GNANODAYA DEGREE COLLEGE(5043)-KAMMARPALLY

BUSINESS ORGANISATION AND MANAGEMENT (BOM)

B.COM (CA) 1ST YEAR SEMESTER-I NOTES
UNIT-I
Q) Classification of Business Activities
Business is the buying, selling & exchange of goods & services for-profit service or motive
is commonly known as business. The term business is derived from the word ‘busy’. In a
specific sense, business activities refer to any occupation in which people regularly engage
in an activity with a view to earning the profit.
Into two broad categories, various business activities can be classified-
1.Industry 2. Commerce
Industry
The sector where raw material gets converted into useful products is called industry.
Activities related to production & processing as well as activities related to rearing &
reproduction of animals or other living species are all included in the industry. The
purpose of industry is to create form utility by converting raw materials into useful forms
of finished products.
An industry may produce consumer goods or capital goods. Goods such as bread, butter,
cloth, radio, etc. are consumer goods. These goods are directly used by the consumer.
Goods such as machinery, cement etc. are called capital goods as these are used further in
the production process to make useful products.
Industry can be classified into three broad categories.
 Primary industry
 Secondary industry
 Tertiary industry
Primary Industry
This is also known as extractive industries. It includes activity connected with the
production of wealth directly from natural resources such as water, air, & land etc. Primary
industry includes activities like extraction & processing of natural resources etc. These
industries are further subdivided as follows:
 Extractive industry: These industries extract or draw out products from natural
sources. Raw materials that are mostly products of the soil are some basic supply of
extractive industries. Manufacturing industries transform these products into many
other useful goods. Some of the examples of extractive industries include farming,
mining, lumbering, hunting & fishing operation.
 Genetic industry: The industries involved in the activities of rearing & breeding of
living organism i.e. birds, plants, animals etc. are known as a genetic industry. For
example, rearing of cattle for milk, dairy farms, poultry farms, rearing of plants in
the nursery, growing fish in ponds etc. are included in the genetic industry.
Secondary Industry
This industry is concerned with converting raw material into finishing product. The
materials which have already been extracted at the primary stage is the concern of the
secondary industry. Such materials are processed to produce goods for final consumption
or for further processing by other industrial units in these industries. Secondary industries
may be further divided as follows:
 Manufacturing industries: These industries are engaged in the process of
conversion of raw materials or semi-finished goods into finished goods. These
industries create from the utility by changing the form of raw materials into finished
products.
 Construction industries: These industries are concerned with the construction of
buildings, dams, roads etc. These industries use the products of manufacturing
industries such as cement, iron & steel, lime etc.
Tertiary Industry
These industries are concerned with providing those services which facilitate a flow of
goods & services. This industry helps in the activities of the primary & secondary industry.
Commerce
We can refer to commerce as all those activities which help directly or indirectly in the
distribution of goods to the ultimate consumer. There will be no use of producing goods
unless & until these goods reach the ultimate consumer. Goods are produced at one place
& consumers are scattered at different places. Commerce can be classified into two broad
categories:
1.Trade 2.Aids to trade
Trade
Trade is an integral part of commerce. It includes buying & selling of goods & services. The
trade segment of commerce brings together the manufacturer & the consumer, i.e. it is a
link between the manufacturer & the consumer.
Trade can be classified into two types:
 Internal trade: It refers to buying & selling of goods or services within the
geographical boundaries of a country. It is also known as home trade or domestic
trade. Under internal trade, goods & services are bought & sold in the home currency
only. The internal trade can be two types:
a. Wholesale trade
b. Retail trade
 External trade: When the buying & selling of goods & services is beyond the
geographical limits of the country it is called external trade. It is also known as trade
between two or more countries. In external trade, the market is very wide. External
trade is of the following types:
1.Export trade 2.Import trade 3.Entrepot trade
Aids to Trade
The activities which help in the smooth flow of trade are known as aids to trade. These
activities make buying & selling of goods easier. These help in removing various
hindrances of trade which arises in production & distribution of goods. The common aids
to trade are:
 Transport & communication
 Banking & finance
  Insurance
 Warehousing
 Advertising

Q) Objectives of Business
Business needs objectives, without objectives the business is like a car without headlights
driving blind. Objectives of business are the purpose for which the business is established
and performed.
The objectives of a business can be classified into two main categories, which are
1. Economic objectives 2.Social objectives
1. Economic Objectives of Business
We learned in the previous topic that business is an economic activity. Hence, its purpose
is to show economic results. Let’s understand the economic objectives of the business.
They are as follows:
A] Profit Earning
Business is a set of activities undertaken with the prospect of sale for the purpose of
earning a profit. Profit is the extra income over the expenses. The main objective of any
business is to earn a profit. Just as a plant cannot survive without water, similarly a
business cannot sustain without profit.
B] Market Share / Creation of Customers
In the words of Drucker, “There is only one valid definition of business purpose; to create a
customer. “ Profits are not generated out of thin air. They are the result of the hard work of
the businessman to satisfy the needs of the customers.
C] Innovation & Utilization of Resources
Innovation normally means to change processes or creating more effective processes,
products and ideas. Nowadays, business is ever-changing and dynamic. To keep up with
the growing competition a businessman has to introduce efficient design, latest trends,
upgraded machinery, new techniques, etc.
D] Increasing Productivity
Productivity is a scale to measure the efficiency of the business activity. It is usually the last
objective but just as important because productivity is measured by the output given by the
activities. It is the end result of any business activity. Each business must go for more
prominent productivity – to guarantee its survival and development. This goal can be
accomplished by decreasing wastages and making proficient utilization of machines and
supplies, HR, cash and so forth.
2.Social Objectives of Business
According to Dayton Hudson “The business of business is serving society, not just making
money.” Business is one of the pillars on which the society stands. Therefore, it is a part of
the society. In fact, it cannot thrive without the resources from the society. The business
earns its income from the sale of products and services to the society. It is mandatory on
the part of the business to take care of the social factors. The necessary social objectives of
a business are as follows:
A] Providing Goods & Services at Reasonable Prices
Business exists in the first place to satisfy the needs of the society. It’s the first and major
social objective of the business. Products and services ought to be of better quality and
these ought to be provided at sensible costs. It is additionally the social commitment of
business to keep away from misbehaviors like boarding, Black promoting and
manipulative advertising.
B] Employment Generation
One of the major problem today’s generation facing is unemployment. Business generates
employment. Therefore, it is the social objective of a business to give chances to beneficial
employment to individuals of the society. In a nation like India, unemployment has turned
into a critical issue.
C] Fair Remuneration to Employees
The business does not run on its own but the people are responsible for the success and
failure of the business. The people on the inside of the business are more valuable i.e.
employees. They are an asset of the business and make a ground-breaking contribution to
the business. They must be given reasonable pay for their work.
D] Community Service
Business must give back something to the society. As a result, the Library, dispensary,
educational foundations and so on which a business can make and help in the
advancement of society are created. Business enterprises can build schools, colleges,
libraries, hospitals, sports bodies and research institutions. They can help non-government
organizations (NGOs) like CRY, Help Age, and others which render services to weaker
sections of society.
Question) Important Functions of Business
The various functions of business can be grouped into the following
broad categories:
1. Production Function;
2. Marketing Function;
3. Finance Function;
4. Human Resource Function;
5. Management Information Function;
6. Innovation (Research & Development).
1. Production function:
Production is the creation of goods and services with the help of certain
processes. The production of goods depends essentially on the organisation of
men, money, materials, and facilities into a smoothly operating business. In
modern organisations, production is highly organised, mechanized, and
specialised mass production, and, therefore, its overall charge is entrusted to
the Production Manager.
2. Marketing function:
Marketing is the process of getting goods and services into the hands of the
consumer with a view to satisfying the needs and desires of consumers and
producers. In other words, the marketing function creates a process through
which producers and consumers are brought together in an exchange
relationship and transfer of ownership takes place.
3. Finance function:
Finance function of business is basically responsible for three decisions and
their proper implementation, viz., (i) investment decisions (financial planning,
capital budgeting, etc.) (ii) Financial decisions (capital structure—fixed and
working; short and long-term and (iii) dividend decisions.
4. Human Resource (HR) function:
The HR function deals with the human side of business. It is concerned with
increasing the effectiveness of human performance in any organisation.
Specifically stated, the HR function aims at obtaining arid maintaining a
capable and effective workforce, motivating the employees individually and in
groups to contribute their maximum to the fulfilment of organisational goals.
5. Information function:
Like production, marketing, finance, and human resource, the information
function is equally important in a modern business. It is being increasingly
recognised that the modern business cannot be managed without the
assistance of efficient information function. The information function is
basically concerned with records.
6. Innovation:
“An innovation is the implementation of a new or significantly improved
product (good or service), or process, a new marketing method, or a new
organisation method in business practice, workplace organisation or external
relations.” Thus, innovation, which means creativity as well, is more of a
philosophy and the entire business function needs to adopt it.
QUESTION) Definition ofSole Proprietorship, Features, Characteristics,
Advantages and Dis-advantages?
Sole Proprietorship in simple words is a one-man business
organisation. Furthermore, a sole proprietor is a natural person(not
a legal person/entity) who fully owns and manages this type of
entity.
Definition
According to Davidson, “A sole proprietor carries business for his profit
bearing all risks”.
 B .O. Wheeler defines sole proprietorship as “The forms of business
ownership which is owned and controlled by a single individual”.
Koontz and Fulmer define, “A sole proprietorship is a business owned
and controlled by one person”.
Features of Sole Proprietorship
 One Man Ownership.
 No Separate Business Entity.
 So Separation between Ownership and Management.
 Unlimited Liability.
 All Profits or Losses to the Proprietor.
 Fewer Formalities.
One Man Ownership
In a proprietorship, only one man is the owner of the enterprise.
No Separate Business Entity
No distinction is made between the business concern and the proprietor.
Both are the same.
So Separation between Ownership and Management
In a proprietorship, management rests with the proprietor himself/herself.
The proprietor is a manager also.
Unlimited Liability
Unlimited liability means that In case the enterprise incurs losses, the
private property of the proprietor can also be utilized for meeting the
business obligations to outside parties.
All Profits or Losses to the Proprietor
Being the sole owner of the enterprise, the proprietor enjoys all the profits
earned and bean the full burnt of all losses incurred by the enterprise.
Fewer Formalities
A proprietorship business can be started- without completing many legal
formalities. There are some businesses that, too, can be started simply after
‘obtaining necessary manufacturing license and permits.
Characteristics of Sole Proprietorship
 Single Ownership.
 No Sharing of Profit and Loss.
 One man’s capital.
 One-man Control.
 Unlimited Liability.
 Less Legal Formalities.
 Single Ownership
A single individual always owns a sole proprietorship form of business
organization. That individual owns all assets and properties of the business.
Consequently, he alone bears all the risks of the business.
No Sharing of Profit and Loss
Nobody else shares the profit and loss of the business with the sole
proprietor.
One man’s capital
The capital required by a sole proprietorship form of business organization
is arranged by the sole proprietor.
One-man Control
The controlling power in a sole proprietorship business always remains
with the owner..
Unlimited Liability
The liability of the sole proprietor is unlimited.
This implies that in case of loss, the business assets, along with the personal
properties of the proprietor, shall be used to pay the business liabilities.
Less Legal Formalities
The formation and operation of a sole proprietorship form of the business
organization require almost no legal formalities.
It also does not require to be registered.
Advantage of Sole Proprietorship
 Easy to Form and Wind up.
 Direct Motivation.
 Quick Decision and Prompt Action.
 Better Control.
 Maintenance of Business Secrets.
 Close Personal Relation.
 Flexibility in Operation.
 Encourages Self-employment.
Easy to Form and Wind up
A sole proprietorship form of business is very easy to form.
With a very small amount of capital, you can start the business.
Direct Motivation
The profits earned belong to the sole proprietor alone, and he bears the risk
of losses as well. Thus, there is a direct link between effort and reward.
 Quick Decision and Prompt Action
In a sole proprietorship business, the sole proprietor alone is responsible
for all decisions. Of course, he can consult others. But he is free to make any
decision on his own.
Better Control
In sole proprietorship business, the proprietor has full control over every
activity of the business. He is the planner as well as the organizer, who
efficiently co-ordinates every activity.
Maintenance of Business Secrets
Business secrecy is an important factor for every business. It refers to
keeping the plans, technical competencies, business strategies, etc., secret
from outsiders or competitors.
Close Personal Relation
The sole proprietor is always in a position to maintain good personal
contact with the customers and employees.
Flexibility in Operation
The sole proprietor is free to change the nature and scope of business operations as and
when required as per his decision.
Encourages Self-employment
Sole proprietorship form of business organization leads to the creation of employment
opportunities for people. Not only is the owner self-employed, but sometimes he also
creates job opportunities for others.
Disadvantages of Sole Proprietorship
 Limited Capital.
 Unlimited Liability.
 Lack of Continuity.
 Limited Size.
 Lack of Managerial Expertise.
Let us learn those limitations.
Limited Capital
In sole proprietorship business, it is the owner who arranges the required capital of the
business. It is often difficult for a single individual to raise a huge amount of capital.
Unlimited Liability
In case the sole proprietor fails to pay the business obligations and debts arising out of
business activities, his personal properties may have to be used to meet those liabilities..
Lack of Continuity
The existence of a sole proprietorship business is linked to the life of the proprietor. The
illness, death, or insolvency of the owner brings an end to the business. The continuity
of business operation is, therefore, uncertain.
Limited Size
In the sole proprietorship form of business organization, there is a limit beyond which it
becomes difficult to expand its activities.
Lack of Managerial Expertise
A sole proprietor may not be an expert in every aspect of management. He/she may
be an expert in administration, planning, etc., but maybe poor in marketing.
QUESTION)Partnership | Features | Advantages | Disadvantages
Partnership as such is an agreement between two or more persons to carry on business
with profit motive, carried on by all or any one of them acting for all.

Features of Partnership
The essential features and characteristics of a partnership are:

1. Agreement: The partnership arises out of an agreement between two or more

persons.
2. Profit sharing: There should be an agreement among the partners to share the
profits of the business.
3. Lawful business: The business to be carried on by a partnership must always be
lawful.
4. Membership: There must be at least two persons to form a partnership. The
maximum number is 20. But in case of banking business the maximum is 10 members.
5. Unlimited liability: The liability of every partner is unlimited, joint and several.
6. Principal-agent relationship: Every partner is an agent of the firm. He can act on
behalf of the firm. He is responsible for his own acts and also for the acts done on behalf
of the other partners.
7. Collective management: The firm and the partners are one. When a contract is
made in the name of the firm all the partners are responsible for it individually and
collectively.
8. Non-transferability of shares: A partner cannot transfer his share of interest to
others without the consent of the other partners.
Advantages of Partnership
The following are the advantages of partnership business:

1. Easy to form: A partnership firm can be formed without any legal formalities and
expenses. Even if the fum is to be registered, the expenses are not much compared to
company form of organization.
2. Access to more capital: A firm consists of more than one person. Therefore it can
secure more capital from combined resources.
3. Skill and talent: Talented persons may be taken as partners. More skill and talent
will be available..
4. Division of labor: Division of labor can be introduced which increases the efficiency
in the management. One partner may take care of purchases, another sales, a third
accounts and so on.
5. Contact with customers: All the partners in a firm may take part in the
management of the business. So, they get in touch with the customers during the course
of the business. It enables them to study the tastes and needs of the customers.
6. Borrowing capacity: The creditors will lend Loans not only on the basis of the
firm’s assets but also based on the personal properties of the partners. So the borrowing
capacity of a firm is more.
7. Expansion of business: Due to the availability of sufficient finance and skill the
business can be expanded very easily.
8. Wise decisions: In partnership, decisions are taken with the consultation of all the
partners. So naturally the decisions are wiser and more beneficial.
9. Co-operation between partners: The partnership enables partners to provide
mutual help to each other. Partners behave as members in a joint family.
10. Flexibility: Changes in the business can be adopted easily. There are no legal
restrictions.
11. Maintenance of secrets: Business secrets can be maintained easily if the number
of partners in a firm are limited.
Disadvantages of Partnership
The following are the disadvantages of a partnership firm:

1. Division of responsibility: In a partnership the management is divided. As such

responsibilities are also divided. Every partner might try to shift the burden on to the
shoulders of others; finally none takes the responsibility properly.
2. Delay in decisions: Sometimes the partners may not agree with one another in
taking decisions. As a result partners will not be in a position to take quick decisions.
3. Lack of continuity: A partnership gets dissolved on the death, insolvency, insanity
or retirement of any partner. So, there is no guarantee for the continuity of the firm.
4. No transferability of share: In a firm the partner cannot transfer his share of
interest to others without the consent of the other partners.
5. Lack of secrecy: It may not be possible to maintain secrecy in partnership because
of the number of partners.
6. Unlimited liability: The creditors of a firm can recover their loan amounts from the
personal properties of the partners when the firm’s sources are not enough. Therefore
the personal properties of the partners are not safe..
7. Joint and several liability: Every partner is jointly and separately liable for the
firm’s debts. In case of insolvency of partners, the solvent partners have to pay the debts
of the insolvent partners also.
8. Internal conflicts: Differences and disputes among the partners are very common.
These conflicts harm the firm as a whole.
9. Misuse of assets: The partners may use the assets of the firm for their personal
purposes. Misuse of assets is harmful to business interests.
Difference between Partnership and Sole Proprietorship form of Business
Organization

Basis of
Partnership Sole Proprietorship
Difference

No agreement is required to start the

It can be formed only based on an business. It is formed at any time
1. Formation
agreement among the partners. whenever desired by the sole
proprietor.

2.Ownership and Owned, controlled, and managed by This is completely owned, controlled,
Management partners. and managed by the sole proprietor.

3. No. of Minimum two and maximum 10 in

Only one member.
members banking and 20 in other businesses.

Capital is provided by partners in an Capital is arranged by sole proprietor

4. Capital
agreed ratio. alone.

It takes time to decide upon

Decision-making is very quick
5. Decision- important matters because all the
because there is no need to consult
making partners must be consulted for
anyone else to make a decision.
making a decision.

The question of the sharing of profits

6. Sharing of Profits and losses are shared by
or losses does not arise. The sole
profit and loss partners as per the agreement.
proprietor alone takes all profits and
 UNIT-II
Question)Company: Meaning, Characteristics and
Kinds/Types/Classification of companies
Definition of Company:
1.According to Justice James, “A company is an association of persons united for a
common object.”
2.According to Prof. Haney, “A company is an artificial person created by law having a
separate entity with a perpetual succession and a common seal.”
3.Section 2(20) of the Companies Act, 2013, defines the term ‘Company’ as follows:
“Company means a company incorporated under this Act or under any
previous company law.”

Characteristics/Features of Company:
1. An Artificial Person Created by Law:
A company is a creation of law, and is, sometimes called an artificial person. It
does not take birth like natural person but comes into existence through law.
2. Separate Legal Entity:
A company is an artificial person and has a legal entity quite distinct from its
members. Being separate legal entity, it bears its own name and acts under a
corporate name; it has a seal of its own; its assets are separate and distinct
from those of its members.
3. Perpetual Succession:
The life of company is not related with the life of members. Law creates the
company and dissolve it. The death, insolvency or transfer of shares of
members does not, in any way, affect the existence of a company.
4. Common Seal:
On incorporation a company becomes legal entity with perpetual succession
and a common seal. The common seal of the company is of great importance.
It acts as the official signature of the company.
5. Limited Liability:
he limited liability is another important feature of the company. If anything
goes wrong with the company his risk is only to the extent of the amount of
his shares and nothing more.
6. Transferability of Shares:
A shareholder can transfer his shares to any person without the consent of
other members. Under Articles of Association, a company can put certain
restriction on the transfer of shares but it cannot altogether stop it. Private
company can put more restrictions on the transferability of shares.
7. Representative Management:
The shareholders of company are widely scattered. It is not possible for all the
shareholders to take part in the management. They leave their task to the
representatives the Board of Directors and the company is managed by Board
of Directors.
8. Termination of Existence:
A company is created by law, carries on its affairs according to law and
ultimately is affected by law. Generally, the existence of a company is
terminated by means of winding up.

TYPES/CLASSIFICATION OF COMPANIES:
A. Types of Company on the basis of Incorporation
1. Statutory Companies :
These companies are constituted by a special Act of Parliament or State Legislature.
These companies are formed mainly with an intention to provide the public services.
Examples Reserve Bank of India, Life Insurance Corporation of India, etc.
2. Registered Companies:
Companies registered under the CA, 2013 or under any previous Company Law are
called registered companies.Such companies comes into existence when they are
registered under the Companies Act and a certificate of incorporation is granted to it
by the Registrar.

3.Chartered Companies:
A chartered company is created by the charter or special sanction granted by the Head
of the State giving certain exclusive privileges, rights and powers to a distinct body of
persons for undertaking commercial activities in specified geographical areas .

B. Types of Company on the basis of Liability

1. Companies limited by shares:
A company that has the liability of its members limited by the memorandum to the
amount, if any, unpaid on the shares respectively held by them is termed as a
 company limited by shares.The liability can be enforced during existence of the
company as well as during the winding up. Where the shares are fully paid up, no
further liability rests on them.
2. Companies limited by guarantee:
Company limited by guarantee is a company that has the liability of its members
limited to such amount as the members may respectively undertake, by the
memorandum, to contribute to the assets of the company in the event of its being
wound-up. In case of such companies the liability of its members is limited to the
amount of guarantee undertaken by them.
3. Unlimited Liability Companies:
A company not having a limit on the liability of its members is termed as unlimited
company. Here the members are liable for the company’s debts in proportion to their
respective interests in the company and their liability is unlimited.
Such companies may or may not have share capital. They may be either a public
company or a private company.
C. Types of Company on the basis of number of members
1. Public Company:
 Defined u/s 2(71) of the CA, 2013 – A public company means a company which is
not a private company.
 Section 3(1) of the CA, 2013– Public company may be formed for any lawful
purpose by 7 or more persons.
 Section 149(1) of the CA, 2013 – Every public company shall have minimum 3
director in its Board.
 Section 4(1)(a) of the CA, 2013 – A public company is required to add the
words “Limited” at the end of its name.
2. Private company:
 Defined u/s 2(68) of the CA, 2013 –
A private company means a company which by its articles—
a. Restricts the right to transfer its shares;
b. Limits the number of its members to 200 hundred (except in case of OPC)
3. One Person Company (OPC):
 Defined u/s 2(62) of the CA, 2013 – One Person Company means a company which
has only one person as a member.
 Section 3(1) of the CA, 2013 – OPC (as private company) may be formed for any
lawful purpose by 1 persons.
 Section 149(1) of the CA, 2013 – OPC shall have minimum 1 director in its Board, its
sole member can also be director of such OPC.
D. Types of Company on the basis of Domicile
 1. Foreign company:
 Defined u/s 2(42) of the CA, 2013 – “foreign company” means any company or body
corporate incorporated outside India which,—
2. Indian Company:
 A company formed and registered in India is known as an Indian Company.
E. Other Types of Company:
1. Government Company:
 Defined u/s 2(45) of the CA, 2013 – “Government company” means any company in
which not less than 51 % of the paid-up share capital is held by the Central
Government, or by any State Government or Governments, or partly by the Central
Government and partly by one or more State Governments, and includes a company
which is a subsidiary company of such a Government company.
 2. Small Company:
 Defined u/s 2(85) of the CA, 2013 – “small company” means a company, other than
a public company,—
1. paid-up share capital of which does not exceed 50 lakh rupees or such higher
amount as may be prescribed which shall not be more than 10 crore rupees; and
2. turnover of which as per profit and loss account for the immediately preceding
financial year does not exceed 2 crore rupees or such higher amount as may be
prescribed which shall not be more than 100 crore rupees
3. Subsidiary Company:
 Defined u/s 2(87) of the CA, 2013 – “subsidiary company” or “subsidiary”, in relation
to any other company (that is to say the holding company), means a company in
which the holding company—
1. controls the composition of the Board of Directors; or
2. exercises or controls more than one-half of the total voting power either at its own
or together with one or more of its subsidiary companies:.
4. Holding Company:
 Defined u/s 2(46) of the CA, 2013 –“holding company”, in relation to one or more
other companies, means a company of which such companies are subsidiary
companies;
Explanation: For the purposes of this clause, the expression “company” includes any
body corporate.

Question) Advantages and Disadvantages of a Company:

: Advantages:
1. Limited Liability:
The liability of shareholders, unless and otherwise stated, is limited to the
face value of shares held by them or guarantee given by them.
2. Perpetual Existence:
Deaths, insanity, insolvency of shareholders or directors do not affect the
company’s existence. A company has a separate legal entity with perpetual
succession.
3. Professional Management:
In company business, the management is in the hands of the directors who
are elected by the shareholders and are well experienced persons. In order
to manage the day-to-day activities, salaried professional managers are
appointed. Thus, the company business offers professional management.
4. Expansion Potential:
As there is no limit to the maximum number of shareholders in a public
limited company, expansion of business is easy by issuing new shares and
debentures. Companies normally use their reserves for expansion purposes.
5. Transferability of Shares:
If the shareholders of a company are displeased with the progress of the
business, they can sell their shares any time. During all this change of
ownership, the business continues to operate.
6. Diffusion of Risk:
As the membership is very large, the whole business risk is divided among
the several members of the company. This is an advantage particularly for
small investors.
Disadvantages:
1. Lack of Secrecy:
As per the legal provisions, a company has to make various statements
available to the Registrar of the Companies, Financial Institutions; the
secrecy of business comes down. It is further reduced when the company
provides its annual report to the shareholders as the competitors do also
find out the details of all financial data.
2. Restrictions:
Compared to proprietorship and partnership, a company has to comply
with more legal requirements. It consumes considerable time and effort.
3. Management Mischief’s:
Sometimes the managers and directors misuse the company resources for
their personal benefits. This brings losses to the company and company is
closed.
4. Lack of Personal Interest:
Unlike proprietorship and partnership, the day-to-day affairs of a company
are looked after by salaried managers. Since they are the employees not
the owners, they do have hardly any personal interest and
commitment in the company. This may result in inefficiency and, in
turn, losses.
Question. Companies Act, 2013 difference between a Public Limited
Company and a Private Limited Company:
Sr. Section Brief Description Private Limited Company Public Limited Company
No.

1 2 Meaning Minimum Capital : Rs. Minimum Capital : Rs.

100000Right to transfer the 500000Subsidiary of a
shares: Restricted Public Co. is deemed to be
a public Co.

2 2 Small Company If Paid-up Share Capital Not Applicable

does not exceed Rs. 50
Lakhs and Turnover as per
Last Audited accounts does
not exceed Rs. 2 Crore

2 3 Minimum Members 2 (Two),Maximum 200 (Two 7 (Seven)

Required Hundred)

3 4 Name of the “Private Limited” as Last “Public Limited” as Last

Company Word Word

4 5 Provision of To be agreed and approved To be agreed and approved

entrenchment in by all the members through a Special
the Articles Resolution

5 23 Issue of Securities By way of Right Issue or To Public through

Bonus IssueThrough Prospectus (“Public
Private Placement Offer”)By way of Right Issue
or Bonus IssueThrough
Private Placement

6 29 Public Offer to be Not Applicable In case of public offer of

in Dematerialised securities, the securities
Form have to be in
Dematerialised Form

7 40 Securities in Public Not Applicable Securities offered in Public

Offer to be listed in Offer, to be listed in
Stock exchanges Recognised Stock
Exchanges

8 67 Purchase / Loan Not allowed to Purchase its Not allowed to Purchase its
for Purchase of own Shares own Shares;No Financial
Own Shares assistance to be given to
purchase its own shares
9 73 Acceptance of Not allowed to accept Allowed if Paid up share
Deposits deposit capital is Rs. 100 Crore or
more orTurnover of Rs. 500
Crore or more

10 103 Quorum of Two members personally Five in case of Members

Meetings present upto 1000;Fifteen in case of
Members more than 1000,
upto 5000;Thirty in case of
Members exceed 5000.

11 139 (2) Rotation of Auditor Applicable in case of Paid Applicable in case of Paid
up Capital is Rs. 20 Crore up Capital is Rs. 10 Crore
or more or more

12 149 No. of Directors 2 (Two);Not required to 3 (Three); andIn case of

and Independent appoint independent Listed Companies, at least
Directors director One-Third as independent
directors

13 197 Restriction on No restriction on amount of Managerial Remuneration

Managerial managerial remuneration is:Restricted to 11% of Net
Remuneration profit (subject to
conditions); ORat least Rs.
30 lakh p.a. depending
upon paid up capital

Question.Memorandum of Association(MOA) & Articles of Association(AOA)

under Companies Act,2013
Definition- Memorandum:
As per Section 2(56) of the Companies Act,2013 “memorandum” means the
memorandum of association of a company as originally framed or as altered from
time to time in pursuance of any previous company law or of this Act.
Memorandum Of Association:
Section 4 of the Companies Act,2013 deals with MOA. The Memorandum of a
company shall contain the following;
1. Name Clause:
The name of the company with the last word “Limited” in the case of a public limited
company, or the last words “Private Limited” in the case of a private limited
company.
2. Situation Clause:
The State in which the registered office of the company is to be situated.
3.Object Clause:
The objects for which the company is proposed to be incorporated and any matter
considered necessary in furtherance thereof.
4.Liability Clause:
The liability of members of the company, whether limited or unlimited, and also
state,—
(i) in the case of a company limited by shares– liability of its members is limited
to the amount unpaid, if any, on the shares held by them; and
(ii) in the case of a company limited by guarantee-the amount up to which each
member undertakes to contribute—
5.Capital Clause:
(i) the amount of share capital with which the company is to be registered and the
division thereof into shares of a fixed amount and the number of shares which the
subscribers to the memorandum agree to subscribe which shall not be less than
one share; and
(ii) the number of shares each subscriber to the memorandum intends to take,
indicated opposite his name;
**Articles of Association(AOA):
Definition –Articles:
As per Section 2(5) of the Companies Act,2013 “articles” means the articles of
association of a company as originally framed or as altered from time to time or
applied in pursuance of any previous company law or of this Act.
Section 5 of the Companies Act,2013 deals with AOA.
The articles of a company shall contain the regulations for management of the
company.
Components of the Articles of Association
The articles of association will usually specify the way a company issues
stocks, distributes dividends, and performs financial records. The document
is focused on giving the reader information about the methods a company
uses to achieve its daily, monthly, and yearly goals.:
 Provisions on the company name
 Purpose of the company
 Share capital
 Organization of the company
 Provisions on shareholder meetings

Company Name
A company must adopt an official name as a legal entity. It must be present
in the articles of association. Usually, the following suffixes “Inc” or “Ltd” are
used to show that an entity is a company. Please note that jurisdictions vary
from country to country, and thus, there are various rules regarding
company names.
Purpose of the Company
Companies are incorporated for a specific reason. Primarily, it is a for-profit
reason to pursue a certain goal by delivering value to society. The reason or
purpose of the organization must be clearly stated in the articles of
association.
Share Capital
The articles of association will state the number and type of shares
comprising a company’s capital. Typically, there is always at least one form
of common shares that makes up its capital.
Organization of the Company
The document includes legal information about the company, including the
registration address, the number of directors and employees, and the
identity of the founders and original shareholders.
Shareholder Meetings
The first general shareholder meeting provisions are listed in the
shareholder meetings section. Notices, resolutions, and votes are detailed
as well in the section, governing subsequent annual shareholder meetings.
Question.Major differences between Memorandum of Association (MOA) and Articles of
association(AOA)

BASIS FOR ARTICLES OF

MEMORANDUM OF ASSOCIATION
COMPARISON ASSOCIATION

Meaning Memorandum of Association is a Articles of Association is a

document that contains all the document containing all the
fundamental information which are rules and regulations that
required for the incorporation of the governs the company.
company.

Defined in Section 2 (56) Section 2 (5)

Type of Powers and objects of the company. Rules of the company.

Information
contained
 BASIS FOR ARTICLES OF
MEMORANDUM OF ASSOCIATION
COMPARISON ASSOCIATION

Status It is subordinate to the Companies Act. It is subordinate to the

memorandum.

Retrospective The memorandum of association of the The articles of association

Effect company cannot be amended can be amended
retrospectively. retrospectively.

Major contents A memorandum must contain six The articles can be drafted
clauses. as per the choice of the
company.

Obligatory Yes, for all companies. A public company limited by

shares can adopt Table A in
place of articles.

Compulsory filing Required Not required at all.

at the time of
Registration

Alteration Alteration can be done, after passing Alteration can be done in

Special Resolution (SR) in Annual the Articles by passing
General Meeting (AGM) and previous Special Resolution (SR) at
approval of Central Government (CG) or Annual General Meeting
Company Law Board (CLB) is required. (AGM)

Relation Defines the relation between company Regulates the relationship

and outsider. between company and its
members and also between
the members inter se.

UNIT-III
definitions
Peter Drucker, Management is a multipurpose organ that manages a business and
manages managers, and manages workers and work.
Harold Koontz defined management as the art of getting things done through and
with people in formally organized groups.
Management is the process of planning, organizing, leading, and controlling an
organization’s human, financial, physical, and information resources to achieve
organizational goals in an efficient and effective manner.
The principles of management are the means by which a manager actually
manages, that is, get things done through others − individually, in groups, or in
organizations.

What are the Characteristics/Features of management?

1. Management is goal oriented process:
Management always aims at achieving the organisational
objectives.The functions and activities of manager lead to the
achievement of organisational objectives;
2. Management is universal process:
Management is a universal phenomenon. The use of management
is not restricted to business firms only it is applicable in profit-
making, non-profit-making, business or non-business
organisations; even a hospital, school, club and house has to be
managed properly.
3. Management is Multidimensional:
Management does not mean one single activity but it includes
three main activities:
i. Management of work
ii. Management of people

iii. Management of operations

(a) Management of work:

All organisations are set up to perform some task or goal.
Management activities aim at achieving goals or tasks to be
accomplished. The task or work depends upon the nature of
Business for example, work to be accomplished in a school is
providing education, in hospital is to treat patient, in industry to
manufacture some product. Management makes sure that work is
accomplished effectively and efficiently.
(b) Management of people:
People refer to Human resources and Human resources are the
most important assets of an organisation. An organisation can win
over competitor with efficient employees only because two
organisations can have same physical, technological and financial
resources but not human resources. Management has to get task
accomplished through people only.
(c) Management of operations: Operations refer to activities
of production cycle such as buying inputs, converting them into
semi-finished goods, finished goods.
4. Management is a continuous process:
Management is a continuous or never ending function. All the
functions of management are performed continuously, for
example planning, organising, staffing, directing and controlling
are performed by all the managers all the time.
5. Management is a group activity:
Management always refers to a group of people involved in
managerial activities. The management functions cannot be
performed in isolation. Each individual performs his/her role at
his/her status and department, and then only management
function can be executed.
6. Management is a dynamic function:
Management has to make changes in goal, objectives and other
activities according to changes taking place in the environment.
The external environment such as social, economical, technical
and political environment has great influence over the
management.
7. Balancing effectiveness and efficiency:
Effectiveness means achieving targets and objectives on time.
Efficiency refers to optimum or best utilisation of resources.
Managements always try to balance both and get the work done
successfully.
Objectives of Management
The main objectives of management are:
1. Getting Maximum Results with Minimum Efforts - The main objective of management is
to secure maximum outputs with minimum efforts & resources. Management is basically
concerned with thinking & utilizing human, material & financial resources in such a manner
that would result in best combination. This combination results in reduction of various costs.
2. Increasing the Efficiency of factors of Production - Through proper utilization of various
factors of production, their efficiency can be increased to a great extent which can be
obtained by reducing spoilage, wastages and breakage of all kinds, this in turn leads to
saving of time, effort and money which is essential for the growth & prosperity of the
enterprise.
3. Maximum Prosperity for Employer & Employees - Management ensures smooth and
coordinated functioning of the enterprise. This in turn helps in providing maximum benefits to
the employee in the shape of good working condition, suitable wage system, incentive plans
on the one hand and higher profits to the employer on the other hand.
4. Human betterment & Social Justice - Management serves as a tool for the upliftment as
well as betterment of the society. Through increased productivity & employment,
management ensures better standards of living for the society. It provides justice through its
uniform policies.

Importance of Management

1.It helps in Achieving Group Goals - It arranges the factors of production, assembles and
organizes the resources, integrates the resources in effective manner to achieve goals. It directs
group efforts towards achievement of pre-determined goals. By defining objective of organization
clearly there would be no wastage of time, money and effort. Management converts disorganized
resources of men, machines, money etc. into useful enterprise. These resources are
coordinated, directed and controlled in such a manner that enterprise work towards attainment of
goals.

2.Optimum Utilization of Resources - Management utilizes all the physical & human resources
productively. This leads to efficacy in management. Management provides maximum utilization
of scarce resources by selecting its best possible alternate use in industry from out of various
uses. It makes use of experts, professional and these services leads to use of their skills,
knowledge, and proper utilization and avoids wastage. If employees and machines are
producing its maximum there is no under employment of any resources.

3.Reduces Costs - It gets maximum results through minimum input by proper planning and by
using minimum input & getting maximum output. Management uses physical, human and
financial resources in such a manner which results in best combination. This helps in cost
reduction.

4.Establishes Sound Organization - No overlapping of efforts (smooth and coordinated

functions). To establish sound organizational structure is one of the objective of management
which is in tune with objective of organization and for fulfillment of this, it establishes effective
authority & responsibility relationship i.e. who is accountable to whom, who can give instructions
to whom, who are superiors & who are subordinates. Management fills up various positions with
right persons, having right skills, training and qualification. All jobs should be cleared to
everyone.

5.Establishes Equilibrium - It enables the organization to survive in changing environment. It

keeps in touch with the changing environment. With the change is external environment, the
initial co-ordination of organization must be changed. So it adapts organization to changing
 demand of market / changing needs of societies. It is responsible for growth and survival of
organization.

6.Essentials for Prosperity of Society - Efficient management leads to better economical

production which helps in turn to increase the welfare of people. Good management makes a
difficult task easier by avoiding wastage of scarce resource. It improves standard of living. It
increases the profit which is beneficial to business and society will get maximum output at
minimum cost by creating employment opportunities which generate income in hands.
Organization comes with new products and researches beneficial for society.

Functions of Management
According to Henry Fayol, “To manage is to forecast and plan, to organize, to command, & to
control”.

According to Luther Gullick has given a keyword ’POSDCORB’ where P stands for Planning, O
for Organizing, S for Staffing, D for Directing, Co for Co-ordination, R for reporting & B for Budgeting.

But the most widely accepted are functions of management given by KOONTZ and O’DONNEL
i.e. Planning, Organizing, Staffing, Directing and Controlling.

1. Planning
It is the basic function of management. It deals with chalking out a future course of action &
deciding in advance the most appropriate course of actions for achievement of pre-
determined goals. According to KOONTZ, “Planning is deciding in advance - what to do,
when to do & how to do. It bridges the gap from where we are & where we want to be”. A
plan is a future course of actions.
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”.

 Identification of activities.
 Classification of grouping of activities.
 Assignment of duties.
 Delegation of authority and creation of responsibility.
 Coordinating authority and responsibility relationships.
 3. Staffing
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 un the structure”. Staffing
involves:

 Manpower Planning (estimating man power in terms of searching, choose the person
and giving the right place).
 Recruitment, Selection & Placement.
 Training & Development.
 Remuneration.
 Performance Appraisal.
 Promotions & Transfer.
4. Directing
It is that part of managerial function which actuates the organizational methods to work
efficiently for achievement of organizational purposes.

 Supervision
 Motivation
 Leadership
 Communication

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.

Communications- is the process of passing information, experience, opinion etc from one
person to another. It is a bridge of understanding.

5. Controlling
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.
d.Corrective action.

Levels of Management
The level of management determines a chain of command, the amount of authority & status enjoyed
by any managerial position. The levels of management can be classified in three broad categories:

1. Top level / Administrative level

2. Middle level / Executory
3. Low level / Supervisory / Operative / First-line managers

LEVELS OF MANAGEMENT
1. Top Level of Management
It consists of board of directors, chief executive or managing director. The top management
is the ultimate source of authority and it manages goals and policies for an enterprise. It
devotes more time on planning and coordinating functions.
The role of the top management can be summarized as follows -

a. Top management lays down the objectives and broad policies of the enterprise.
b. It issues necessary instructions for preparation of department budgets, procedures,
schedules etc.
c. It prepares strategic plans & policies for the enterprise.
d. It appoints the executive for middle level i.e. departmental managers.
e. It controls & coordinates the activities of all the departments.
2. Middle Level of Management
The branch managers and departmental managers constitute middle level. They are
responsible to the top management for the functioning of their department. They devote
more time to organizational and directional functions.

a. They execute the plans of the organization in accordance with the policies and directives
of the top management.
b. They make plans for the sub-units of the organization.
c. They participate in employment & training of lower level management.
d. They interpret and explain policies from top level management to lower level.
e. They are responsible for coordinating the activities within the division or department.

3. Lower Level of Management

Lower level is also known as supervisory / operative level of management. It consists of
supervisors, foreman, section officers, superintendent etc.

a. Assigning of jobs and tasks to various workers.

b. They guide and instruct workers for day to day activities.
c. They are responsible for the quality as well as quantity of production.
 d. They are also entrusted with the responsibility of maintaining good relation in the
organization.
e. They communicate workers problems, suggestions, and recommendatory appeals etc to
the higher level and higher level goals and objectives to the workers.
f. They help to solve the grievances of the workers.
g. They supervise & guide the sub-ordinates.
h. They are responsible for providing training to the workers.
i. They arrange necessary materials, machines, tools etc for getting the things done.

Basis Management Administration

Meaning Management is an art of getting things done It is concerned with formulation of

through others by directing their efforts towards broad objectives, plans & policies.
achievement of pre-determined goals.

Nature Management is an executing function. Administration is a decision-making

function.

Process Management decides who should as it & how Administration decides what is to be
should he dot it. done & when it is to be done.

Function Management is a doing function because Administration is a thinking function

managers get work done under their because plans & policies are
supervision. determined under it.

Skills Technical and Human skills Conceptual and Human skills

Level Middle & lower level function Top level function

Scientific Management by Taylor

redrick Winslow Taylor ( March 20, 1856 - March 21, 1915) commonly known as ’Father of
Scientific 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.

Principles of Scientific Management

1. Development of Science for each part of men’s job (replacement of
rule of thumb)
a. This principle suggests that work assigned to any employee should be observed,
analyzed with respect to each and every element and part and time involved in it.
b. This means replacement of odd rule of thumb by the use of method of enquiry,
investigation, data collection, analysis and framing of rules.
 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.
3. Co-operation between Management & workers or Harmony not
discord
a. Taylor believed in co-operation and not individualism.
b. It is only through co-operation that the goals of the enterprise can be achieved
efficiently.
c. There should be no conflict between managers & workers.
4. Division of Responsibility
a. This principle determines the concrete nature of roles to be played by different level
of managers & workers.
b. The management should assume the responsibility of planning the work whereas
workers should be concerned with execution of task.
5. Mental Revolution
a. The workers and managers should have a complete change of outlook towards their
mutual relation and work effort.
b. It requires that management should create suitable working condition and solve all
problems scientifically.
c. Similarly workers should attend their jobs with utmost attention, devotion and
carefulness.
6. Maximum Prosperity for Employer & Employees
a. The aim of scientific management is to see maximum prosperity for employer and
employees.
b. It is important only when there is opportunity for each worker to attain his highest
efficiency.
c. Maximum output & optimum utilization of resources will bring higher profits for the
employer & better wages for the workers.
Criticism of Scientific Management
Workers Viewpoint

1. Unemployment - Workers feel that management reduces employment opportunities from

them through replacement of men by machines and by increasing human productivity less
workers are needed to do work leading to chucking out from their jobs.
2. Exploitation - Workers feel they are exploited as they are not given due share in increasing
profits which is due to their increased productivity. Wages do not rise in proportion as rise in
production. Wage payment creates uncertainty & insecurity (beyond a standard output, there
is no increase in wage rate).
3. Monotony - Due to excessive specialization the workers are not able to take initiative on
their own. Their status is reduced to being mere cogs in wheel. Jobs become dull. Workers
loose interest in jobs and derive little pleasure from work.
4. Weakening of Trade Union - To everything is fixed & predetermined by management. So it
leaves no room for trade unions to bargain as everything is standardized, standard output,
standard working conditions, standard time etc. This further weakens trade unions, creates a
rift between efficient & in efficient workers according to their wages.
Employer’s Viewpoint

1. Expensive - Scientific management is a costly system and a huge investment is required in

establishment of planning dept., standardization, work study, training of workers. It may be
beyond reach of small firms. Heavy food investment leads to increase in overhead costs.
2. Time Consuming - Scientific management requires mental revision and complete
reorganizing of organization. A lot of time is required for work, study, standardization &
specialization. During this overhauling of organization, the work suffers.

Henri Fayol's 14 Principles of Management

The Principles of Management are the essential, underlying factors that form the foundations of
successful management. According to Henri Fayol in his book General and Industrial
Management (1916), there are 14 'Principles of Management'.

1. Division of Work - According to this principle the whole work is divided into small tasks.
The specialization of the workforce according to the skills of a person, creating specific
personal and professional development within the labour force and therefore increasing
productivity; leads to specialization which increases the efficiency of labour.
2. Authority and Responsibility - This is the issue of commands followed by
responsibility for their consequences. Authority means the right of a superior to give
enhance order to his subordinates; responsibility means obligation for performance.
3. Discipline - It is obedience, proper conduct in relation to others, respect of authority,
etc. It is essential for the smooth functioning of all organizations.
4. Unity of Command - This principle states that each subordinate should receive orders
and be accountable to one and only one superior. If an employee receives orders from
more than one superior, it is likely to create confusion and conflict.
5. Unity of Direction - All related activities should be put under one group, there should be
one plan of action for them, and they should be under the control of one manager.
6. Subordination of Individual Interest to Mutual Interest - The management must put
aside personal considerations and put company objectives firstly. Therefore the
interests of goals of the organization must prevail over the personal interests of
individuals.
7. Remuneration - Workers must be paid sufficiently as this is a chief motivation of
employees and therefore greatly influences productivity. The quantum and methods of
remuneration payable should be fair, reasonable and rewarding of effort.
8. The Degree of Centralization - The amount of power wielded with the central
management depends on company size. Centralization implies the concentration of
decision making authority at the top management.
9. Line of Authority/Scalar Chain - This refers to the chain of superiors ranging from top
management to the lowest rank. The principle suggests that there should be a clear line
of authority from top to bottom linking all managers at all levels.
10.Order - Social order ensures the fluid operation of a company through authoritative
procedure. Material order ensures safety and efficiency in the workplace. Order should
be acceptable and under the rules of the company.
11.Equity - Employees must be treated kindly, and justice must be enacted to ensure a just
workplace. Managers should be fair and impartial when dealing with employees, giving
equal attention towards all employees.
 12.Stability of Tenure of Personnel - Stability of tenure of personnel is a principle stating
that in order for an organization to run smoothly, personnel (especially managerial
personnel) must not frequently enter and exit the organization.
13.Initiative - Using the initiative of employees can add strength and new ideas to an
organization. Initiative on the part of employees is a source of strength for organization
because it provides new and better ideas. Employees are likely to take greater interest
in the functioning of the organization.
14.Esprit de Corps/Team Spirit - This refers to the need of managers to ensure and
develop morale in the workplace; individually and communally. Team spirit helps
develop an atmosphere of mutual trust and understanding. Team spirit helps to finish
the task on time.

UNIT-IV
Definition: Planning is the fundamental management function, which involves deciding
beforehand, what is to be done, when is it to be done, how it is to be done and who is going to
do it. It is the first and foremost activity to achieve desired results.

1.Koontz and O’Donnell – “Planning is deciding in advance what to do, when to do,
how to do and who is to do it. It is bridging the gap from where we are to where we want
to go.”

2.Louis A. Allen – “Management planning involves the development of forecasts,

objectives, policies, programmes, procedures, schedules and budgets.”
Characteristics of Planning

1. Managerial function: Planning is a first and foremost managerial function provides the
base for other functions of the management, i.e. organising, staffing, directing and
controlling, as they are performed within the periphery of the plans made.
2. Goal oriented: It focuses on defining the goals of the organisation, identifying
alternative courses of action and deciding the appropriate action plan, which is to be
undertaken for reaching the goals.
3. Pervasive: It is pervasive in the sense that it is present in all the segments and is
required at all the levels of the organisation. Although the scope of planning varies at
different levels and departments.
4. Continuous Process: Plans are made for a specific term, say for a month, quarter,
year and so on. Once that period is over, new plans are drawn, considering the
organisation’s present and future requirements and conditions. Therefore, it is an
ongoing process, as the plans are framed, executed and followed by another plan.
5. Intellectual Process: It is a mental exercise at it involves the application of mind, to
think, forecast, imagine intelligently and innovate etc.
6. Futuristic: In the process of planning we take a sneak peek of the future. It
encompasses looking into the future, to analyse and predict it so that the organisation
can face future challenges effectively.
7. Decision making: Decisions are made regarding the choice of alternative courses of
action that can be undertaken to reach the goal. The alternative chosen should be best
among all, with the least number of the negative and highest number of positive
outcomes.
Planning is concerned with setting objectives, targets, and formulating plan to
accomplish them.
Importance of Planning
 It helps managers to improve future performance, by establishing objectives and
selecting a course of action, for the benefit of the organisation.
 It minimises risk and uncertainty, by looking ahead into the future.
 It facilitates the coordination of activities. Thus, reduces overlapping among
activities and eliminates unproductive work.
 It states in advance, what should be done in future, so it provides direction for action.
 It uncovers and identifies future opportunities and threats.
 It sets out standards for controlling. It compares actual performance with the
standard performance and efforts are made to correct the same.
Planning is present in all types of organisations, households, sectors, economies, etc.
We need to plan because the future is highly uncertain and no one can predict the
future with 100% accuracy, as the conditions can change anytime. Hence, planning is
the basic requirement of any organization for the survival, growth and success.
 Steps involved in Planning

By planning process, an organisation not only gets the insights of the future, but it also helps the
organisation to shape its future. Effective planning involves simplicity of the plan, i.e. the plan
should be clearly stated and easy to understand because if the plan is too much
complicated it will create chaos among the members of the organisation. Further, the plan
should fulfil all the requirements of the organisation.

Types Of Plans
Strategic Plans
Strategic plans define the framework of the organization’s vision and how the
organization intends to make its vision a reality.
 It is the determination of the long-term objectives of an enterprise, the action
plan to be adopted and the resources to be mobilized to achieve these goals.
 Since it is planning the direction of the company’s progress, it is done by the
top management of an organization.
 It essentially focuses on planning for the coming years to take the
organization from where it stands today to where it intends to be.
 The strategic plan must be forward looking, effective and flexible, with a focus
on accommodating future growth.
 These plans provide the framework and direction for lower level planning.
Tactical Plans
Tactical plans describe the tactics that the managers plan to adopt to achieve the
objectives set in the strategic plan.
 Tactical plans span a short time frame (usually less than 3 years) and are
usually developed by middle level managers.
 It details specific means or action plans to implement the strategic plan by
units within each division.
 Tactical plans entail detailing resource and work allocation among the
subunits within each division.
Operational Plans
Operational plans are short-term (less than a year) plans developed to create
specific action steps that support the strategic and tactical plans.
 They are usually developed by the manager to fulfill his or her job
responsibilities.
 They are developed by supervisors, team leaders, and facilitators to support
tactical plans.
 They govern the day-to-day operations of an organization.
 Operational plans can be −
o Standing plans − Drawn to cover issues that managers face
repeatedly, e.g. policies, procedures, rules.
o Ongoing plans − Prepared for single or exceptional situations or
problems and are normally discarded or replaced after one use, e.g.
programs, projects, and budgets.
 Advantage and Disadvantage of Planning.

Advantages of Planning.
(1) Reduces Uncertainty
An organization has to work in an environment, which uncertain and ever-changing.Planning
gives an opportunity to a manager to foresee various uncertainties, which may because of
changes in technology, taste, and fashion of the people, etc
2) Focus on Objectives/Goals
Organizations exist to pursue and achieve certain goals or objectives. Planning focuses on
these objectives and direct actions for achieving these objectives.
(3) Economical Operation
Planning involves a selection of the best possible course of action. It helps to eliminate all
types of waste and to achieve the utilization of available resources.
(4) Facilitates Control
Planning and control are inseparable. Planning provides the standard against which the actual
performance can be measured and evaluated.
(5) Encourages Innovation and Creativity
Planning is basically the deciding function of management. Planning It helps innovative and
creative thinking among managers when they are planning.
(6) Improves Motivation
Good planning ensures the participation of all managers which will improve their motivation.
(7) Ensures Better Coordination
Planning provides the basis for an organized and coordinated effort of the organization.It
secures the unity of direction towards the organizational objectives.
(8) Avoids Random Activity
Planning means deciding in advance what objectives are to be achieved and how they are to
be achieved.
9) Improves Competitive Strength
Effective planning increases the competitive strength of an organization. Planning is based
on systematic and careful forecasts.

Disadvantage or Limitations of Planning

(1) Lack of Reliable Data
Planning is undertaken on the basis of certain assumptions in the future. The future is
unpredictable and uncertain. Hence. future cannot be known accurately because reliable
information d data are not available.
(2) Rigidity
Planning implies strict adherence to predetermined policies procedures and programs. This
restricts an individual’s freedom. initiative and desire for creativity.
(3) Time Consuming Process
Planning is a time-consuming process. The various steps of planning may consume a lot of
time. Considerable time is required for the collection, analysis, and interpretation of
information for planning.
(4) Costly Process
Planning is also a costly process. Money and effort have to be spent on collecting
information, preparing estimates, forecasting, and evaluating alternatives.
(5) Rapid Change
Rapid changes in technology, consumer tastes, and fashions are further constraints to
planning. In a complex and rapidly changing environment planning is more difficult as it
adds new problems.
(6) Internal Inflexibility
Internal inflexibility may be psychological, policy and procedures, and capital investment
which creates difficulties in planning and implementation.
(7) External Inflexibility
There is certain external inflexibility over which managers do not have any control. Changes
in technology, changes in government policies, industrial unrest, etc are important external
inflexibility on planning.

Approaches to Planning
The four possible approaches to planning are:
1. Reactive - past oriented
Reactive planning is an active attempt to turn back the clock to the past. The
past, no matter how bad, is preferable to the present. And definitely better
than the future will be. The past is romanticized and there is a desire to return
to the "good old days."
2. Inactive - present oriented
Inactive planning is an attempt to preserve the present, which is preferable to
both the past and the future. While the present may have problems it is better
 than the past. The expectation is that things are as good as they are likely to
get and the future will only be worse.
3. Preactive - predict the future
Preactive planning is an attempt to predict the future and then to plan for that
predicted future. Technological change is seen as the driving force bringing
about the future, which will be better than the present or the past.
4. Proactive - create the future
Proactive planning involves designing a desired future and then inventing
ways to create that future state. Not only is the future a preferred state, but
the organization can actively control the outcome.
Management by objectives (MBO), also known as management
by planning (MBP), was first popularized by Peter Drucker in his 1954 book The Practice of
Management.[1] Management by objectives is the process of defining specific objectives
within an organization that management can convey to organisation members, then deciding
how to achieve each objective in sequence.

Management by objectives (MBO) is a strategic management model that

aims to improve the performance of an organization by clearly defining
objectives that are agreed to by both management and employees.

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.

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.

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.
6. Performance appraisal
Performance reviews are a routine review of the success of employees
within MBO organizations.

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.
Definition of Formal Organization
By the term formal organisation, we mean a structure that comes into existence when two or
more people come together for a common purpose, and there is a legal & formal relationship
between them. The formation of such an organisation is deliberate by the top level
management. The organisation has its own set of rules, regulations, and policies expressed in
writing.
Types of formal organization structure
 Line Organization
 Line and Staff Organization
 Functional Organization
 Project Management Organization
 Matrix Organization
Features of Formal organisation:
(1) The formal organisational structure is created intentionally by the process of
organising.
(2) The purpose of formal organisation structure is achievement of organisational goal.
(3) In formal organisational structure each individual is assigned a specific job.
(4) In formal organisation every individual is assigned a fixed authority or decision-
making power.
(5) Formal organisational structure results in creation of superior-subordinate relations.
(6) Formal organisational structure creates a scalar chain of communication in the
organisation.
Advantages of Formal Organisation:
1. Systematic Working:
Formal organisation structure results in systematic and smooth functioning of an
organisation.
2. Achievement of Organisational Objectives:
Formal organisational structure is established to achieve organisational objectives.

3. No Overlapping of Work:
In formal organisation structure work is systematically divided among various
departments and employees. So there is no chance of duplication or overlapping of
work.

4. Co-ordination:
Formal organisational structure results in coordinating the activities of various
departments.
5. Creation of Chain of Command:
Formal organisational structure clearly defines superior subordinate relationship, i.e.,
who reports to whom.
6. More Emphasis on Work:
Formal organisational structure lays more emphasis on work than interpersonal
relations.
Disadvantages of Formal Organisation:
1. Delay in Action:
While following scalar chain and chain of command actions get delayed in formal
structure.
2. Ignores Social Needs of Employees:
Formal organisational structure does not give importance to psychological and social
need of employees which may lead to demotivation of employees.
3. Emphasis on Work Only:
Formal organisational structure gives importance to work only; it ignores human
relations, creativity, talents, etc.
Definition of Informal Organization
An informal organisation is formed within the formal organisation; that is a system of
interpersonal relationships between individuals working in an enterprise, that forms as a
result of people meet, interact and associate with one another. The organisation is
created by the members spontaneously, i.e. created out of socio-psychological needs
and urge of people to talk. The organisation is featured by mutual aid, cooperation, and
companionship among members.
Advantages of Informal Organisation:
1. Fast Communication:
Informal structure does not follow scalar chain so there can be faster spread of
communication.

2. Fulfills Social Needs:

Informal communication gives due importance to psychological and social need of
employees which motivate the employees.
3. Correct Feedback:
Through informal structure the top level managers can know the real feedback of
employees on various policies and plans.
Disadvantages of Informal organisation:
1. Spread Rumours:
According to a survey 70% of information spread through informal organisational
structure are rumors which may mislead the employees.
2. No Systematic Working:
Informal structure does not form a structure for smooth working of an organisation.
3. May Bring Negative Results:
If informal organisation opposes the policies and changes of management, then it
becomes very difficult to implement them in organisation.
4. More Emphasis to Individual Interest:
Informal structure gives more importance to satisfaction of individual interest as
compared to organisational interest.
BASIS FOR
FORMAL ORGANIZATION INFORMAL ORGANIZATION
COMPARISON

Meaning An organization type in which the An organization formed within the

job of each member is clearly formal organization as a network of
defined, whose authority, interpersonal relationship, when
responsibility and accountability people interact with each other, is
are fixed is formal organization. known as informal communication.
 BASIS FOR
FORMAL ORGANIZATION INFORMAL ORGANIZATION
COMPARISON

Creation Deliberately by top management. Spontaneously by members.

Purpose To fulfill, the ultimate objective of To satisfy their social and

the organization. psychological needs.

Nature Stable, it continues for a long Not stable

time.

Communication Official communication Grapevine

Control Rules and Regulations Norms, values and beliefs

mechanism

Focus on Work performance Interpersonal relationship

Authority Members are bound by All members are equal.

hierarchical structure.

Size Large Small

Line and Staff Organization
Line and staff organization is a modification of line organization and it is more complex than line
organization. According to this administrative organization, specialized and supportive activities are
attached to the line of command by appointing staff supervisors and staff specialists who are
attached to the line authority. The power of command always remains with the line executives and
staff supervisors guide, advice and council the line executives. Personal Secretary to the Managing
Director is a staff official.

MANAGING DIRECTOR

↓ ↓ ↓
Production Manager Marketing Manager Finance Manager

↓ ↓ ↓
Plant Supervisor Market Supervisor Chief Assisstant

↓ ↓ ↓
Foreman Salesman Accountant
Features of Line and Staff Organization
1. There are two types of staff :
a. Staff Assistants- P.A. to Managing Director, Secretary to Marketing Manager.
b. Staff Supervisor- Operation Control Manager, Quality Controller, PRO
2. Line and Staff Organization is a compromise of line organization. It is more complex than
line concern.
3. Division of work and specialization takes place in line and staff organization.
4. The whole organization is divided into different functional areas to which staff specialists are
attached.
5. Efficiency can be achieved through the features of specialization.
6. There are two lines of authority which flow at one time in a concern :
a. Line Authority
b. Staff Authority
7. Power of command remains with the line executive and staff serves only as counselors.

Merits of Line and Staff Organization

1. Relief to line of executives- In a line and staff organization, the advice and counseling
which is provided to the line executives divides the work between the two. The line executive
can concentrate on the execution of plans and they get relieved of dividing their attention to
many areas.
2. Expert advice- The line and staff organization facilitates expert advice to the line executive
at the time of need. The planning and investigation which is related to different matters can
be done by the staff specialist and line officers can concentrate on execution of plans.
3. Benefit of Specialization- Line and staff through division of whole concern into two types of
authority divides the enterprise into parts and functional areas. This way every officer or
official can concentrate in its own area.
4. Better co-ordination- Line and staff organization through specialization is able to provide
better decision making and concentration remains in few hands. This feature helps in
bringing co-ordination in work as every official is concentrating in their own area.
5. Benefits of Research and Development- Through the advice of specialized staff, the line
executives, the line executives get time to execute plans by taking productive decisions
which are helpful for a concern. This gives a wide scope to the line executive to bring
innovations and go for research work in those areas. This is possible due to the presence of
staff specialists.
6. Training- Due to the presence of staff specialists and their expert advice serves as ground
for training to line officials. Line executives can give due concentration to their decision
making. This in itself is a training ground for them.
7. Balanced decisions- The factor of specialization which is achieved by line staff helps in
bringing co-ordination. This relationship automatically ends up the line official to take better
and balanced decision.
8. Unity of action- Unity of action is a result of unified control. Control and its effectivity take
place when co-ordination is present in the concern. In the line and staff authority all the
officials have got independence to make decisions. This serves as effective control in the
whole enterprise.

Demerits of Line and Staff Organization

1. Lack of understanding- In a line and staff organization, there are two authority flowing at
one time. This results in the confusion between the two. As a result, the workers are not able
 to understand as to who is their commanding authority. Hence the problem of understanding
can be a hurdle in effective running.
2. Lack of sound advice- The line official get used to the expertise advice of the staff. At times
the staff specialist also provide wrong decisions which the line executive have to consider.
This can affect the efficient running of the enterprise.
3. Line and staff conflicts- Line and staff are two authorities which are flowing at the same
time. The factors of designations, status influence sentiments which are related to their
relation, can pose a distress on the minds of the employees. This leads to minimizing of co-
ordination which hampers a concern’s working.
4. Costly- In line and staff concern, the concerns have to maintain the high remuneration of
staff specialist. This proves to be costly for a concern with limited finance.
5. Assumption of authority- The power of concern is with the line official but the staff dislikes
it as they are the one more in mental work.

Line and 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.

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 actu-
ally 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:

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.

UNIT-5
Authority/Power, Responsibility, and Accountability:

Definition of Authority

As per Henri Fayol, “Authority is the right to give orders and the power to exact
obedience.”

Definition of Responsibility

As per Davis, “Responsibility is an obligation of an individual to perform assigned

duties to the best of his ability under the direction of his leader

As per McFarland, responsibility means, “the duties and activities assigned to a

position or an executive”.

Definition of Accountability
As per McFarland, “accountability is the obligation of an individual to report
formally to his superior about the work he has done to discharge the responsibility.”
Sources of Power in Organizations:

 Formal Power: Based on rank

  Legitimate Power: Based on structural position
 Expert Power: Power that comes with expertise, special skills, or knowledge in a particular
area
 Referent Power: Drive from respect and admiration for someone to please them
 Coercive Power: Influencing people via threats or punishments
 Reward Power: Influence with rewards
 Informational Power: Who has access or control over information
 Connection Power: Gaining favors
 Political Power: From support of a group
 Charismatic Power: Influential personality

Relationship between Authority and Responsibility

Authority is the legal right of person or superior to command his subordinates while accountability is
the obligation of individual to carry out his duties as per standards of performance Authority flows
from the superiors to subordinates,in which orders and instructions are given to subordinates to
complete the task. It is only through authority, a manager exercises control. In a way through
exercising the control the superior is demanding accountability from subordinates

Differences between Authority and Responsibility

Authority Responsibility

It is the legal right of a person or a It is the obligation of subordinate to perform the work assigned to
superior to command his subordinates. him.

Authority is attached to the position of a Responsibility arises out of superior-subordinate relationship in

superior in concern. which subordinate agrees to carry out duty given to him.

Authority can be delegated by a superior Responsibility cannot be shifted and is absolute

to a subordinate

It flows from top to bottom. It flows from bottom to top.

Definition: The Delegation of Authority is a process through which manager assigns

responsibility to the subordinate with a certain level of authority, i.e. power to take decisions, in order to
accomplish certain assignments on the manager’s behalf.
Elements of Delegation of Authority

There are three major elements of delegation of authority:

1. Responsibility: The responsibility means, assigning the work to an individual. The managers
assign certain responsibility to the subordinates for the completion of certain tasks on his
behalf.Thus, the responsibility flows upwards.
2. Authority: To fulfill the responsibility, certain authority is delegated to the subordinate. Authority
means the power to take decisions. Hence, the manager along with the responsibility also
delegates authority to enable the subordinate to take decisions independently and accomplish
the task efficiently.
3. Accountability: Accountability means, to check whether the subordinates are performing their
responsibilities in an expected manner or not. The Accountability cannot be delegated which
means, in the case of non-completion of the task, the manager will only be held responsible for
it, not the subordinates. The accountability also flows upward, i.e. subordinates will be
accountable to the manager and the manager to his superior.
Process of Delegation of Authority

The process of delegation of authority comprises of four steps which are as follows:

1. Assignment of Duties to Subordinates: Before the actual delegation of authority, the

delegator must decide on the duties which he wants the subordinate or the group of
subordinates to perform. Here, the manager lists the activities to be performed along with the
targets to be achieved, and the same is spelled out to the subordinates.
2. Transfer of Authority to perform the duty: At this stage, an adequate authority is delegated to
the subordinate which is essential to perform the duty assigned to him.
3. Acceptance of the Assignment: At this stage, the subordinate either accepts or rejects the
tasks assigned to him by his superior. If the subordinate or the delegate, refuses to accept the
duty and the authority to perform it, then the manager looks for the other person who is capable
of and is willing to undertake the assignment.
4. Accountability: Once the assignment is accepted by the subordinate, then he becomes
responsible for the completion of the duty and is accountable to the superior for his
performance.

Decentralization of Authority – Meaning

Decentralization marks an extension of the process of delegation.
Henri Fayol has said – “everything that goes to increase the importance of the
subordinate’s role is decentralization
According to Louis A. Allen – “Decentralisation refers to the systematic effort to
delegate to the lowest level all the authority except that which can be exercised only at
central points.
Importance of Decentralisation

1. Rapid decision making – Most of the decisions are taken on the spot, and approval
from the higher authority is not required. The ability to make a prompt decision allows an
organisation to function its operation quickly and effectively.
2. Administrative development – The decentralisation process questions the manager’s
judgement and techniques, when responsibility and challenges to develop solutions are
given to them. This questioning method grows confidence, encourages self-reliance, and
make them a good decision-maker resulting in the development of the organisation.
3. Development of executive skills – It allows the employee to perform task individually,
giving them invaluable exposure. This individual performance creates an environment
where an individual can enhance their expertise, take ownership & more significant
responsibilities, and be suitable for promotion.
4. Promotes growth – Decentralisation also allows the heads of the department to work
independently. This independence helps the department to grow, have a healthy
competition between other departments. Ultimately, the competition will lead to an
improvement and enhancement in productivity.
5. Higher control – It also evaluates and reviews the performances of each department
and gives them a comprehensive perspective of their work. However, controlling is the
biggest challenge of decentralisation and stabilised management and scorecard are
being developed.

Advantages of Decentralisation

1. Reduces the burden on top executives

2. Facilitates diversification
3. Executive Development
4. It promotes motivation
5. Better control and supervision

Disadvantages of Decentralisation

1. Uniform policies not Followed

2. Problem of Co-Ordination
definitions of the coordination function

Mooney and Reiley – ‘Coordination is an orderly arrangement of group efforts to

provide unity of action in the pursuit of common goals.‘

Charles Worth – ‘Coordination is the integration of several parts into an orderly

hole to achieve the purpose of understanding.‘

Importance of Coordination: The need and importance of coordination can be judged from
these points:

1. It encourages team spirit,

2. It gives proper direction,
3. It facilitates motivation,
4. It makes optimum utilization of resources,
5. It helps to achieve objectives quickly,
6. It improves relations in the organization,
7. It leads to higher efficiency and
8. It improves goodwill of the organization.

1. Coordination encourages team spirit: There exists many conflicts and rivalries between
individuals, departments, between a line and staff, etc. Similarly, conflicts are also between
individual objectives and organizational objectives. Coordination arranges the work and the
objectives in such a way that there are minimum conflicts and rivalries. It encourages the
employees to work as a team and achieve the common objectives of the organization. This
increases the team spirit of the employees.

2. Coordination gives proper direction:There are many departments in the organization.

Each department performs different activities. Coordination integrates (bring together) these
activities for achieving the common goals or objectives of the organization. Thus, coordination
gives proper direction to all the departments of the organization.

3. Coordination facilitates motivation: Coordination gives complete freedom to the

employees. It encourages the employees to show initiative. It also gives them many financial
and non-financial incentives. Therefore, the employees get job satisfaction, and they are
motivated to perform better.

4. Coordination makes optimum utilization of resources: Coordination helps to bring

together the human and material resources of the organization. It helps to make optimum
utilization of resources. These resources are used to achieve the objectives of the organization.
Coordination also minimizes the wastage of resources in the organization.

5. Coordination helps to achieve objectives quickly: Coordination helps to minimize the

conflicts, rivalries, wastages, delays and other organizational problems. It ensures smooth
working of the organization. Therefore, with the help of coordination an organization can
achieve its objectives easily and quickly.

6. Coordination improves relations in the organization: The Top Level Managers

coordinates the activities of the Middle Level Managers and develop good relations with them.
Similarly, the Middle Level Managers coordinate the activities of the Lower Level Managers and
develop good relations with them. Also, the Lower Level Managers coordinate the activities of
the workers and develop good relations with them. Thus, coordination, overall improves the
relations in the organization.

7. Coordination leads to higher efficiency: Efficiency is the relationship between Returns and
Cost. There will be higher efficiency when the returns are more and the cost is less. Since
coordination leads to optimum utilization of resources it results in more returns and low cost.
Thus, coordination leads to higher efficiency.

8. Coordination improves goodwill of the organization: Coordination helps an organization

to sell high quality goods and services at lower prices. This improves the goodwill of the
organization and helps it earn a good name and image in the market and corporate world.

Principles of Coordination
1.Early Beginning:
The first principle is that coordination must be attempted and arranged in the early stage of the
management process and policy making. It may be impossible to secure co – ordination in an
enterprise if not started at the planning stage.
2. Direct Personal Contact: Direct personal contact removes misunderstanding and conflict
between departments or between personnel. It involves direct face to face communication,
personal discussion, settlement of differences, exchanges of ideas between the personnel.
3. Reciprocal Relationship of Factors:
No department can work in isolation from the other departments. That is, when purchase
department works with sales department, which in turn works with finance department and
personnel department, each of the four departments finds itself influenced by the other
department in the total situation.
4. Continuous Process:
Coordination is a continuous process and must go on all the time. In contrast to the principle of
continuity, difference of opinions and information gap may appear and misunderstanding in
inter departmental operations may crop up in the absence of coordination.
5. Action Plan is the Fundamental Element of All Coordination Activities:
Most individual human interactions are modeled by an action plan in which a performer
delivers a condition satisfying a customer. The action plan has a requester, performer and four
time segments culminating in request, promise, delivery, and acceptance.

Techniques of Effective Coordination:

1. Clearly Defined Objectives:
The objectives (or goals) of the organization should be laid down clearly. Every
individual and each department must understand the overall objectives and what is
expected of them by the organization. Unity of purpose is a must for achieving proper
coordination.
2. Proper Cooperation:
Coordination must be accompanied by cooperation. The individuals in the organization
must be willing to help each other voluntarily. Coordination is impossible without
cooperation. Cooperation without coordination has no fruit and coordination without
cooperation has no root. Therefore, every manager should try to achieve both
simultaneously.
3. Clear Lines of Authority and Responsibility:
There should be a proper delegation of authority and responsibility at all levels of
management. Authority must be delegated in a clear way. The individual member must
know what is expected of him by his superior. Authority flows from top to bottom
through various positions. There should be a clear line of authority in every organization
which indicates who is accountable to whom. The line of authority and responsibility
helps in reducing conflicts and achieving coordination.
4. Effective Communication:
Establishment of an effective communication system is the key to proper coordination.
The channels of communication used in the organization should be reliable so that they
are able to create proper understanding in the mind of the receiver. Various managerial
positions are made well-connected through vertical, horizontal, and diagonal channels of
communication. Interaction between related departments facilitates effective
coordination.
5. Effective Leadership and Supervision:
Real coordination can be achieved only through effective leadership. A leader can induce
his subordinates to coordinate willingly. Many conflicts and unpleasant situations can be
avoided with the help of good leadership. On the other hand, supervisors also play an
 important role in coordination. Managers should monitor the work of subordinates to
ensure successful performance as planned. So, there is a need for coordination between
the supervisors and the top executives.
6. Comprehensive Programmes and Policies:
Well-defined programmes and policies are essential for achieving effective coordination.
It brings uniformity and consistency in decision-making on the part of managerial
personal and action on the part of non-managerial personnel.
7. Good Organizational Structure:
The various departments in the organization must be grouped in such a way that the work
moves smoothly from one phase to another. Over specialization may complicate the
coordination work. The management should arrange departments in such a way, so as to
get coordination among the departmental heads. Similar functions are put under the
charge of one executive to facilitate better coordination.
8. Developing Personal Contact:
Personal contact avoids controversy and misunderstanding. Coordination should be
achieved through cooperation and mutual understanding. Therefore, ideas, views,
opinions, recommendations, etc., are to be conveyed to the receivers through personal
contact for ensuring better coordination.
Controlling
Definition: Control is a primary goal-oriented function of management in an organisation. It is a
process of comparing the actual performance with the set standards of the company to
ensure that activities are performed according to the plans and if not then taking corrective
action.
Features of Controlling
 An effective control system has the following features:
 It helps in achieving organizational goals.
 Facilitates optimum utilization of resources.
 It evaluates the accuracy of the standard.
 It also sets discipline and order.
 Motivates the employees and boosts employee morale.
 Ensures future planning by revising standards.
 Improves overall performance of an organization.
 It also minimises errors.
Controlling and planning are interrelated for controlling gives an important input into the next
planning cycle. Controlling is a backwards-looking function which brings the management
cycle back to the planning function. Planning is a forward-looking process as it deals with the
forecasts about the future conditions.
Steps/Process of Controlling
Control process involves the following steps as shown in the figure:
 Establishing standards: This means setting up of the target which needs to be achieved to
meet organisational goals eventually. Standards indicate the criteria of performance.Control
standards are categorized as quantitative and qualitative standards.
 Measurement of actual performance: The actual performance of the employee is
measured against the target. With the increasing levels of management, the
measurement of performance becomes difficult.
 Comparison of actual performance with the standard: This compares the degree of
difference between the actual performance and the standard.
 Taking corrective actions: It is initiated by the manager who corrects any defects in
actual performance.
Controlling process thus regulates companies’ activities so that actual performance
conforms to the standard plan. An effective control system enables managers to avoid
circumstances which cause the company’s loss.
Types of control
There are three types of control viz.,
1. Feedback Control: This process involves collecting information about a finished task,
assessing that information and improvising the same type of tasks in the future.
2. Concurrent control: It is also called real-time control. It checks any problem and
examines it to take action before any loss is incurred. Example: control chart.
3. Predictive/ feedforward control: This type of control helps to foresee problem ahead
of occurrence. Therefore action can be taken before such a circumstance arises.

Advantages of controlling

 Saves time and energy

 Allows managers to concentrate on important tasks. This allows better utilization of the
managerial resource.
 Helps in timely corrective action to be taken by the manager.
 Managers can delegate tasks so routinely chores can be completed by subordinates.
Essential characteristics of effective control
If control is to be effective and adequate, it must satisfy the following requirements:

1. Perfect Plan: Control should reflect the plan designed to be followed.

Managers should have information with regard to the plans for which they are
responsible for working.
2. Point out Exceptions: Management by exception is a system of warning the
management when the situation is likely to become out of control and the
intervention of management is needed. Its main object is to make the task of
managing simpler and more effective. If control is based on exception principle,
it will allow the managers to concentrate on important issues. Hence, control
should point out exceptions.
3. Objective: Control should be objective rather then subjective because an
individual’s job is not a matter of subjective determination. Hence, objective
standards are to be established.
4. Flexible: An effective control system should be flexible. It should be capable
of adjusting itself to unforeseen changes of plans. It must be adaptable to new
developments.
5. Economical: The control system should be economical to operate. The
expenditure on control must correspond with the benefits derived from them.
The question of economy should be decided by considering the factors like
importance of activity, the size of the operation, the expense which might be
spent in the absence of control and the utility derived from the control system.
6. Remedial Action: An effective control system should point out the
deviations, the persons responsible for such deviations and make sure that
remedial action is taken. The main purpose of control is taking remedial action
to set right the deviations. If no remedial action is taken, controls are not
necessary.
7. Simple: A control system to be effective, should be simple to adopt. It should
be easily understandable by the parties concerned so that the smooth working of
the system can be ensured.
8. Suggestive of Corrective Action: An adequate and effective control system
should be suggestive of corrective action. It should not stop merely with
pointing out deviations. It should go further and try to generate solutions to the
problem responsible for deviation from the predetermined standards.