be clearly defined. Similarly, line managers should also be made responsible for
decision making and they should have corresponding authority for the same. Line should enjoy the freedom to
modify, accept, or reject the recommendations or advice of the staff.
2. Proper use of staff:
Line managers must know how to maximize organizational efficacy by optimizing the expertise of staff managers.
They need to be trained on the same. Similarly, staff managers should also help the line to understand how they can
improve their activities.
3. Completed staff work:

Completed staff work denotes careful study of the problem, identifying possible alternatives for the problem, and pro-
viding recommendations based on the compiled facts. This will result in more staff work and pragmatic suggestions.
4. Holding staff accountable for results:
Once staff becomes accountable, they would be cautious about their recommendations. Line also would have
confidence on staff recommendations, as staff is accountable for the results.
Delegation & Bases of Delegation
A manager alone cannot perform all the tasks assigned to him. In order to meet the targets, the manager should
delegate authority. Delegation of Authority means division of authority and powers downwards to the subordinate.
Delegation is about entrusting someone else to do parts of your job. Delegation of authority can be defined as
subdivision and sub-allocation of powers to the subordinates in order to achieve effective results.
Delegation of authority is a process in which the authority and powers are divided and shared amongst the
subordinates. When the work of a manager gets beyond his capacity, there should be some system of sharing the
work. This is how delegation of authority becomes an important tool in organization function. Through delegation, a
manager, in fact, is multiplying himself by dividing/multiplying his work with the subordinates.
Elements of Delegation
1. Authority - in context of a business organization, authority can be defined as the power and right of a person to use
and allocate the resources efficiently, to take decisions and to give orders so as to achieve the organizational
objectives. Authority must be well- defined. All people who have the authority should know what is the scope of their
authority is and they shouldn‘t misutilize it. Authority is the right to give commands, orders and get the things done.
The top level management has greatest authority. Authority always flows from top to bottom. It explains how a
superior gets work done from his subordinate by clearly explaining what is expected of him and how he should go
about it. Authority should be accompanied with an equal amount of responsibility. Delegating the authority to

ORGANIZING
someone else doesn‘t imply escaping from accountability. Accountability still rest with the person having the utmost
authority.
2. Responsibility - is the duty of the person to complete the task assigned to him. A person who is given the
responsibility should ensure that he accomplishes the tasks assigned to him. If the tasks for which he was held
responsible are not completed, then he should not give explanations or excuses. Responsibility without adequate
authority leads to discontent and dissatisfaction among the person. Responsibility flows from bottom to top. The
middle level and lower level management holds more responsibility. The person held responsible for a job is
answerable for it. If he performs the tasks assigned as expected, he is bound for praises. While if he doesn‘t
accomplish tasks assigned as expected, then also he is answerable for that.
3. Accountability - means giving explanations for any variance in the actual performance from the expectations set.
Accountability can not be delegated. For example, if ‘A‘ is given a task with sufficient authority, and ‘A‘ delegates
this task to B and asks him to ensure that task is done well, responsibility rest with ‘B‘, but accountability still rest
with ‘A‘. The top level management is most accountable. Being accountable means being innovative as the person
will think beyond his scope of job. Accountability, in short, means being answerable for the end result. Accountability
can‘t be escaped. It arises from responsibility.
Process Of Delegation -
Delegation of authority is the base of superior-subordinate relationship, it involves following steps:-
1. Assignment of Duties – The delegator first tries to define the task and duties to the subordinate. He also has to
define the result expected from the subordinates. Clarity of duty as well as result expected has to be the first step in
delegation.
2. Granting of authority – Subdivision of authority takes place when a superior divides and shares his authority with
the subordinate. It is for this reason; every subordinate should be given enough independence to carry the task given
to him by his superiors. The managers at all levels delegate authority and power which is attached to their job
positions. The subdivision of powers is very important to get effective results.
3. Creating Responsibility and Accountability – The delegation process does not end once powers are granted to the
subordinates. They at the same time have to be obligatory towards the duties assigned to them. Responsibility is said
to be the factor or obligation of an individual to carry out his duties in best of his ability as per the directions of
superior. Responsibility is very important. Therefore, it is that which gives effectiveness to authority. At the same
time, responsibility is absolute and cannot be shifted. Accountability, on the others hand, is the obligation of the
individual to carry out his duties as per the standards of performance. Therefore, it is said that authority is delegated,
responsibility is created and accountability is imposed. Accountability arises out of responsibility and responsibility
arises out of authority. Therefore, it becomes important that with every authority position an equal and opposite
responsibility should be attached.
Importance of Delegation–
1. Through delegation, a manager is able to divide the work and allocate it to the subordinates. This helps in reducing
his work load so that he can work on important areas such as - planning, business analysis etc.
2. With the reduction of load on superior, he can concentrate his energy on important and critical issues of concern.
This way he is able to bring effectiveness in his work as well in the work unit. This effectivity helps a manager to
prove his ability and skills in the best manner.

ORGANIZING
3. Delegation of authority is the ground on which the superior-subordinate relationship stands. An organization
functions as the authority flows from top level to bottom. This in fact shows that through delegation, the superior
subordinate relationship become meaningful. The flow of authority is from top to bottom which is a way of achieving
results.
4. Delegation of authority in a way gives enough room and space to the subordinates to flourish their abilities and
skill. Through delegating powers, the subordinates get a feeling of importance. They get motivated to work and this
motivation provides appropriate results to a concern. Job satisfaction is an important criterion to bring stability and
soundness in the relationship between superior and subordinates. Delegation also helps in breaking the monotony of
the subordinates so that they can be more creative and efficient. Delegation of authority is not only helpful to the
subordinates but it also helps the managers to develop their talents and skills. Since the manager get enough time
through delegation to concentrate on important issues, their decision-making gets strong and in a way they can
flourish the talents which are required in a manager. Through granting powers and getting the work done, helps the
manager to attain communication skills, supervision and guidance, effective motivation and the leadership traits are
flourished. Therefore it is only through delegation, a manager can be tested on his traits.
5. Delegation of authority is help to both superior and subordinates. This ,in a way, gives stability to a concern‘s
working. With effective results, a concern can think of creating more departments and divisions flow working. This
will require creation of more managers which can be fulfilled by shifting the experienced, skilled managers to these
positions. This helps in both virtual as well as horizontal growth which is very important for a concern‘s stability.
Kinds Of Delegation
General Delegation:
When authority is given to perform general managerial functions like planning, organizing, directing etc., the
subordinate managers perform these functions and enjoy the authority required to carry out these responsibilities. The
chief executive exercises overall control and guides the subordinates from time to time.
Specific Delegation:
The specific delegation may relate to a particular function or an assigned task. The authority delegated to the
production manager for carrying out this function will be a specific delegation. Various departmental managers get
specific authority to undertake their departmental duties.
Formal Delegation:
Formal delegation of authority is the part of organizational structure. Whenever a task is assigned to a person then the
required authority is also given to him. This type of delegation is part of the normal functioning of the organization.
Every person is automatically given authority as per his duties. When production manager gets powers to increase
production then it is a formal delegation of authority.
Informal Delegation:
Informal delegation does not arise due to position but according to circumstances. A person may undertake a
particular task not because he has been assigned it but it is necessary to do his normal work.
Lateral Delegation:
When a person is delegated an authority to accomplish a task, he may need the assistance of a number of persons. It
may take time to formally get assistance from these persons. He may indirectly contact the persons to get their help

ORGANIZING
for taking up the work by cutting short time of formal delegation. When the authority is delegated informally it is
called lateral delegation.
Decentralization& Methods of Decentralization
Decentralization refers to a specific form of organizational structure where the top management delegates decision-
making responsibilities and daily operations to middle and lower subordinates. The top management can thus
concentrate on taking major decisions with greater time abundance. Business houses often feel the requirement of
decentralization to continue efficiency in their operation.Decentralisation is referred to as a form of an organisational
structure where there is the delegation of authority by the top management to the middle and lower levels of
management in an organisation.
In this type of organisation structure, the duty of daily operations and minor decision-making capabilities are
transferred to the middle and lower levels which allow top-level management to focus more on major decisions like
business expansion, diversification etc.
Delegation refers to the assigning a portion of work and the associated responsibility by a superior to a subordinate. In
simple words, when delegation is expanded on an organisational level, it is called decentralisation.
The three major forms of administrative decentralization -- deconcentration, delegation, and devolution -- each have
different characteristics.
Deconcentration. Deconcentration--which is often considered to be the weakest form of decentralization and is used
most frequently in unitary states-- redistributes decision making authority and financial and management
responsibilities among different levels of the central government. It can merely shift responsibilities from central
government officials in the capital city to those working in regions, provinces or districts, or it can create strong field
administration or local administrative capacity under the supervision of central government ministries.
Delegation. Delegation is a more extensive form of decentralization. Through delegation central governments transfer
responsibility for decision-making and administration of public functions to semi-autonomous organizations not
wholly controlled by the central government, but ultimately accountable to it. Governments delegate responsibilities
when they create public enterprises or corporations, housing authorities, transportation authorities, special service
districts, semi-autonomous school districts, regional development corporations, or special project implementation
units. Usually these organizations have a great deal of discretion in decision-making. They may be exempt from
constraints on regular civil service personnel and may be able to charge users directly for services.
Devolution. A third type of administrative decentralization is devolution. When governments devolve functions, they
transfer authority for decision-making, finance, and management to quasi-autonomous units of local government with
corporate status. Devolution usually transfers responsibilities for services to municipalities that elect their own mayors
and councils, raise their own revenues, and have independent authority to make investment decisions. In a devolved
system, local governments have clear and legally recognized geographical boundaries over which they exercise
authority and within which they perform public functions. It is this type of administrative decentralization that
underlies most political decentralization.
Advantages of Decentralisation
Motivation of Subordinates
Decentralization improves the level of job satisfaction as well as employee morale, especially amongst the lower
level managers.

ORGANIZING
Furthermore, it strives to satisfy the varying requirements for participation, independence, and status. Decentralization
also promotes a spirit of group cohesiveness and spirit.
Growth and Diversification
Under decentralization, every single product division attains sufficient autonomy to exercise their creative flair. In this
way, the top-level management can create healthy competition amongst different divisions.
While carrying out a discussion on the advantages and disadvantages of decentralization, it is imperative to note that it
aids subordinates in exercising their own judgment.
They even develop managerial skills and help in solving the succession problem which ultimately ensures the growth
and continuity of an organization.
Quick Decision Making
Another important pointer in the advantages and disadvantages of decentralization is that decisions are taken and
executed by authorized personnel. This, in turn, results in faster and accurate decisions which are well aware of the
real scenario.
Efficient Communication
The wider span of management under decentralization leads to fewer hierarchical level. This makes
the communication system more efficient as intimate relationships develop between superiors and subordinates.
Ease of Expansion
Decentralization can add inertia to the expansion process of a growing business. This might often result in the opening
of new business units in varying geographical locations.
Decentralization unleashes the fullest potential of the organization and can react easily to area-specific requirements.
Better Supervision And Control
Lower level managers can alter production schedules and work assignments with adequate authority. They can even
take disciplinary actions and recommend the promotion of their peers.
This, in turn, leads to greater efficiency in supervision. Performance evaluation of each decentralized unit helps in
exercising adequate control.
Satisfaction of Human needs
Decentralization serves as an important tool for satisfying our basic need of independence, power, prestige, and status.
A cadre of satisfied manager is build up by this satisfaction as they feel responsible towards the company’s
betterment.
Relief to top executives
Top executives can focus more on more on the executive level work like planning and decision making if the lower
level employees take all the responsibilities on their own. This relieves their workload which eventually is for the
greater good of the organisation.
Disadvantages of Decentralization
Difficult To Co-Ordinate

ORGANIZING
While talking about the advantages and disadvantages of decentralization, it is imperative to note that substantial
autonomy is enjoyed by every single division. This, in turn, makes it difficult to coordinate the overall activity.
External Factors
The trade union movement, market uncertainties, and government intervention might make it impossible to benefit the
most out of decentralization.
Narrow Product Lines
Decentralized product lines need to be adequately broad so that autonomous units can flourish within the same. This
might not be of much help in small business houses having narrow product lines. Lower levels in the organization also
lack competent managers thus adding to the difficulty quotient.
Expensive
In decentralisation, every employee takes responsibility for the better of the organisation so they work harder to
achieve all the organisational objective. In return, they have to be paid more which sometimes proves to be very
expensive for the company.
Important Questions
Q.1 Explain the term Organization with suitable examples.
Q.2 What are the bases of Departmentation?
Q.3 Write Short note on Span Of Mangement/ Control.
Q.4 Write a short note on Line and Staff Relationship.
Q.5 What are the reasons of conflicts between Line Managers and Staff Managers?
Q.6 What is Delegation? What are the bases of Delegation?
Q.7 Discuss the various kinds of Delegation.
Q.8 Write a short note on Decentralization.
Case Studies
1) There are no supervisors in HP, only reality checkers. Employees are allowed to define their own job
responsibilities. HP believes that 'people are here to do a great job.' Employees are treated like mature adults. Says
one manager 'There is no boss breaking down your neck. You are empowered and are on your own'. Even the bosses
proudly proclaim 'my team members are far more knowledgeable about their lines of business. I can only learn from
them.' Even a fresh recruit in HP is given all kinds of resource back up and a team to do things in a novel, different
way. All such attempts are fully backed up by top management. In the headquarters in New Delhi, open encircles in
office encourage informality and ease of communication between employees. Across HP, flexitime is religiously
followed, depending on the convenience of the employee. Every attempt is made to provide excellent opportunities
for vertical growth of employees. Of course, there are family day annual picnics, kids' days, dial-a-chocolate, wedding
gifts, subzi-on-wheels, car servicing facilities to make employee lives lively throughout the year. As a result, the
employee satisfaction is at a high always. Moreover, attrition rate is quite low and productivity is on an all time high
as compared to the other major competitors.
Q.1 Analyze the Case Study and perform SWOT analysis for the same?

ORGANIZING
2) The belief that "tomorrow's CEO must be today's empowered manager" compelled 57 year old Rahul Bajaj, CEO
of the two-wheeler giant Bajaj Auto to delegate his responsibility to a successor systematically 5 years back. Both the
heirs apparent - his two sons, Rajiv and Sanjiv are qualified enough to exchange the baton smoothly. For a man who
took charge of every critical area in the traditional family – managed company, the decision was a bold one. He
assumed complete charge of production, finance, design changes, production systems and labour relations at the
company, personally overseeing all operations for over two decades (1968-1990). He never realised the need for
delegation of authority and decentralisation of responsibilities. Not surprisingly, the company remained a fat, cost-
callous, inflexible giant, although rising sales and burgeoning consumer demand camouflaged the flab. The second
line of executives were never groomed to mange at least day-to-day operations. He never allowed others the required
freedom to take even simple decisions independently. Additional responsibilities as the chairman of Indian Airlines,
CII, AIAM, etc., literally forced him to see the merits in creating a second line of command in his absence.
Meanwhile, with the onset of a recession and the advent of competition, the company had to rewrite the rules of the
game quickly, combining delegation with succession planning. Both sons have joined as apprentices initially,
selecting their respective areas and undergoing training in those areas. Rajiv in manufacturing and Sanjiv in
marketing. Another cousin of Rahul Bajaj, Mathur was made the incharge of HR functions and began to represent
Rahul in meetings. Responsibilities were delegated to Mathur slowly but steadily. Rahul Bajaj started distancing
himself from his followers too, after his son Rajiv took charge of the Akrudi plant independently. The report card of
the company during the past three years has been quite encouraging – with sales picking up in motor cycle as well as
scooter segments.
Questions
1. What do you analyse as the reason behind Bajaj Auto to change its management technique to decentralization?
2. What were the advantages that Bajaj Auto earned from decentralization?
3. How do suggest Bajaj Auto to have benefitted more by a balanced centralization-decentralisation mix?

MBA I SEM FUNDAMENTALS OF MANAGEMENT UNIT -VI
CONTROLLING
Concept & Process of Control

Control is the process through which managers assure that actual activities conform to planned activities. According
to Breach, "Control is checking current performance against predetermined standards contained in the plans, with a
view to ensuring adequate progress and satisfactory performance."
According to George R. Terry, "Controlling is determining what is being accomplished i.e., evaluating the
performance and if necessary, applying corrective measures so that the performance takes place according to plans."
According to Billy E. Goetz, "Management control seeks to compel events to conform plans".
According to Robert N. Anthony, "Management control is the process by which managers assure that resources are
obtained and used effectively and efficiently."
In the words of Koontz and O'Donnell, "Managerial control implies measurement of accomplishment against the
standard and the correction of deviations to assure attainment of objectives according to plans."
In the words of Haynes and Massie, "Fundamentally, control is any process that guides activity towards some
predetermined goal. The essence of the concept is in determining whether the activity is achieving the desired results".
In the words of J. L. Massie, "Control is the process that measures current performance and guides it towards some
predetermined goals."
In the words of Henry Fayol, "Control consists in verifying whether everything occurs in conformity with the plan
adopted, the instructions issued and the principles established. Its object is to find out the weakness and errors in order
to rectify them and prevent recurrence. It operates on everything, i.e., things, people and actions".
Functions or Characteristics of Controlling –
Managerial control has certain characteristic feature. They are:
1. Control is the function of every manager. Managers at all levels have to perform this function to contribute to the
achievement of organisational objectives.
2. Control leads to appraisal of past activities. The deviations in the past are revealed by the control process.
Corrective actions can be initiated accordingly.
3. Control is linked with future, as past cannot be controlled. It should anticipate possible deviations and to think of
corrective action for the control of such deviations in the future. It is usually preventive as presence of control system
tends to minimise wastages, losses and deviations from standards.
4. Control is concerned with setting standards, measurement of actual performance, comparison of actual performance
with predetermined standards and bringing to light the variations between the actual performance and the standard
performance.
5. Control implies taking corrective measures. The object in checking the variations or deviations is to rectify them
and prevent their recurrence. It is only action which adjusts performance to predetermined standards whenever
deviations occur.
6. Control can be exercised only with reference to and or the basis of plans. To quote Mary Cushing Niles - "Whereas
planning sets the course, control observes deviations from the course or to an appropriately changed one".
7. To some people, control is opposite of freedom. This is not true. Control is based on facts and figures. Its purpose is
to achieve and maintain acceptable productivity from all resources of an enterprise. Therefore, control aims at results
and not at persons. It is for correcting a situation, and not for reprimanding persons.

CONTROLLING
8. Information or feedback is the guide to control. The feedback is helpful to the manager to determine how far the
operations are proceeding in conformity with plans and standards, and where remedial action is called for.
9. Control involves continuous review of standards of performance and results in corrective action which may lead to
change in the performance of other functions of management. This makes control a dynamic and flexible process.
10. Control is a continuous activity. It involves constant analysis of validity of standards, policies, procedures etc.
Significance/ Importance of Controlling –
The significance of the controlling function in an organisation is as follows:
1. Accomplishing Organisational Goals:
Controlling helps in comparing the actual performance with the predetermined standards, finding out deviation and
taking corrective measures to ensure that the activities are performed according to plans. Thus, it helps in achieving
organisational goals.
2. Judging Accuracy of Standards:
An efficient control system helps in judging the accuracy of standards. It further helps in reviewing & revising the
standards according to the changes in the organisation and the environment.
3. Making Efficient Use of Resources:
Controlling checks the working of employees at each and every stage of operations. Hence, it ensures effective and
efficient use of all resources in an organisation with minimum wastage or spoilage.
4. Improving Employee Motivation:
Employees know the standards against which their performance will be judged.
Systematic evaluation of performance and consequent rewards in the form of increment, bonus, promotion etc.
motivate the employees to put in their best efforts.
5. Ensuring Order and Discipline:
Controlling ensures a close check on the activities of the employees. Hence, it helps in reducing the dishonest
behaviour of the employees and in creating order and discipline in an organization.
6. Facilitating Coordination in Action:
Controlling helps in providing a common direction to the all the activities of different departments and efforts of
individuals for attaining the organizational objectives.
Limitations of Controlling:
The defects or limitations of controlling are as following:
1. Difficulty in Setting Quantitative Standards:
It becomes very difficult to compare the actual performance with the predetermined standards, if these standards are
not expressed in quantitative terms. This is especially so in areas of job satisfaction, human behaviour and employee
morale.
2. No Control on External Factors:

CONTROLLING
An organization fails to have control on external factors like technological changes, competition, government policies,
changes in taste of consumers etc.
3. Resistance from Employees:
Often employees resist the control systems since they consider them as curbs on their freedom. For example,
surveillance through closed circuit television (CCTV).
4. Costly Affair:
Controlling involves a lot of expenditure, time and effort, thus it is a costly affair. Managers are required to ensure
that the cost involved in installing and operating a control system should not be more than the benefits expected from
it.
Process of Control-
Controlling as a management function involves following steps:
1. Establishment of standards- Standards are the plans or the targets which have to be achieved in the course of
business function. They can also be called as the criterions for judging the performance. Standards generally are
classified into two
a. Measurable or tangible – Those standards which can be measured and expressed are called as measurable standards.
They can be in form of cost, output, expenditure, time, profit, etc.
b. Non-measurable or intangible- There are standards which cannot be measured monetarily. For example-
performance of a manager, deviation of workers, their attitudes towards a concern. These are called as intangible
standards.
Controlling becomes easy through establishment of these standards because controlling is exercised on the basis of
these standards.
2. Measurement of performance- The second major step in controlling is to measure the performance. Finding out
deviations becomes easy through measuring the actual performance. Performance levels are sometimes easy to
measure and sometimes difficult. Measurement of tangible standards is easy as it can be expressed in units, cost,
money terms, etc. Quantitative measurement becomes difficult when performance of manager has to be measured.
Performance of a manager cannot be measured in quantities. It can be measured only by
a. Attitude of the workers,
b. Their morale to work,
c. The development in the attitudes regarding the physical environment, and
d. Their communication with the superiors.
It is also sometimes done through various reports like weekly, monthly, quarterly, yearly reports.
3. Comparison of actual and standard performance- Comparison of actual performance with the planned targets is
very important. Deviation can be defined as the gap between actual performance and the planned targets. The manager
has to find out two things here- extent of deviation and cause of deviation. Extent of deviation means that the manager
has to find out whether the deviation is positive or negative or whether the actual performance is in conformity with
the planned performance. The managers have to exercise control by exception. He has to find out those deviations
which are critical and important for business. Minor deviations have to be ignored. Major deviations like replacement

CONTROLLING
of machinery, appointment of workers, quality of raw material, rate of profits, etc. should be looked upon consciously.
Therefore it is said, ―If a manager controls everything, he ends up controlling nothing.‖ For example, if stationery
charges increase by aminor 5 to 10%, it can be called as a minor deviation. On the other hand, if monthly production
decreases continuously, it is called as major deviation.
Once the deviation is identified, a manager has to think about various cause which has led to deviation. The causes
can be-
a. Erroneous planning,
b. Co-ordination loosens,
c. Implementation of plans is defective, and
d. Supervision and communication is ineffective, etc.
4. Taking remedial actions- Once the causes and extent of deviations are known, the manager has to detect those
errors and take remedial measures for it. There are two alternatives here-
a. Taking corrective measures for deviations which have occurred; and
b. After taking the corrective measures, if the actual performance is not in conformity with plans, the manager can
revise the targets. It is here the controlling process comes to an end. Follow up is an important step because it is only
through taking corrective measures, a manager can exercise controlling.
Control Techniques
Control techniques can be studied under: A. Traditional Techniques B. Modern Techniques.
Traditional techniques of controlling includes: 1. Budgetary Control 2. Standard Costing 3. Financial Ratio
Analysis 4. Internal Audit 5. Statistical Control 6. Break-Even Point Analysis 7. Personal Observation 8. Financial
Ratio Analysis 9. Internal Audit.
Modern techniques of controlling includes: 1. Network Techniques (PERT and CPM) 2. Management Information
System (MIS) 3. Ratio Analysis 4. Economic Value Added (EVA) 5. Market Value Added (MVA) 6. Zero base
budgeting 7. Management audit 8. Network Appraisal 9. Stakeholders Approach (Balanced Scorecard) 10.
Accounting Measures (Integrated Ratio Analysis).
A. Traditional Techniques:
1. Budgetary Control:
One of the oldest control techniques and still widely used is the budgetary control. According to J. Batty, “budgetary
control is a system which uses budget as a means of planning and controlling all aspects of producing and/or selling
commodities and services.”
A more comprehensive definition is given by Brown and Howard, “Budgetary control is a system of controlling costs
which includes the preparation of budgets, coordinating the departments and establishing responsibilities, comparing
actual performance with the budgeted and acting upon results to achieve maximum profitability.” Budgetary control is
a managerial control technique through preparation of various budgets.
Thus, budgetary control follows the following steps:
(i) Preparation of budgets

CONTROLLING
(ii) Continuous comparison of actual performance with the budgets

(iii) Taking corrective actions
(iv) Revising the budgets with change in circumstances
Types of Budgets:
i. Master Budget and Operating Budget:
Master Budget:
It is an overall comprehensive budget catering to the goals and objectives of overall organisation. It is normally an
aggregate of individual budgets prepared by various functional areas of an organisation. It combines areas like sales,
production, income, assets, cash budget, etc., to give the holistic status and health of an organisation.
Operating Budget:
Operating budgets are sub-budgets which are created for giving direct targets to various functional departments. These
budgets act as guidelines and benchmarks for action. These are specific budgets and are prepared for relatively
smaller period of time say weekly or monthly budgets.
2. Personal Observation:
Personal or direct supervision is one of the oldest techniques of controlling. Under this method, supervisor either
himself or through a designated authority observes the employees and collects firsthand information about their
performance.
This technique acts as a great tool of controlling as being observed every time puts a psychological pressure on the
employees which restricts them from deviating from work. Moreover, this technique reduces a lot of paperwork and is
faster in terms of remedial measures. However, such a technique is subjective and may be affected by personal bias
and prejudices of the supervisor.
3. Break-Even Analysis:
Break-even analysis helps in identifying that volume of sales at which a company is neither earning any profit nor is
incurring any loss, i.e., the level at which revenue exactly equals the total cost. This is called as break-even point.
Break-even analysis helps management in establishing a relationship between sales, costs and revenues.
With break-even analysis, an organisation would be able to determine the probable profit at different levels of sales. It
enables the management to identify that level of production beyond which it will start fetching profit or that level
below which it will incur losses. Thus, it helps in deciding the appropriate level of production.
A break-even point is depicted in the following diagram:

CONTROLLING
From the above diagram, it can be observed that the company will have a break-even point at 60,000 units.
With the help of this information, a company can control and decide upon the following aspects:
i. Ensure that production is sufficient to meet the profit target.
ii. Keep an eye on the production so that it should not fall below 60,000 so that company starts incurring losses.
iii. Can exercise cost control at various level of sales.
4. Statistical Reports:
A statistical report is a form of systematic presentation of numeric or quantitative information. Statistical reports may
be in the form of tables, graphs, comparative sheets, charts, etc. These reports provide information in a manner which
can be easily analysed and can be used to evaluate employees’ performance.
Such numeric reports are very helpful for various types of comparisons such as across time, amongst employees,
amongst organisations, etc. With the help of various statistical tools and techniques, a data set may be used to arrive at
many meaningful interpretations such as averages, regressions, variances, etc.
B. Modern Techniques:
1. Network Techniques (PERT and CPM):
Network techniques are widely used as control methods in project management. A project may be defined as a big
venture which comprises of many interconnected, interdependent and sequential activities. For the purpose of
ensuring timely and successful completion of the project, a network analysis is carried out. Thus, a network analysis
aims at planning, organising and controlling of various activities so as to complete the project in an effective and
efficient manner.
Critical Path Method (CPM):
The CPM was first developed in 1950s by DuPont, and was used in missile-defense construction projects. Critical
path method is a deterministic step by step technique for project management that defines critical and non-critical

CONTROLLING
activities so as to enable the project completion in minimum possible time and to prevent the operational problems
and process bottlenecks. The CPM is ideally suited and adopted for projects consisting of numerous activities
interacting in a complex manner and for which time and costs are certainly and precisely known.
For implementing CPM, steps to be adopted are summarised as follows:
i. Delineate the entire project into smaller tasks or activities and state them in an ordered (sequenced) list.
ii. Create a flowchart or a network showing each activity with specific preceding, concurrent and succeeding activities
in relation to the each other.
iii. Identify the critical path, i.e., the most crucial path and non-critical paths of various activities.
iv. Determine the expected completion time for each activity and then the expected completion time for the entire
project.
v. Identify the flexibility in operations, i.e., possibility of reshuffling of resources so as to focus more on activities on
critical path.
Programme Evaluation Review Technique (PERT):
PERT is a probabilistic technique of project management. This technique was first used in 1957 in USA in naval
department as a tool for planning and control of the “Polaris Missiles Programme”. Unlike critical path method, in
PERT, time duration of each activity is no longer a single-time estimate which is precisely known with certainty.
Time is a random variable characterised by a probability distribution and three time estimates are given which
are:
i. Optimistic time estimate (t0)
ii. Pessimistic time estimate (tp)
iii. Most likely time estimate (tm)
Based on these three time estimates, expected or average time for each activity is calculated with the help of the
following formula:
2. Management Information System (MIS):

MIS is a computer-based information system of collecting, storing and disseminating data in the form of information
needed by supervisors at various levels. It helps the managers to discharge their functions of management efficiently
and effectively. MIS is a mechanism which ensures up-to-date information transfer at the right time and at the right
pace so that it can be used by the managers to take decisions.
With MIS, the quality of management enhances as it provides accurate, timely and relevant information necessary for
planning, organisation and control. According to Walter Kennevan, “MIS is a formal method of collecting timely
information in a presentable form in order to facilitate effective decision-making and implementation, in order to
carry out organisational operations for the purpose of achieving the organisational goals.”
3. Ratio Analysis:

CONTROLLING
Ratio analysis is a useful technique for judging the efficiency of an organisation through analysis and interpretation of
financial statements. Absolute values of financial statements do not reveal the true financial picture and thus are not
reliable for taking managerial decisions and exercising control. Ratios by establishing relationships between two or
more values attempt to derive relevant meaning from financial statements.
These ratios being indicators of actual performance also serves as a measure of control by providing base of
comparison with standards. However, ratio analysis is not an end in itself. It is only a means of better understanding
of financial strengths and weaknesses of a firm. Ratios may be treated as symptoms from which financial health of an
organisation may be gauged.
Types of Ratios:
i. Liquidity Ratios,ii. Profitability Ratios,iii. Leverage/Solvency Ratios, iv.Efficiency Ratios, v. Market Value
Ratios
4. Economic Value Added (EVA):
Economic value added (EVA) is an internal management performance measure of a company’s financial performance
based on the residual wealth calculated by deducting its cost of capital from its operating profit, adjusted for taxes on
a cash basis. EVA can also be referred to as economic profit, and it attempts to capture the true economic profit of a
company.
EVA is calculated with the help of the following formula:
EVA = Net Operating Profit after Tax (NOPAT) – [Invested Capital x Weighted Average Cost of Capital (WACC)]
5. Market Value Added (MVA):
Market value added is an indicator which reflects the status of how much wealth has been generated by a company for
its shareholders. Since the main goal of an organisation is to maximise shareholders’ wealth, market value added is an
important measure to analyse how much value a company has added to the wealth of its shareholders. Higher the
market value added, better it is. MVA is the amount by which the market value of the company’s stock exceeds the
total capital invested in a company.
MVA is computed with the help of the following formula:
MVA = Market value of the firm – Total invested capital
Feedback & Feed-forward Control System
Feedback refers to the process of adjusting future actions on the basis of information about the past performance. The
following chart, which depicts the Feedback process involved in a management control, gives an idea of the Feedback
system.
It is thus clear from the chart that the system of management control is not just a simple process of establishing
standards, measuring performance and correcting the deviations detected, if any. This is because the Feedback system
involved in this, places control in more complex and realistic light than this simple process.Alert managers should
realise that they should not only measure actual performance, compare such measurements against standards, identify
and analyse deviations, if any, but also develop a programme for corrective action and implement such a programme
for securing the desired performance. Unless this programme for corrective action which is developed by them is
properly implemented, they cannot make the necessary corrections.

CONTROLLING
It is heartening to note that latest developments in the field of computer technology and electronic gathering,
transmission and storage/of data, etc., have led to the development of a system of ‘Real-Time’ Information. Recent
developments in electronic hardware of automatic control have reinforced the importance of this principle.
The electrical engineer refers to a closed-loop system of feedback when the information of actual performance is feed
back to the source of energy by electrical or mechanical means in an endless chain. An open loop system of feedback
involves human intervention at some point in the flow.
Real-Time information refers to the information pertaining to the actual happenings the moment events occur. These
latest technical developments collect and supply real-time data on many operations and thereby keep the management
abreast of latest developments in the organisational set-up, including data relating to sales, stock position, storage
facility, gross profit, production developments and several other important developments in the manufacturing
process.
Thus, the latest mechanical devices supply real-time information on all these important aspects as and when they
occur. Such real-time information can also serve as a means of getting real-time control in areas of importance to
managers.
However, the experience of certain managers reveals that the analysis of causes of deviations, the development of
programmes of correction as well as the implementation of these programmes may not be amendable for real-time
control as these tasks are likely to consume a lot of time.
But, this does not mean that the management should not give importance for the prompt measurement of performance.
As Koontz and O’ Donneli remark, “The sooner the managers know that activities for which they are responsible are
not proceeding in accordance with plan, the faster they can take action to make corrections.”
Feed Forward Control:
Much management, by experience, has found out that the time-lag in the management-control process necessitates
future-directed control. Otherwise, control will be ineffective. Effective management control calls for the institution
of a system of control that can give the manager, a correct and timely idea of not only taking corrective action, but
also of the possibility of the occurrence of certain problems in case they fail to do something about them now.
The managers have now realised that simple feedback of either the output of a system or the results of a programme
may not be ideal enough for securing effective control. This is because such a type of feedback is just a post-mortem
and it is not possible to change the past.

CONTROLLING
Rather, it fails to suggest a way for changing the past. It is really unfortunate that the importance of future-directed
control has been largely disregarded in practice. The reasons for this, perhaps, may be the excessive dependence by
managers on accounting and statistical data for control purposes.
Feed forward control which involves evaluation of inputs is based on the principle that an organisation is not stronger
than its weakest link. It is something like an operator trying to check the working conditions of certain important
components of a machine the moment it fails to function properly.
The management should realise that it is absolutely necessary to determine and monitor the critical inputs with any
operating system. Many managers are found to have practiced future-directed control in their own way through—(i)
careful and repeated forecasts based on the latest available information (ii) comparing what is desired with the
forecast and then (iii) taking the necessary action to introduce the necessary changes in the programme. All these are
done to make the forecasts more promising.
We generally come across certain important examples of Feed forward control in certain key areas. Important
examples are:
(i) employment of the Preventive Maintenance Programme to prevent a breakdown of machinery
(ii) Formulation of policies for preventing the possible occurrence of critical problems.
(iii) Careful planning of the availability of cash to meet requirements of future-directed control.
Designing Control System
Managers are responsible for controlling in the organization and a manager must improve the effectiveness of the
organization’s control system; as can do a great deal to improve the effectiveness of their control systems.Controlling
is the last step of management where how the implemented plan is working is assessed and evasive actions are
taken.
9 principles of the effective control system are –
1. Matching controls to plans and position
Control techniques should reflect the plans they are designed to follow. Managers need the information that will tell
them how the plans for which they are responsible are progressing.
Controls should also be tailored to positions, i.e. they may differ in between positions.
Some control techniques, such as those involving standard hours and costs, budgets, and various financial ratios, have
general application in various situations.
However, none of these techniques are completely applicable in any given situation. Managers should, therefore, be
aware, of the critical factors in their plans requiring control, and they must use techniques and information suited to
them.
Controls should also reflect the place in the organization wherein responsibility for action lies, thereby enabling
managers to correct deviations from plans.
2. Ensuring flexibility to control
Flexibility is another essential characteristic of an effective control system. This means that the control system itself
must be flexible enough to accommodate the change.

CONTROLLING
In other words, the controls should remain workable in the face of changed plans, unforeseen circumstances, or
outright failures.
The illustration may be of an organization whose diverse product lines require 101 different raw materials. The
company’s inventory control system must be able to manage and monitor the current levels of inventory for all the
101 materials.
When a change in the product line changes the number of raw materials needed, or when the required quantities of
any of the existing materials change, the control system, should be able to accommodate the revised requirements.
Yet the seniors and probably other students with certain problems may simply have to take the course and they will be
accommodated in its flexible computerized admission registration system.
3. Ensuring accuracy
Control systems must also be accurate managerial decisions based on inaccurate information that may prove costly
and harmful.
If for example, sales estimates are artificially high, a manager might either cut advertising on the assumption that it is
no longer needed or increase advertising to enhance the sale.
In either case, the action may not be appropriate.
Similarly, a manager, unaware of the hidden production cost, may quote a sales price much lower than is desirable.
The accuracy of control systems goes a long way in preventing such damaging upshots.
4. Seeking objectivity of controls
As far as possible the information provided by the control system should be objective.
If on the other hand, controls are subjective, a manager’s or an executive’s personality may influence judgments of
performance and make them less accurate.
Thus, the control system should ideally provide objective information to the manager for evaluation and action.
5. Achieving the economy of controls
A limiting factor of control: systems are their cost.
So to be effective, controls must be worth their cost.
Although it sounds simple, it is very difficult to accomplish. If tailored to the job and the size of the enterprise, control
will probably be economical.
To be precise, control techniques and approaches can be called efficient when they bring to light actual or potential
deviations from plans with the minimum of cost.
6. Tailoring control to individual managers
Control systems and information are, of course, intended to help individual managers carry out their function of
control.
If they are not of a type that a manager can or will understand, they will not be useful.
What managers cannot understand they will not be useful; what managers cannot understand they will not trust; and
what they do not trust they will not use.

CONTROLLING
7. Pointing up exceptions
One of the best ways to make control effective is to make sure that it is designed to point up exceptions.
Controls that concentrate on exceptions from planned performance allow managers to benefit from the time-honored
exception principle and detect those areas that require their attention.
8. Fitting the system of control to the organizational culture
An effective control system must fit in with the organizational culture.
For example;
if employees have been managed without allowing them any participation in decision making, the sudden introduction
of a permissive control system will hardly succeed.
On the other hand, in an organization where people have been allowed participation and freedom, the tight control
system may fail to produce positive results.
9. Ensuring corrective action through the control

An effective control system will disclose where failures are occurring and who is/are responsible for the failures and it
will ensure that some corrective action is taken.
Control is justified only if deviations from plans are corrected by an appropriate authority.
Taking the proper corrective action necessitates sufficient authority to accomplish this task.
Important Questions
Q.1 Define the term Control. Discuss the need of Managerial control. Give Examples.
Q.2 Discuss the process of control highlighting the significance of each step.
Q.3 Write a short note on “Control Techniques”.
Q.4 Write a short note on Human aspects of Control.
Q.5 Contrast between Feedback and Feed-forward control system.
Q.6 Write the different approaches to design of control systems.
Q.7 Explain Preventive Control. Write its Assumptions and Advantages.
Q.8 Write a short note on Profit & Loss control.
Q.9 Explain Controlling through return in Investment method.
Q.10 Briefly discuss the use of computer for Controlling & Decision Making.
Q.11 Write a short note on IT as a control tool.

CONTROLLING
Case Studies
1. "I heard about this variable budget idea in a management conference I attended last week," remarked Mr. Kapoor,
President of Zenith Industries, a small company whose clever new sports products had given rise to growth since its
founding five years ago to a level of 5 million in annual sales. "Some speaker said that the sound way to run a
company is to let all the department and section heads develop their own budgets. But I cannot imagine doing this in
this company. If I did, these people would spend so much money that we would soon be bankrupt. No! As long as I
am incharge of this company, I will tell my people what they can spend. There will be no blank cheques here. And I
will hold my chief accountant responsible for making sure that this company makes the profits I want. I have heard of
too many companies, with the fast growth we have had, that have gone into liquidation because optimism and
uncontrolled spending went through the ceiling. And this idea of variable budgets is even worse. Imagine what would
happen if I let everyone vary his budgets each month, quarter or year".
Solve the Case Study.
2. Description I (Purchase Manager) am faced with a dilemma. I am not between the devil and the deep sea-I am in
the deep sea and the devil is waiting on the shore. Well, the purchases in most industries are based on the production
programme which in turn is based on the sales forecast. Now firstly, the production has fallen far short of the target
and secondly, the sales forecast has failed to materialize into firm orders. The net result is that the financial position of
the company has been badly shattered. So much so, even the bills for supplies already made are not being paid in
accordance with the terms stipulated in the purchase orders. The suppliers, having made unsuccessful attempts with
the Accounts Department, are playing hell with the purchase officers. Supplier 'A': (Extract from a letter) "We regret
that our above bill has still not been paid even though the supplies were made over a month ago and, as per the agreed
terms, full payment was to be made within 2 weeks from the date the supplies are effected." (Neither this letter nor the
numerous subsequent reminders are replied to.) Supplier 'A': (Extract from another letter) "It is indeed a matter of
surprise and regret that the payment against our above bill, now overdue by over 4 months, has still not been released.
We have sent countless reminders, which have not been acknowledged. We fail to appreciate such an attitude from a
firm of your repute. We are sorry to advise that unless our payment is released immediately, we shall have no other
alternative but to discontinue all further supplies and hand over the case to our legal section for realization of our dues
together with interest accrued thereon." Supplier 'B': (Local firm-during a personal visit to the office) "You tell me to
go to your accounts department and they tell me to come to you. Well, I am not concerned with your internal affairs.
You placed the order and your man collected thematerials from our godown. What you do is your business, but you
better get me my payment, or...." Accounts "I don't have a note printing press. How can I pay until and unless the
machines are sold and money realized?" Sales "How could I know that the money market would suddenly become so
tight? All these industries had expansion plans, but now they have either been deferred or cancelled. Anyway, I am
sure, it is only a temporary phase." Production "Either we should close down this factory or the shops should be fed
with the materials they need. Today this is not there, tomorrow that is not there, and then I'll be criticized for not
achieving the production target. I am not bothered with your suppliers or their bills. I must have the materials to run
the factory. "The problem cannot, I consider, be attributed to any lack on my part, yet I am the one most directly
affected. Not only am I the natural target of suppliers' abuses, but also I am the one who will have to confront
difficulties in future procurements, because no one wants to deal with bad paymasters."
Questions 1. (a) What are the factors which are within the control and outside the control of the men and the
companies concerned?
(b) Are they doing substantially something about matters they can control?
2. (a) What is the role of the "boss" towards these departmental members?
(b) What role can each department head play? What can each one do to help the boss play a better role?

CONTROLLING

MBA I SEM FUNDAMENTALS OF MANAGEMENT UNIT - IV
Strategy
Strategy is an action that managers take to attain one or more of the organization’s goals. Strategy can also be defined
as “A general direction set for the company and its various components to achieve a desired state in the future.
Strategy results from the detailed strategic planning process”.
A strategy is all about integrating organizational activities and utilizing and allocating the scarce resources within the
organizational environment so as to meet the present objectives. While planning a strategy it is essential to consider
that decisions are not taken in a vaccum and that any act taken by a firm is likely to be met by a reaction from those
affected, competitors, customers, employees or suppliers.
Strategy can also be defined as knowledge of the goals, the uncertainty of events and the need to take into
consideration the likely or actual behavior of others. Strategy is the blueprint of decisions in an organization that
shows its objectives and goals, reduces the key policies, and plans for achieving these goals, and defines the business
the company is to carry on, the type of economic and human organization it wants to be, and the contribution it plans
to make to its shareholders, customers and society at large.
Features of Strategy
1. Strategy is Significant because it is not possible to foresee the future. Without a perfect foresight, the firms
must be ready to deal with the uncertain events which constitute the business environment.
2. Strategy deals with long term developments rather than routine operations, i.e. it deals with probability of
innovations or new products, new methods of productions, or new markets to be developed in future.
3. Strategy is created to take into account the probable behavior of customers and competitors. Strategies dealing
with employees will predict the employee behavior.
4.Strategy is a well defined roadmap of an organization. It defines the overall mission, vision and direction of an
organization. The objective of a strategy is to maximize an organization’s strengths and to minimize the strengths of
the competitors.
Strategy, in short, bridges the gap between “where we are” and “where we want to be”.
Components of a Strategy
The strategy statement of a firm sets the firm’s long-term strategic direction and broad policy directions. It gives the
firm a clear sense of direction and a blueprint for the firm’s activities for the upcoming years. The main constituents
of a strategic statement are as follows:
1. Strategic Intent - An organization’s strategic intent is the purpose that it exists and why it will continue to exist,
providing it maintains a competitive advantage. Strategic intent gives a picture about what an organization must get
into immediately in order to achieve the company’s vision. It motivates the people. It clarifies the vision of the vision
of the company.
2. Mission Statement - Mission statement is the statement of the role by which an organization intends to serve it’s
stakeholders. It describes why an organization is operating and thus provides a framework within which strategies are
formulated. It describes what the organization does (i.e., present capabilities), who all it serves (i.e., stakeholders) and
what makes an organization unique (i.e., reason for existence).

Features of a Mission -
a. Mission must be feasible and attainable. It should be possible to achieve it.
b. Mission should be clear enough so that any action can be taken.
c. It should be inspiring for the management, staff and society at large.
d. It should be precise enough, i.e., it should be neither too broad nor too narrow.
e. It should be unique and distinctive to leave an impact in everyone’s mind.
f. It should be analytical,i.e., it should analyze the key components of the strategy.
g. It should be credible, i.e., all stakeholders should be able to believe it.
3. Vision - A vision statement identifies where the organization wants or intends to be in future or where it should be
to best meet the needs of the stakeholders. It describes dreams and aspirations for future. For instance, Microsoft’s
vision is “to empower people through great software, any time, any place, or any device.” Wal-Mart’s vision is to
become worldwide leader in retailing.
An effective vision statement must have following features-
a. It must be unambiguous.
b. It must be clear.
c. It must harmonize with organization’s culture and values.
d. The dreams and aspirations must be rational/realistic.
e. Vision statements should be shorter so that they are easier to memorize.
4. Goals & Objectives - A goal is a desired future state or objective that an organization tries to achieve. Goals
specify in particular what must be done if an organization is to attain mission or vision. Goals make mission more
prominent and concrete. They co-ordinate and integrate various functional and departmental areas in an organization.
Well made goals have following features-
a. These are precise and measurable.
b. These look after critical and significant issues.
c. These are realistic and challenging.
d. These must be achieved within a specific time frame.
e. These include both financial as well as non-financial components.
Objectives are defined as goals that organization wants to achieve over a period of time. These are the foundation of
planning. Policies are developed in an organization so as to achieve these objectives. Formulation of objectives is the
task of top level management. Effective objectives have following features-
a. These are not single for an organization, but multiple.
b. Objectives should be both short-term as well as long-term.
c. Objectives must respond and react to changes in environment, i.e., they must be flexible.

d. These must be feasible, realistic and operational.

Formulation of Strategy
Strategy formulation refers to the process of choosing the most appropriate course of action for the realization of
organizational goals and objectives and thereby achieving the organizational vision. The process of strategy
formulation basically involves six main steps. Though these steps do not follow a rigid chronological order, however
they are very rational and can be easily followed in this order.
1. Setting Organizations’ objectives - The key component of any strategy statement is to set the long-term
objectives of the organization. It is known that strategy is generally a medium for realization of organizational
objectives. Objectives stress the state of being there whereas Strategy stresses upon the process of reaching there.
Strategy includes both the fixation of objectives as well the medium to be used to realize those objectives. Thus,
strategy is a wider term which believes in the manner of deployment of resources so as to achieve the objectives.
While fixing the organizational objectives, it is essential that the factors which influence the selection of objectives
must be analyzed before the selection of objectives. Once the objectives and the factors influencing strategic decisions
have been determined, it is easy to take strategic decisions.
2. Evaluating the Organizational Environment - The next step is to evaluate the general economic and
industrial environment in which the organization operates. This includes a review of the organizations competitive
position. It is essential to conduct a qualitative and quantitative review of an organizations existing product line. The
purpose of such a review is to make sure that the factors important for competitive success in the market can be
discovered so that the management can identify their own strengths and weaknesses as well as their competitors’
strengths and weaknesses.
After identifying its strengths and weaknesses, an organization must keep a track of competitors’ moves and actions
so as to discover probable opportunities of threats to its market or supply sources.
3. Setting Quantitative Targets - In this step, an organization must practically fix the quantitative target values
for some of the organizational objectives. The idea behind this is to compare with long term customers, so as to
evaluate the contribution that might be made by various product zones or operating departments.
4. Aiming in context with the divisional plans - In this step, the contributions made by each department or
division or product category within the organization is identified and accordingly strategic planning is done for each
sub-unit. This requires a careful analysis of macroeconomic trends.
5. Performance Analysis - Performance analysis includes discovering and analyzing the gap between the
planned or desired performance. A critical evaluation of the organizations past performance, present condition and the
desired future conditions must be done by the organization. This critical evaluation identifies the degree of gap that
persists between the actual reality and the long-term aspirations of the organization. An attempt is made by the
organization to estimate its probable future condition if the current trends persist.
6. Choice of Strategy - This is the ultimate step in Strategy Formulation. The best course of action is actually
chosen after considering organizational goals, organizational strengths, potential and limitations as well as the
external opportunities.

Types of Strategies
In most (large) corporations there are several strategies that are formulated and implemented in various departments
due to varied objectives.
1. Corporate strategy: Corporate strategy refers to the overarching str ategy of the diversified firm. Such a corporate
strategy answers the questions of “in which businesses should we be in?” and “how does being in these business
create synergy and/or add to the competitive advantage of the corporation as a whole?”
2. Business strategy: Business strategy refers to the aggregated strategies of single business firm or a Strategic
Business Unit (SBU) in a diversified corporation. According to Michael Porter, a firm must formulate a business
strategy that incorporates either cost leadership, differentiation or focus in order to achieve a sustainable competitive
advantage and longterm success in its chosen arenas or industries.
3. Functional strategies: Functional strategies include marketing strategies, new product development strategies,
human resource strategies, financial strategies, legal strategies, supply-chain strategies, and information technology
management strategies. The emphasis is on short and medium term plans and is limited to the domain of each
department’s functional responsibility. Each functional department attempts to do its part in meeting overall corporate
objectives, and hence to some extent their strategies are derived from broader corporate strategies. Many companies
feel that a functional organisational structure is not an efficient way to organise activities so they have reengineered
according to processes or SBUs. A strategic business unit is a semi-autonomous unit that is usually responsible for its
own budgeting, new product decisions, hiring decisions, and price setting. An SBU is treated as an internal profit
centre by corporate headquarters.
4. Operational strategy: Operational strategy was encouraged by Peter Drucker in his theory Notes of Management
by Objectives (MBO). It is very narrow in focus and deals with day-to-day operational activities such as scheduling
criteria. It must operate within a budget but is not at liberty to adjust or create that budget. Operational level strategies
are informed by business level strategies which, in turn, are informed by corporate level strategies.
Since the turn of the millennium, some firms have reverted to a simpler strategic structure driven by advances in
information technology. It is felt that knowledge management systems should be used to share information and create
common goals. Strategic divisions are thought to hamper this process.
Strategic Planning Process
The Strategic Planning (Management) Process -The strategic management process consists of three, four, or five
steps depending upon how the different stages are labeled and grouped. But all of the approaches include the same
basic actions in the same order. A brief description of these steps follows:
1. Strategic Objectives and Analysis - The first step is to define the vision, mission, and values statements of
the organization. This is done in combination with the external analysis of the business environment (PESTEL) and
internal analysis of the organization (SWOT). An organization’s statements may evolve as information is discovered
that affects a company’s ability to operate in the external environment.
2. Strategic Formulation - The information from PESTEL and SWOT analyses should be used to set clear and
realistic goals and objectives based on the strengths and weaknesses of the company. Identify if the organization
needs to find additional resources and how to obtain them. Formulate targeted plans to achieve the goals. Prioritize the
tactics most important to achieving the objectives. Continue to scan the external environment for changes that would
affect the chances of achieving the strategic goals.

3. Strategic Implementation - Sometimes referred to as strategic execution, this stage is when the planning
stops and the action begins. The best plans won’t make up for sloppy implementation. Everyone in the organization
should be aware of his or her particular assignments, responsibilities and authority. Management should provide
additional employee training to meet plan objectives during this stage, as well. It should also allocate resources,
including funding. Success in this stage depends upon employees being given the tools needed to implement the plan
and being motivated to make it work.
4. Strategic Evaluation and Control - Because external and internal conditions are always changing, this stage
is extremely important. Performance measurements (determined by the nature of the goal) will help determine if key
milestones are being met. If actual results vary from the strategic plan, corrective actions will need to be taken. If
necessary, reexamine the goals or the measurement criteria. If it becomes apparent that the strategy is not working
according to plan, then new plans need to be formulated (see Step 2) or organizational structures adjusted. Personnel
may need to be retrained or shifted to other duties. You may even have to repeat the strategic management process
from the beginning, including the information and knowledge gained from this first attempt.
TOWS Matrix
TOWS Matrix can be defined as the tool to analyze, generate, compare, and select the business strategies to attain the
overall goals and objectives of the company such as higher sales, increased profits, and enhanced brand value
amongst other crucial ones. The TOWS matrix analysis (Threats-Opportunities-Weaknesses-Strengths) also known
as SWOT Analysis. We may also call the TOWS matrix, TOWS Analysis. It is the abbreviation of threats,
opportunities, strengths & weaknesses involved in a business venture, project or any other situation that needs a
decision, are evaluated with the help of strategic planning tool of TOWS matrix analysis.
For the purpose of the formulation of the strategy, TOWS analysis is an important tool. Four kinds of strategies are
developed by the managers with the help of matching tool of (Threats-Opportunities-Weaknesses-Strengths) TOWS
matrix of marketing.
On the basis of this analysis, you may easily develop successful strategies for your business after seeing and analyzing
your competitors deeply.
1. SO Strategies (Strengths-Opportunities)
2. WO Strategies (Weakness-Opportunities)
3. ST Strategies (Strengths-Threats)
4. WT Strategies (Weakness-Threats)
The matching of internal & external factors is the most difficult part of the TOWS Matrix. When the objectives are
identified, then the TOWS are ascertained & listed. Following is the precise definition of the TOWS.
Strengths: Those attributes of the business that are supportive in the accomplishment of the objectives are regarded as
strengths.
Weaknesses: Those attributes of the business which are harmful to the accomplishment of the objectives of the
organization are regarded as weaknesses.
Opportunities: Those external conditions which are supportive to the accomplishment of the objectives of the
organization are regarded as opportunities.
Threats: Those external conditions which are harmful to the accomplishment of the objectives of the organization are
considered to be as threats.

1. Strengths and Opportunities (SO) / Maxi-Maxi Strategy

The aim of a Maxi-Maxi Strategy is to utilize internal strengths to make optimum use of the external opportunities
available to the company. In other words, the company has to utilize the strengths by using its resources to cash in on
potential opportunities.
For example, if a company has reasonably established a brand name in the market and has won the hearts of the
consumers, there lies a golden opportunity to explore the new market locations or introducing a new line of products
and services for the same target market. Such a step can turn out to be the best for the upliftment of the firm.
2. Strengths and Threats (ST) / Maxi-Mini Strategy
The aim of a Maxi-Mini strategy is to maximize the strengths of a company while minimizing the threats with the
support of these strengths. Thus, a company should take advantage of the internal strengths to avoid massive external
threats. This strategy indicates that the management of the organization can employ all the internal strengths to
counter any of the possible threats that can come in the way of the business as obstacles.
Example: In the market, there is always a cut-throat competition amongst peers or, between new and old entrants. In
such a scenario, to beat the competition, the lagging company needs to take advantage of the internal strengths such as
quality, manufacturing techniques, legacy and customer service.
3. Weakness and Opportunities (WO) / Mini-Maxi Strategy
The Mini-Maxi strategy attempts to minimize the weaknesses and to maximize the opportunities. The aim is to
revamp internal weaknesses by making use of external opportunities. The management of the company will detect
various alternatives to look past the weaknesses and take control of the opportunities that come up in the course. It is
always a wise decision to decline or correct the weaknesses and untap the opportunities.
Example: If the company doesn’t possess any expertise in any of the business domains which is necessary for the
growth and is gifted an opportunity to ally with another company that has the needed expertise, it works as a fairly
convenient situation for both the companies.

4. Weakness and Threats (WT) / Mini-Mini Strategy

The aim of the Mini-Mini strategy is to minimize weaknesses and minimize threats. This is definitely the most
defensive spot in the TOWS Matrix. It is mostly utilized when a company is in a deplorable position. In such a
scenario, the company operates in an aggressive environment and has little or no development opportunities. The
mini-mini strategy is nothing but a pessimistic style of liquidation of a company.
EXAMPLE: A company has lost its shine and glory and has lost the faith of the stakeholders. Thus, there exists a
threat of losing out on funding and investment by investors. In this case. it might close down poor-selling products,
cut down underperforming employees and build a hostile technique of selling. If optimistic, the company might look
for merging with another suitable company to leverage its expertise and resources for hanging on to funding.
Advantages of TOWS Matrix
1. TOWS Analysis helps to stumble upon strategic ideas by interconnecting the internal and external factors for
the organizations.
2. It is cost-effective in nature.
3. It’s user-friendly and can be performed by any layman after learning a few parameters.
4. TOWS Analysis can be applied to any company irrespective of the industries and economies.
5. It helps organizations to upgrade their strategies with changing dynamics.
The disadvantages of TOWS analysis include:
1. It can be cumbersome to use if you have too much information in your SWOT analysis.
2. While the matrix takes you further towards selecting a strategy than a SWOT matrix, it doesn’t choose for
you; you still need to decide upon which approach to pursue yourself.
3. The quality of the strategic options you generate from your TOWS matrix will be dependent on the quality of
the people you have in the room.
4. It doesn’t help you create a strategic advantage.
Porter’s Generic Competency Model
Porter's generic strategies describe how a company pursues competitive advantage across its chosen market scope.
There are three/four generic strategies, either lower cost, differentiated, or focus. A company chooses to pursue one of
two types of competitive advantage, either via lower costs than its competition or by differentiating itself along
dimensions valued by customers to command a higher price. A company also chooses one of two types of scope,
either focus (offering its products to selected segments of the market) or industry-wide, offering its product across
many market segments. The generic strategy reflects the choices made regarding both the type of competitive
advantage and the scope. The concept was described by Michael Porter in 1980.
Porter described an industry as having multiple segments that can be targeted by a firm. The breadth of its targeting
refers to the competitive scope of the business. Porter defined two types of competitive advantage: lower cost or
differentiation relative to its rivals. Achieving competitive advantage results from a firm's ability to cope with the five
forces better than its rivals. Porter wrote: "Achieving competitive advantage requires a firm to make a choice...about
the type of competitive advantage it seeks to attain and the scope within which it will attain it." He also wrote: "The
two basic types of competitive advantage [differentiation and lower cost] combined with the scope of activities for
which a firm seeks to achieve them lead to three generic strategies for achieving above average performance in an

industry: cost leadership, differentiation and focus. The focus strategy has two variants, cost focus and differentiation
focus."
These initial strategies as described by Porter were: Cost Leadership (cheap, no expenses), Differentiation (unique or
premium products) and Focus (a specialised service or market). He later sub-divided Focus into two different
strategies: Differentiation Focus (unique strategy differentiation in a focused market) and Cost Focus (lower costs in a
focused market).
Cost Leadership
This strategy generally consists of an organization attempting to gain a market share by appealing to cost-conscious or
cost-restricted customers or consumers. Therefore, it is the aim of the organization to become the lowest-cost
producer in their chosen industry. Although any organisation will aim to remove any unnecessary costs, those
employing this strategy prioritise lowering all overheads.
Often, this can be achieved through mass-production of products, allowing the organisation to exploit the economies
of scale; however, costs can be cut during many stages of the production process. This will allow the organisation to
sell products or services for around or below the average price for the industry, and as a result of cost-limitation will
achieve the greatest profits. These mass-produced products will often be very standard, and will exhibit little-to-no
differentiation.
Some organisations with cost leadership may also sell products for below the market average, allowing them to gain a
greater share of consumers than their competitors - particularly if their profit margins can still remain high due to low
production costs.
These organisations cannot afford to be merely among the lowest-cost producers - this leaves them open to
undercutting from rivals - instead, they need to be the lowest-cost producer.
Organisations exhibiting cost-leadership often exhibit a number of traits and attributes which make them suited for
this approach:
 Access to capital or technology required to drive costs down
 High levels of productivity
 High efficiency and capacity utilisation
 A low-cost base (e.g.labour, materials, facilities) and a method of maintaining this
 Use of bargaining power to negotiate low production costs
 Access to effective distribution channels
Differentiation
The general focus of differentiation-led organisations is to make their products different or more attractive than any
other within the industry to achieve a competitive advantage. These organisations generally target larger markets and
focus on differentiation on a much wider scale within the industry than would a cost-led company.
The methods of achieving differentiation can vary broadly across industries, products and services; however, it can
involve various features, functionality, durability, and also how the brand and the product are marketed to achieve an
image which customers value. When designing products, the organisation will focus on various criteria considered by
consumers within the industry, and will then orient themselves uniquely to meet those criteria.

Though not universally, this strategy is often associated with charging premium prices for the products or services in
question. This reflects the potentially higher production costs associated with developing unique items, and also the
extra features and uniqueness exhibited by said product. As higher prices are often a forced measure to cover
production costs, it is crucial that the differentiation of the product is appealing enough to justify these prices to
consumers.
Here are the most important traits associated with differentiation-led organisations:
 Strong research, development and innovation
 Superior product quality
 Recognizable branding, effective branding and marketing
 Industry-wide distribution within all major channels (stocked by most retailers)
Cost Focus
Cost-focus refers to organisations who seek to develop a lower-cost advantage, but only within a small market
segment. These products will generally be basic, vaguely similar to the average market-leading products (though more
popular products can be charged at a higher price) and will be acceptable to a sufficient number of customers in order
to make a profit.
An example would be budget food items or other household tools stocked only by small, local supermarkets. Another
would be a low-cost regional airline which focuses only on specific routes. These products are often referred to as "me
too's".
Differentiation Focus
In a differentiation-focus strategy, the organization will look to develop product differentiation, but only within one or
a smaller number of market segments. As these organizations have identified a smaller consumer group to focus on,
they can more specifically appeal to the needs and wants of this group than could an organisation which is attempting
to differentiate for a wider population.
For this strategy to succeed, the organisation will have to first identify that a consumer group has a different set of
needs than does the wider market population. If there is no variation in need, then there is no valid basis for
differentiation. Alongside this, the organisation also must ensure that another competitor is not already appealing to
the specific and unique needs that they have identified.
This approach is the most common niche marketing strategy. Small businesses can use this method to force
themselves into a niche, developing unique products which can be sold for higher prices than similar undifferentiated
products, often due to specialist knowledge or innovation compared with other businesses.
A good example would be craft beer companies, who can charge a higher price compared with large breweries due to
the uniqueness of their products.
Choosing the Correct Strategy

The generic strategy effectively underpins the majority of business and competitive decisions made by an
organisation. Therefore, it is crucial that it is chosen correctly.

In his work, Porter emphasised the importance of not trying to utilise more than one strategy, as each appeals to a
different consumer base, and to different organisational strengths and attributes.
For example: a small business may sometimes struggle to compete on cost within an industry dominated by large
multinational organisations.
To develop and maintain a competitive advantage, businesses should look within and identify where their strengths
lie. One way of doing so would be to perform a SWOT Analysis of the organisation. This allows a business to identify
both strengths and weaknesses, but also any specific opportunities and threats that they may face along the way.
Consider your SWOT analysis in the context of the generic strategies. For example: can your organisation possibly
reduce costs? Does it have the resources or individuals to create differentiated products?
On top of this, different analyses can be used to help with the process. Value Chain Analysis can be utilised to
identify tools and processes which are valuable to the organisation and its products, and which can be used to gain a
competitive advantage.
On top of this, Porter's Five Forces can be used to develop a greater understanding of the industry in which the
organisation lies, and the level of competitiveness within it. By applying these two analyses alongside an
organisational SWOT analysis, a business can cross-reference its strengths and attributes to the nature of the industry,
and identify whether a cost-based or a differentiation-based strategy would be most suited to them, and whether they
should be focused on a small or large segment of the market.
Forecasting
Forecasting is the process of estimation in unknown situations. Business forecasting is a systematic attempt to probe
into the future, so as to identify the threats and opportunities and achieve goals successfully by making and
implementing well designed plans of action. Business forecasting helps in analysing the economic, political and
market information to reduce the risks involved in making business decisions and long-range plans. Forecasts make
management think ahead and give singularity of purpose to planning by concentrating attention on the future.
Business forecasting involves a 'look ahead' approach in business.Business forecasting involves a wide range of tools,
including simple electronic spreadsheets, Enterprise Resource Planning (ERP) and Electronic Data Interchange (EDI)
networks, advanced supply chain management systems, and other Web-enabled technologies.
Elements of Business Forecasting –
1. Developing the groundwork: The known and available information regarding the growth of the company, the
industry in which the company is positioned, the growth of the product lines of the company, etc., is put to
investigation in the first stage. The basic purpose is to prepare a ground work on which future predictions can be
based.
2. Estimating future business: Against the backdrop of the information collected, an estimate of future prospects of
business is made by management. The trends are projected by management after a step-by-step procedure where the
information is put to close scrutiny and analysis. These probable trends should not be taken as absolute guides to
executive action, they can be taken as intelligent guesses at this stage.
3. Comparing the actual with estimated results: To ward off dangers arising from wrong anticipation, a periodic
comparison of actuals with estimated results is made at this stage. The forecast provides the measurement apparatus
and helps in tracking down reasons for major differences resulting in unanticipated gains/losses.

4. Refining the forecast process: The above three-step process helps executives in gaining proficiency in
constructing dependable forecasts. As time progresses they are able to refine, sharpen and adjust the forecasting
techniques to meet the changing needs of business.
Features or Characteristics of Forecasting –
The following features of forecasting can be identified on the basis of the above definitions:
i. Concerned with future events – Forecasting is concerned with future events. It is a systematic effort to peep into
the future. It is essentially a technique of anticipation.
ii. Necessary for planning process – Forecasting is necessary for the planning process. It is the basis for planning.
Decisions cannot be taken without the help of forecasting. Therefore, it is an integral part of the planning process.
iii. Consideration of relevant facts – Forecasting considers all factors which affect organizational functions. It is a
technique to find out the economic, social, and financial factors affecting the business.
iv. Inference from known facts – Forecasting is a systematic attempt to probe the future by inference from known
facts. It is an analysis of past and present movements so as to arrive at the conclusion about the future pattern.
v. Art of reading the future – Forecasting is not an exact science. It involves looking ahead and projecting the future
events. It requires the use of scientific, mathematical, and statistical techniques for reading the future course of events.
vi. Elements of guess-work – Forecasting involves elements of guess-work. Personal observations help in guessing
future events to a great extent. Estimates for the future are based on the analysis of past and present circumstances.
Benefits of Forecasting - The following may be said to be the advantages of business forecasting:
1. Since forecasts are the premises or basic assumptions upon which the manager's planning and decision-making are
based, business forecasting supplies vital facts and pertinent information for successful planning.
2. It helps in bringing a singleness of purpose to planning, that cannot exist easily otherwise.
3. It improves the quality of managerial planning. Example: If a company is able to anticipate the future requirements
of customers, it can plan and develop new products in an appropriate way.
4. Forecasting helps in achieving better coordination by focussing attention on the future. It helps in ensuring a
singleness of purpose to planning and objectives.
5. Forecasting helps in minimising the costly planning errors.
6. Effective forecasting helps in identifying the environmental forces and assists in providing for these challenges,
though in an imperfect way. Without business forecasting, individuals as well as organisations are at the mercy of
future events.
7. Forecasting also helps in preparing the organisation for future crisis and emergencies. The organisation, through
adequate planning measures, can buffer itself against many, if not all, of these unexpected changes. It may be
impossible to evolve necessary shock absorbers completely guard against business cycles but at least their impact can
be fairly assessed, and the unfavourable consequences can be minimised.
8. It supplies vital information regarding the weak spots in the organisation thereby paving the way to appropriate
control. Once such areas are spotted, it is easy for managers to establish checkposts for effective control and sound
planning thereafter.

Limitations of Forecasting - Forecasts are only estimates of future conditions and not indicators of actual position.
Future is shrouded by shadows of uncertainty. It is quite possible that, because of uncertainty, the best possible plan
may result in losses and a bad plan in profits. Uncertainty always places severe limitations on the efficacy of
forecasting. Forecasting suffers from the following limitations:
1. Reliability of past data. Although past events are analyzed as a guide to the future, a question is raised as to the
accuracy of these recorded events.
2. Accurate judgment is needed to identify key factors entering the forecast, interpreting data and selecting methods
of analysis and applying them to problems.
3. Single figure forecasts may be unsatisfactory, as there is a need for probability to be attached, thereby evaluating
the likelihood of the event occurring.
4. A successful forecast is something of a miracle and often occurs for wrong reasons. Prophesies of future events is
hazardous and in the case of business undertakings operating in highly volatile and turbulent environments,
forecasting is meaningless.
5. Forecasting is based largely on predictions and assumptions. Guesswork, however perfectly made, cannot eliminate
the margin of error, the possibility of mistakes.
6. The forecasting techniques have not been fully developed as yet and there is no fool proof method of predicting the
future. Thus forecasting is more of an art than a science. Its success largely depends on how skillfully it is put into
practice, how effectively the forecasting techniques have been made, etc.
Techniques of Forecasting- Many scholars have proposed a variety of ways to categorize forecasting methodologies.
The following classification is a modification of the classification developed by Gordon over two decades ago:
1. Genius forecasting: This method is based on a combination of intuition, insight, and luck. Psychics and crystal ball
readers are the most extreme case of genius forecasting. Their forecasts are based exclusively on intuition. Science
fiction writers have sometimes described new technologies with uncanny accuracy.
2. Trend extrapolation: These methods examine trends and cycles in historical data, and then use mathematical
techniques to extrapolate to the future. The assumption of all thesetechniques is that the forces responsible for creating
the past, will continue to operate in Notes the future. This is often a valid assumption when forecasting short term
horizons, but it falls short when creating medium and long term forecasts. The further out we attempt to forecast, the
less certain we become of the forecast.
3. Consensus methods: Forecasting complex systems often involves seeking expert opinions from more than one
person. Each is an expert in his own discipline, and it is through the synthesis of these opinions that a final forecast is
obtained.
4. Simulation methods: Simulation methods involve using analogs to model complex systems. These analogs can
take on several forms. A mechanical analog might be a wind tunnel for modeling aircraft performance. An equation to
predict an economic measure would be a mathematical analog. A metaphorical analog could involve using the growth
of a bacteria colony to describe human population growth. Game analogs are used where the interactions of the
players are symbolic of social interactions.
5. Cross-impact matrix method: Relationships often exist between events and developments that are not revealed
by univariate forecasting techniques. The cross-impact matrix method recognizes that the occurrence of an event can,
in turn, affect the likelihoods of other events.

6. Scenario: The scenario is a narrative forecast that describes a potential course of events. Like the cross-impact
matrix method, it recognizes the interrelationships of system components. The scenario describes the impact on the
other components and the system as a whole. It is a "script" for defining the particulars of an uncertain future.
7. Decision trees: Decision trees originally evolved as graphical devices to help illustrate the structural relationships
between alternative choices. These trees were originally presented as a series of yes/no (dichotomous) choices. As our
understanding of feedback loops improved, decision trees became more complex.
8. Economic Forecasting: Economic forecasting is one of the common types of external forecasting. The basic aim
of economic forecasting is to predict business fluctuations, i.e., fluctuations in general economic activity. Depending
on the nature of the business, these fluctuations affect the success or failure of business in various ways.
Decision Making
A decision is a choice made between two or more available alternatives decision making is a process of choosing the
best alternative for reaching objectives decision making is covered in the planning section of this text managers must
also make decision when performing the other three managerial function-organizing, influencing, and controlling- the
subject requires a separate chapters.
Managers make decision affecting the organization daily and communicate that decision to other organizational
members. Not at all managerial decision is equal significance to the organization, some affect the large number of
organization members, cost a great deal of money to carry out, or have a long term effect on the organization.
Types of Decision Making
There are two types of decision making:
- Programmed decision making

- Nonprogrammed decision making
Programmed decision making - Programmed decisions are routine and repitative, and the organization typically
develops specific ways to handle them. A programmed decision might involve determining how product will be
arranged on the selves of the supermarket. For this kind of routine, repetitive problem, standard-arrangement
decisions are typically made according to established management guidelines.
Nonprogrammed decision making - Nonprogrammed decision, in contrast is typically on shot decision that are
usually less structured than programmed decision. An example of the type of nonprogrammed decision that more and
more and more managers are having to make is whether a supermarket should carry an additional type of bread.
Functions or Characteristics of Decision Making–
Problem finding - Problem finding, as part of the intelligence phase, in conceptually defined as finding a difference
between some existing situation and some desired state. This is compared to reality, difference and identified and the
difference are evaluated as to whether they constitute a problem.
Organizational models
1. Historical models in which the expectation is based on an extrapolation of past experience.
2. Planning models in which the plan is expectation.

3. Models of other people in the organization, such as superiors, subordinates, other departments etc.
4. Extra organizational models in which expectations are derived from competition, customers and professional
organization.
Problem formulation
There is always a significant danger, when a problem is identified, as solving the wrong problem. The purpose of
problem formulation is to clarify the problem, so that design and choice activities operate on the right problem.
1. Determining the boundaries i.e. clearly identifying what is included in the problem.
2. Examining changes that may have precipitated the problem.
3. Factoring the problem into smaller sub problems.
4. Focusing on the controllable elements.
Development of alternative - A significant part of the process of decision making is the generated of alternatives to
be considered in the choice phase. The act of generating alternative is creative and creativity may be taught. Basic
creativity may be also be enhanced by alternative generation procedure and support mechanisms. The creative process
requires that there be adequate knowledge of the problem area and its boundaries domain knowledge and motivation
to solve the problem.
Advantages of Decision Making –
Gives More Information
Good decision-making process acquires enough information before taking any action. In decision making, there is a
large number of peoples involved. It is undertaken by the whole group rather than by a single individual. Each person
gives his perspective to handle a particular situation.
They all represent there facts and figures according to their skill. This generates enough information which can be
used for better understanding of the situation. This helps managers in taking corrective decisions.
Increase People’s Participation
Decision making in the organisation is done by a group of peoples working in the organisation. It is not carried out by
a single individual rather than by a group of people. Each people actively participates in decision making of the
organisation. They are free to present their creative ideas without any boundations.
Also, none of them is individually criticized for any failure but the whole group is responsible to handle. This
increases the participation level of different people in the organisation.
Provide More Alternatives
Companies are able to get different alternatives for a particular situation through group decision making. There are
different people working as a group for proper decisions. Each person looks differently to a particular problem.
They give their own perspectives and ideas for it. This way there are different options available to choose. All the
alternatives are properly analysed in light of handling situation. The best one is chosen to arrive at a better result.

Improves The Degree Of Acceptance And Commitment

Companies always face the chances of conflict among its staff working in the organisation. Through group decision
making each person gets equal right to share his views and ideas.
Here decisions are not imposed on the peoples but are created with their participation. It develops a sense of loyalty
and belongingness among people towards the business. They easily accept the decisions taken and are committed to
their roles.
Improves The Quality Of Decisions
Decision making helps in taking quality decisions at the right time. There are different experts engaged by
organisations in their decision-making group. These peoples have through knowledge and creative thinking.
They analyse each and every aspect of every alternative available to them for handling situations. Best among the
different alternatives available is chosen. It enables in quality decision making which helps in easy attainment of
objectives.
Helps In Strengthening The Organisation

It helps in improving the strength of the organisation. Decision making provides a platform to each individual
working in an organisation to equally represent their ideas. Everybody gets an equal right to take part in managing the
organisation.
It develops a sense of cooperation and unity among individuals working there. They all come together and works
towards the accomplishment of the company’s goals. This increases the overall productivity of the organisation and
strengthens its overall structure.
Disadvantages of Decision Making –
Costly
The first and foremost disadvantage of decision making is that it is too expensive to process. Decision making in
organisations involves different peoples for taking proper action. Putting different people together in one requires
large efforts. Also, it is too hard to analyse the different perspectives provided by people in a group. It all requires
large funds to systematically collect information from different people.
Time-Consuming
Decisions are of no use if they are not taken timely. Decision making involves a series of steps to be followed to
arrive at a particular conclusion. There are different people taking part in decision making. It takes times and efforts to
plan, organise and coordinate different people for meeting and have quality discussions. All these things make prove
to be time-consuming and may delay in taking proper action.
Individual Domination
This is another disadvantage of the decision-making process in an organisation. There may be a possibility that all
members are not treated equally in a group created for decision making. Few peoples may try to control the whole
affairs and may dominate over whole discussions in meetings. People differ in their knowledge and experience in
dealing with situations. This enables some people in dominating over whole group and demoralising other peoples.
Ambiguous Responsibility

Another disadvantage of decision making is that responsibility is not clear. In the case of individual decision making,
responsibility is on a single person. But in the case of group decision making, the whole group is involved and
responsibility is not clear. This reduces the scope of accountability to one person.
Decision Making Process
Managers have to make decisions, whether they are simple or extremely complex. Making a good decision is a
difficult exercise. It is the product of deliberation, evaluation and thought. To make good decisions, managers should
invariably follow a sequential set of steps. Decisionmaking is a process involving a series of steps as shown in the
Figure below.
First Step: The first step is recognition of the problem. The manager must become aware that a problem exists and
that it is important enough for managerial action. Identification of the real problem is important; otherwise, the
manager may be reacting to symptoms and fire fighting rather than dealing with the root cause of the problem. In
order to monitor the problem situation (decision-making environment), managers may have to look into management
reports, check progress against budgets, compare the results against industry competitors, and assess factors
contributing to employee efficiency or inefficiency, etc. They have to use judgement and experience in order to
identify the exact nature of the problem. In other words, the manager must determine what is to be accomplished by
the decision.
Second Step: The second step in the decision-making process is gathering information relevant to the problem.
A successful manager must have the ability to weed out the wheat from the chaff before deciding on a specific course
of action. Once aware of a problem, he must state the real problem. He must try to solve the problem, not the
symptoms. The manager must pull together sufficient information about why the problem occurred. This involves
conducting a thorough diagnosis of the situation and going on a fact-finding mission.
Third Step: The third step is listing and evaluating alternative courses of action. Developing alternative solutions
(to the problem) guarantees adequate focus and attention on the problem. It helps managers to fully test the soundness
of every proposal before it is finally translated into action. During this step, a thorough "what if" analysis should also
be conducted to determine thevarious factors that could influence the outcome. It is important to generate a wide
range of options and creative solutions in order to be able to move on to the next step. Therefore, managers should
encourage people to develop different solutions for the same problem. The ability to develop alternatives is as
important as making a right decision among alternatives. The development of alternatives is a creative, innovative
activity. It calls for divergent thinking; it calls for "systems thinking". In other words, managers should try to seek
solutions outside the present realm of their knowledge; they are forced to look into all the relevant factors before
coming up with a novel solution.
Fourth Step: Next, the manager selects the alternative that best meets the decision objective. If the problem has
been diagnosed correctly and sufficient alternatives have been identified, this step is much easier. Peter Drucker has
offered the following four criteria for making the right choice among available alternatives:
1. The manager has to weigh the risks of each course of action against the expected gains.
2. The alternative that will give the greatest output for the least inputs in terms of material and human resources is
obviously the best one to be selected.
3. If the situation has great urgency, the best alternative is one that dramatizes the decision and serves notice on the
organisation that something important is happening. On the other hand, if consistent effort is needed, a slow start that
gathers momentum may be preferable.

4. Physical, financial and human resources impose a limitation on the choice of selection. Of these, the most important
resources whose limitations have to be considered are the human beings who will carry out the decision.
Example: A company wants to strengthen its research and development. It has two options, outsource it to a well
known company or develop an in-house panel of experts.There are pros and cons of both the options. Outsourcing can
be cost effective and time saving whereas it might be difficult to control. On the other hand, developing an in-house
panel will require a lot of investment but it will be easier for the higher level managers to monitor their performance.
Managers need to weigh each pros and cons and then decide on an alternative. Here, the long term benefit should also
be considered. If the need is urgent, it is better to outsource as the other option will take time to materialise.
Final Step: Finally, the solution is implemented. The manager must seek feedback regarding the effectiveness of
the implanted solutions. Feedback allows managers to become aware of the recent problems associated with the
solution. It permits managers to monitor the effects of their acts to gauge their success. They can evaluate their own
decision-making abilities. Consistent monitoring and periodic feedback is an essential part of the follow-up process.
DecisionMaking Models
Rational decision-making model
Do you need to make a complex, high-stakes choice? Are you making this decision with other people? Are there
strong emotions around the different options? And do you have the time for serious thought and research?
Then you’ll probably want to consider using the rational decision-making model. It has six steps:
1. Define the problem
2. Identify the criteria you will use to judge possible solutions
3. Decide how important each criterion is
4. Generate a list of possible alternatives

5. Evaluate those alternatives

6. Determine the best solution
(Some sources identify additional steps, such as testing your solution before fully implementing it.)
The rational model counteracts a lot of the factors – like faulty assumptions – that can lead us to bad decisions. It can
minimize risk and uncertainty. This model is also one you can use on your own or as part of a team.
However, it's not the best model to use when you're under time constraints or in a fast-changing situation. It's also
important to remember that you won't always have all the information you need to use this model. And, even if you
do, going through the full process isn't efficient or necessary for some decisions.
Bounded rationality decision-making model

And that sets us up to talk about the bounded rationality model. You may have also heard this model called
"satisficing." Instead of rigorously seeking the best possible decision, you're just looking for a "good enough"
decision.
You can use bounded rationality when you don't have enough time or information to follow the full rational decision-
making model. Sometimes it's better to have a good enough decision sooner vs. a "perfect" decision that's delayed.
And it burns a lot less mental energy and other resources.
To help you deal with all the information you have to process and all the decisions you have to make in a day, your
brain likes to take shortcuts.
Vroom-Yetton Decision-Making Model
There's no one ideal process for making decisions. Instead, the best process to use will change based on your situation.
That's the idea behind the Vroom-Yetton decision model (sometimes known as Vroom-Yetton-Jago). The first part of
this model uses seven yes-or-no questions. Here's an example: "Is team commitment to the decision important?"
Your answers to the questions then guide you toward one of five decision-making processes to use. Options range
from making the decision based on what you know now without consulting your team to reaching a group consensus
with your team.
The flexibility of the Vroom-Yetton model is one of its strengths. Anyone at any level can use it, and it can work even
if you're in an unfamiliar situation. However, it doesn't consider personal factors for the decision-maker, the questions
may not be precise enough for some situations and it may not work as well for larger groups.
Intuitive decision-making model
You might be surprised to learn that even when you make a decision intuitively or instinctively, you're still following
a decision-making model. Intuitive decisions can happen almost instantly. But that doesn't mean they just pop into
your head. Your brain is actually doing lightning-fast pattern recognition. It's quickly reviewing everything you've
learned from similar past situations to help you make a decision in your current situation.
Researchers have found that an intuitive
decision-making model yields good results when you're dealing with areas where you have a lot of expertise or
experience. But going with your gut is less effective and efficient when you're in an unfamiliar circumstance, like a
new job. This is because you don’t have enough experience to quickly recognize patterns yet.

An interesting side note here: Sometimes a decision that we think is rational and logical is actually a lot more
intuitive. If you've considered additional options only to go back to your initial choice, you may have been following
the retrospective decision-making model.
Recognition-primed decision-making model
The recognition-primed model has a lot in common with the intuitive model. Here's how it works:
1. The decision-maker recognizes a pattern in available information.
2. They then pick a course of action and run through that "action script" in their mind.
3. If the action script seems like it will work, the decision-maker moves forward. If it doesn't seem like it will
work, the decision-maker either tweaks the script or ditches it and starts over with a new script.
Like the intuitive model, the recognition-primed model works best in situations where you can draw on deep
experience or expertise. In those cases, it's an especially handy model to use when you're under time pressure.
Policies
A policy in Management is a general statement which is formulated by an organization for the guidance of its
personnel. The objectives are first formulated and then policies are planned to achieve them. Policies are a mode of
thought and the principles underlying the activities of an organization or an institution.
According to Koontz & O ‘Donnel, “Policies were identified as guides to thinking in decision-making. They assume
that when decisions are made, these will fall within certain boundaries.” Policies do not require action, but are
intended to guide managers in their decision commitments when they do not make decisions. In the words of George
Terry, “Policy is a verbal, written or implied overall guide setting up boundaries that supply the general limits and
direction in which managerial action will take place.” Policies provide a framework within which a person has
freedom to act.
Policies acting as principles provide rules of action for achieving organization’s specific objectives. The coordinating
links in the organization are provided by policies. They govern and guide the actions of an organization’s overall
performance and its objectives in the various areas of operation-production, finance, marketing and personnel. The
clear formulation of policies helps the executives to plan every operational aspect of the enterprise. This considerably
helps them in their decision making.
Though objectives and policies are used to achieve organizational goals but both are different in essence. The
objectives are the goals and the policies are the ways to achieve them. The objectives are the end points of planning
and policies prescribe the broad ways for achieving them. A policy gives guidelines and leaves scope for
interpretation for the person implementing them. This means that a policy has the flexibility for interpretation. A rigid
policy becomes a rule.
Features of a Policy:
(i) A policy is a standing plan which provides answers to recurring problems of a similar nature. It provides
answers/guidelines to the members of an organization for deciding the future course of action. A policy provides and
explains what a member should do rather than what he is doing.
(ii) A policy limits an area within which a decision is to be taken for the achievement of organizational goals. It
avoids repeated analysis of situations and allow delegation of powers and still retaining control over actions.

(iii) Policies are models of thought and principles underlying the activities of an organization. They guide the
behaviour and decisions of the executive.
(iv) Policies are framed by all managers in the organization. There is a need for giving guidelines for future course of
action at every level of management. However, the importance of policy differs according to the level of management.
At higher level of management important policies are decided while at lower level some less important or minor
policies are required.
Types of Policies -
1. Major Policies:
Major policies are those which give a unified direction to an enterprise and imply a commitment of resources. These
policies give shape to an enterprise in the accomplishment of its purpose. They should also be supportive to the
organizational objectives.
2. Supportive Policies:
Besides major policies, there is a need to have supportive policies also. Supportive policies are meant to help in
implementation of major policies. A concern may have the development of a new product as a major policy, the
research to find out the unfulfilled needs of consumers may be a supportive policy.
3. Minor Policies:
The policies which do not influence main objectives of the enterprise may be called minor policies. These policies
may relate to some routine matters of less importance. A policy may be to hire casual workers in case of emergencies.
A manager may allow workers to go on leave if the workload is less. The policies relating to such matters may be
called minor policies. These policies do give directions but are not of much significance.
4. Composite Policies:
Some concerns have a number of policies or group of policies. To increase sales, a concern may follow expansion,
taking up of similar products, following aggressive marketing etc. To achieve one objective a number of policies may
be used, these are composite policies.
Advantages of policies -
(a) All the members of the organisation can be guided as to the exact interpretation of policies so that they all possess
a common understanding.
(b) It can be more easily reviewed from time to time to meet changing conditions.
(c) It can be checked more readily for compliance within the organisation.
(d) Policies becomes available in the same form to all concerned.
(e) They can be communicated and taught to new employees more readily.
(f) The process of writing down policies forces the managers concerned to think through more clearly about the
policy.

Limitations of Policies-
1. No Universal Solutions:
Policies do not offer universal solutions to all problems. Policies are framed under particular situations and remain
suitable under those circumstances only. The fast changing economic, social and political situations influence the
working of an enterprise. New policies are required under changed situations. This problem can be met by constantly
evaluating policies. Policies may be modified as per the requirements of new situations.
2. No Instant Solutions:
Policies do not provide instant solutions to problems. These are only guidelines for the decision-makers. The solutions
are to be found by the executives themselves. Policies cannot replace human judgment under any circumstances.
3. Dampen Human Initiation:

Too many policies kill the initiative of managers. They become habituated to act according to policies and do not try
to their judgment. Policies also leave little room for individual initiative.
4. No Substitute for Human Judgment:
Policies do not provide standard solution to various problems. They are only guidelines which help managers in
taking decisions. Managers have to judge the things according to the prevailing environment. Human judgment cannot
be substituted by framing policies meticulously.
Principles of Policy Formulation
Policy formulation is an important aspect of planning. The smooth working of an organization requires the
formulation of policies. A well thought exercise is essential to formulate sound policies.
Following principles should be followed for formulating a policy:
1. Defining Policy Area:
The area for which a policy is to be framed should be defined. The objectives and needs of the organization should be
kept in mind while specifying the policy area. While framing a marketing policy, the marketing expectations and
thrust areas should be kept in mind. The scope of the policy will depend upon the area which it is supposed to cover.
So first thing in policy framing is to decide the area which it will cover.
2. Identifying Policy Alternatives:
The second step in policy formulation is the identification of policy alternatives. The alternatives should be decided
on the basis of an analysis of external and internal environment. The internal environment will tell about the strengths
and weaknesses of the organization while external environment will reveal opportunities and level of competition.
Every alternative must ensure that the objective of the policy will be achieved.
3. Evaluating Alternatives:
All the alternatives are evolved in the light of organizational objectives. It should be analysed as to what contribution
these alternatives will make in helping the organization for achieving its objectives. The factors like cost, benefits,
resource requirement of each alternative should be properly assessed. The effect of various alternatives on the
environment of the organization should also be analyzed.
4. Selection of a Policy:

After proper evaluation, most appropriate alternative is selected. The selection of a policy is a long term commitment.
In case the alternatives do not look satisfactory then efforts should be made to develop other alternatives.
5. Trial Run of a Policy:
The policy should be implemented on a trial basis. It should be assessed if the policy is achieving the desired
objectives. There may be suggestions during the test run, these should be used to modify the policy. Ultimately the
policy should achieve the desired results otherwise a new policy alternative should be thought of.
6. Implementing Policy:
If the policy is finally alright it should be implemented. The policy should be explained to those who are to implement
it. There should be a proper discussion about the implications and impact of various clauses or provisions of the
policy. Proper communication of the purpose and objective of the policy will help it in its implementation.
Important Questions
Q.1 What is Strategy? Why do organizations develop strategies?
Q.2 Write a short note on Formulating a company’s strategies.
Q.3 Explain the types of Strategies.
Q.4 Describe the process of Strategic Planning and Implementation.
Q.5 Explain TOWS Matrix with a Diagram.
Q.6 Write a short note on Generic Competitive Strategies By Porter.
Q.7 What is Forecasting? Discuss the Characteristics of Forecasting.
Q.8 Write a short note on Decision Making.
Q.9 Explain the Decision Making Process.
Q.10 Define Policy. Explain types of Policies.
Q.11 What are the principles of Formulation of Policies?
Case Studies
1. M r. C.S. Sharma joined in 1970 in Indian Institute of Technology – a premier educational institution in the country
imparting higher level education in technology. His job demanded higher level and latest knowledge, higher level
teaching skill, and other skills in introducing and practising different teaching methods and bringing coordination
between the institute and industry. The institute implemented the pay scales in 1976 recommended by the University
Grants Commission which were at par with the pay scales of teachers in Universities and Colleges. The demands of
the jobs in Universities and Colleges are quite low compared to those of the Institute. The pay of Mr. Sharma has been
fixed at that level of Mr. Singh, who joined the Institute in 1974 as the University Grants Commission did not
recommend any weightages for the teachers who put up less than five year's experience. Mr. Sharma was quite
unhappy over the parity of salary of the teachers of the institute with those of university teachers and College teachers
on the one hand and equalising his pay with his junior Mr. Singh on the other hand. The Institute again revised the pay
scales of the teachers in 1987 based on the pay scales recommended by the University Grants Commission in 1986.
University Grants Commission again maintained parity in pay scales of Institute teachers, University teachers and
College teachers. The pay scale of Mr. Sharma was revised and it was fixed at 3,700 which was equal to the pay of

Mr. Singh, Mr. Kulkarni, who joined the institute in 1984 andMr. Prasad, who Joined the Institute in 1986. Mr.
Sharma rushed to the chambers of the Director of the Indian Institute of Technology on 20th July, 1988 and told him
he was quitting the job in the Institute and he was going to join Government Degree College, Rajahmundry. He
further said that he was going to get the same salary in a small town. The Director was shocked after listening to Mr.
Sharma.
Questions 1. Do you justify the decision made by Mr. Sharma?
2. Do you suggest any measures to stop Mr. Sharma from quitting the job?
2. Microsoft Corporation was founded to develop and sell BASIC interpreters for the Altair 8800. But due to its
unique system of management, the company rose to dominate the home computer operating system market with MS-
DOS in the mid-1980s, followed by the Windows line of operating systems. It's quite well known that its products
have all achieved near-ubiquity in the desktop computer market. Throughout its history, Microsoft has been the target
of criticism, including monopolistic business practices and anti-competitive strategies. But it has always been the
most sought after employer among the best talent in the industry.The reason for the excellence of Microsoft goes to
the leadership of Mr Bill Gates and his policies in which he propagates MBO
1. Eliminate politics, by giving everybody the same message.
2. Keep a flat organisation in which all issues are discussed openly.
3. Insist on clear and direct communication.
4. Prevent competing missions or objectives.
5. Eliminate rivalry between different parts of the organisation.
6. Empower teams to do their own things.
Questions 1. What is the prime reason for the success of Microsoft? s
2. Analysing the caselet above, state whether the following are true or false.
(a) Round table conferences involving the concerned authorities are the best way to solve an issue.
(b) Competition among different teams within the organisaion increases their productivity.
(c) The teams should have independence as long as it doesn't hamper their performances.

Fom Mba (MM)

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Fom Mba (MM)

Uploaded by

Copyright:

Available Formats

MBA I SEM(MM) FUNDAMENTALS OF MANAGEMENT UNIT - I

Concept and Characteristics Of Management

CH Institute of Management & Commerce Page 1

 Relationship among resources: The essence of management is integration of various organizational

Is Management a Science or an Art?Judging from thecharacteristics of science, it may be observed that:

CH Institute of Management & Commerce Page 2

CH Institute of Management & Commerce Page 3

CH Institute of Management & Commerce Page 4

Monitor role - the manager receives and collects information.

Taylor’s Scientific Management

c. The workers only concentrate on doing the work

2. Scientific Selection, Training & Development of Workers

CH Institute of Management & Commerce Page 5

CH Institute of Management & Commerce Page 6

Fayol’s Principle of Management

CH Institute of Management & Commerce Page 7

CH Institute of Management & Commerce Page 8

The Human Relations School And System Theory

CH Institute of Management & Commerce Page 9

CH Institute of Management & Commerce Page 10

CH Institute of Management & Commerce Page 11

CH Institute of Management & Commerce Page 12

Developing Excellent Managers

CH Institute of Management & Commerce Page 13

CH Institute of Management & Commerce Page 14

Define Management. Discuss the Characteristics or Nature of Management.

CH Institute of Management & Commerce Page 15

CH Institute of Management & Commerce Page 1

CH Institute of Management & Commerce Page 2

CH Institute of Management & Commerce Page 3

CH Institute of Management & Commerce Page 4

Advantages & Limitations of Planning

CH Institute of Management & Commerce Page 5

5. Planning helps in achieving economies.

CH Institute of Management & Commerce Page 6

5. False sense of security

CH Institute of Management & Commerce Page 7

2. Labour Union- Strikes, lockouts, agitations.

CH Institute of Management & Commerce Page 8

Objectives and Its Types

CH Institute of Management & Commerce Page 1

Importance and purpose of organizational objectives

CH Institute of Management & Commerce Page 2

CH Institute of Management & Commerce Page 3

5. Divide your goals into smaller goals :

Steps in Management by Objectives Process -

CH Institute of Management & Commerce Page 4

Benefits & Weaknesses of MBO

CH Institute of Management & Commerce Page 5

CH Institute of Management & Commerce Page 6

Nature & Purpose of Organizing

CH Institute of Management & Commerce Page 1

Organization is a Machine of Management: Organization is considered to be a machine of management

CH Institute of Management & Commerce Page 2

CH Institute of Management & Commerce Page 3

 Merits of Departmentation by function

 Demerits of Departmentation by function

 Merits of Departmentation by Territory

 Demerits of Departmentation by Territory

CH Institute of Management & Commerce Page 4

 Merits of Departmentation by Process

 Merits of Departmentation on basis of Product