Class 12 Business Studies

Principles of
Management  Principles of Management are
broad and general guidelines
for the decision-making and
behaviour of managers.
 In other words, A principle
refers to a statement which
reflects the fundamental truth
about some phenomena based
on cause and effect
relationship.
 Nature / Characteristics / Features of
Management Principles

Universal Formed by Behavioral Contingent

(Pervasive) Practice and in Nature
Experimentations

General Flexibility Based on Cause

Guidelines / Flexible and Effect
Relationship
 Universal (Pervasive)
 The Principles of Management are universal in nature which means that these principles
can be applied to all types of organizations irrespective of their size and nature.
 Business as well as non-business small as well as large public and private sector.
 For example : The Principle of the division of work is applied in government offices, hospitals, schools, etc.

General Guidelines
 Management principles are guidelines for actions but these principles do not provide ready-made solutions
for any problem.
 For example : The Principle of stability of tenure consists on giving a stable time period to employees to settle
down but how much time to be given 6 months, 1 year, etc. vary from organization to organization.

Formed by Practice and Experimentations

 The management principles are developed only after deep and thorough
research work. They are not developed overnight.
 Proper observations and experiments are conducted before developing them.
Therefore, they are evolutionary in nature.
 For example : The Principle of division is not developed overnight but the principle
was developed when it was observed that dividing the work results in improved
performance and then this was tried and tested in different organizations.
 Flexibility / Flexible
 Management principles can be applied differently under different conditions. Some changes can be made
in the application of principles according to the requirement of the company.
 These are not a set of rigid statements. These can be modified by the managers according to the situation.
 For example : The degree of concentration of authority (centralization) and its dispersal (decentralization)
will depend upon the situations and circumstances of each enterprise.

Behavioral in Nature
 Management principles are formed to guide and influence the behaviour of employees. They also establish a relationship between man and
material resources.
 These principles insist on improving the relationship between superiors, subordinates and all the members of the organization.
 For example : While planning the layout of a factory, orderliness would require that workflows are matched by the flow of materials and
movement of men.

Based on Cause and Effect Relationship

 Management principles are based on cause and effect which means these principles tell us if a particular
principle is applied in a situation, what might be the effect.
 Although these principles cannot state perfectly absolute results because these are applied to human beings,
it helps in knowing some idea about the effect.
 For example : Setting up a new factory, a more participative approach to decision-making would be advisable.

Contingent
 Management principles are contingent or dependent upon the prevailing situations in the organization at a particular point in time.
 The application of the principle has to be changed according to the nature, size and type of organization.
 For example : The principle of team spirit is important for an organization where work is carried out by a group of people whereas it is of no
use in companies where work is performed by individuals and not by a group.
 Providing Managers With
Useful Insight Into Reality

Management, Training, Optimum Utilization of

Education and Research Resources

Importance
Fulfilling Social
of
Scientific Decisions
Responsibilities Management
Principles

Meeting Changing
Effective Administration Environment
  Management principles act as guidelines for the managers.
 These principles improve the knowledge, ability and
Providing Managers
understanding of managers in various managerial situations.
with Useful Insight
 The effects of these principles help managers to learn
into Reality
from their mistakes. These principles guide managers
to make the right decision at the right time.
 The management principles insist on planned activities and systematic
Optimum
arrangements of men and materials in the organization.
Utilization of
 Principles are designed to get maximum benefits from human efforts and
Resources
other resources.
 Managers have to make several decisions every day.
Scientific Decisions  The management principles enable managers to approach
various problems systematically and scientifically.
 Every businessman has to make changes in the organization
according to changes taking place in the business environment.
Meeting Changing
 Management principles train the managers in implementing the changes in
Environment
the right direction and at the right level in the organization.
Requirement
 Although, management principles are relative and general guidelines yet
by modifying these principles changes can be made in the organization.
  Administration is the function of top-level management. In this
Effective function, major plans and policies are formed.
Administration  The management principles act as guidelines and base to form various
administrative policies to have systematic working in the organization.

 A business is the creation of society and makes use of the resources of

society so it must do something for society also by performing social
Fulfilling Social responsibilities.
Responsibilities  Management principles not only act as guidelines for achieving
organizational objectives but these principles also guide managers to
perform social responsibilities.

 The management principles stress scientific

judgement and logical thinking.
Management,  As a result, these principles act as a base for doing
Training, research and development in management studies.
Education and  As these principles provide an organized body of
Research knowledge to perform research work and generate
more and more knowledge, they have provided
new ideas, imagination and a base for research and development.
 1. Division of Work
2. Authority & Responsibility
3. Discipline
4. Unity of Command
5. Unity of Direction
6. Subordination of Individual Interest to General Interest
Fayol‟s
Principles of 7. Remuneration of Employees
Management 8. Centralization and Decentralization
9. Principle of Scalar Chain
10. Principle of Order
11. Principle of Equity
12. Initiative
13. Stability of Tenure of Personnel
14. Esprit – De - Corps
 Division of Work
 According to this principle, the whole work must be divided into small tasks or
units instead of assigning the whole work to one person one task or unit. Work
should be assigned to one person according to the capability, qualification and
experience of the person.
 When a person is performing a part of a job, again and again, he will become
perfect and specialized in doing that and the efficiency level will improve.
 For example : In a furniture manufacturing company, one person can be asked
to cut the wood pieces, join them, polish them,
and give a finishing touch to the furniture.
 With the division of work, each person will become
specialized, effective and efficient in part of his job.

Positive Effects  Specialization & Improves efficiency.

 Lack of efficiency and specialization, chances of duplication of work,

Negative Effects wastage of material and labour.
 Authority and Responsibility
 Authority means the power to take decisions. Responsibility means the
obligation to complete the job assigned on time.
 According to this principle, there must be balance or parity between
authority and responsibility. Excess of authority without matching
responsibility may bring negative results and excess of responsibility
without matching authority will not allow a worker to complete his job on time.
 An organization should build safeguard against misuse or abuse of managerial power.
 For example : If a person is given the responsibility to produce 100 units in one week‟s time but
he is not given the authority to purchase the raw materials. If there is no raw material available
in the store room, as a result, he could not complete the target of producing 100 units on time
the worker cannot be blamed for not completing the task on time.
 Because he was given only the responsibility and did not match the authority to carry on the
work. Excess of responsibility with fewer authority results in non-completing of job.

 No misuse of authority; helps in meeting responsibilities on time

Positive Effects without any delay.

 Delay in completion of work, Misuse of authority, overburdened with

Negative Effects work with excess responsibility.
 Discipline
 Discipline means obedience, observance of rules and respect of
the authority to organization rules and employment agreement :
a) Goods superior at all levels;
b) Clear and fair agreement among subordinate and superior;
c) Meeting commitments at all levels.
 Fayol insists that discipline is required at the superior as well as subordinate level.
 The disciplinary rules shall not apply only to subordinates but discipline requires good
superiors at every level, a clear and fair agreement between superiors and
subordinates and judicious application of penalties.
 For example : The employees must honour their commitment to the organization by
working effectively and efficiently. On the other hand, the superior must also meet
their commitments.

Positive Effects  Systematic working in the organization; improves efficiency.

Negative Effects  Disorder, confusion & chaos; wastage of resources; delay in work.
 Unity of Command
 According to this principle, an employee should receive orders from
“One Boss Only” Because If He Is Receiving Orders From More Than
One Boss Then He Will Get Confused And Will not be able to understand.
 For example : If an employee of the production department is asked to go
slow in production and maintain quality standards by the production incharge and sales in
charge, the employee will get confused as to whose instructions must be followed by him.

 No confusion in the mind of subordinate; No ego clashes

Positive Effects and improves effectiveness in working.

 Confusion in the mind of an employee.

 The subordinate will get a chance to escape from his
Negative
responsibilities by giving excuses.
Effects  Ego clashes among the different superiors.
 Difficulty in maintaining discipline in the organization.
 Unity of Direction
 According to this principle “One Head and One Plan”, that is the efforts of all the members
and employees of the organization must be directed towards one direction which is the
achievement of a common goal. If this principle is applied it leads to coordination.
 This principle is related to a functioning organization as a whole or as one unit.
 Efforts of all the employees must be directed toward one goal.

 Achievement of organizational goals.

Positive Effects  Efforts of all the employees get unified towards one direction only.

 Lack of coordination
Negative Effects  Wastage of efforts and resources by working in different directions
 Difficulty in achieving organizational goals.

Difference between Unity of Command & Unity of Direction :

Basis Unity of Command Unity of Direction
One subordinate should receive orders directly from
Each group of activities having the same objective
Meaning one boss and he should be responsible to one superior
must have one head and one plan.
only.
Aim It prevents dual subordination. It prevents overlapping of activities.
Implications It affects an individual employee. It affects the entire organization.
 Subordination of Individual Interest to General Interest
 According to this principle, the interest of the organization must
supersede the interest of individuals or employees.
 In the organization, all the employees are working with some
objective and there is always an objective of the organization.
 If the objectives of individuals are in the same direction of the organization then
there is no problem but if the objectives of both the groups are in different directions then the
manager must try to reconcile individual interest with an organizational goal and if it is not
possible then the individual goal must be sacrificed for achieving organizational goal.
 For example : Before buying raw materials the manager must compare the prices and qualities
of all the suppliers and give orders to the best rather than giving orders to his relative by
misusing his power.

 Achievement of organizational goals.

Positive Effects  Coordination between individual and organizational
goal.

 Lack of Cooperation among individuals.

Negative Effects
 Firm will not be able to achieve its goals.
 Remuneration of Employees
 According to this principle, employees in the organization must be paid fairly or
adequately to give them maximum satisfaction.
 The employees should be paid fair wages and salaries, which would give them
at least a reasonable standard of living.
 The fair wage is determined according to the :
a) The financial capacity of the concern;
b) The wages and salary paid by the competitor;
c) The skills of an employee.

 Employees get motivated.

Positive Effects
 Devotion and commitment of employees improves.

 Increase in turnover of employees.

Negative Effects
 Dissatisfaction and demotivation of employees.
 Centralization and Decentralization
 Centralization refers to the concentration of authority or power in a few hands at the top level.
Decentralization means the even distribution of power at every level of management.
 According to Fayol, A company must not be completely centralized or completely decentralized
but there must be a combination of both depending on the nature and size of the organization.
 For example : Panchayats in our country have been given more powers to decide and spend
funds guaranteed to them by the government for the welfare of villages. This is decentralization
at the national level.
 There is a need to balance subordinate involvement through decentralization
with the manager's retention of final authority through centralization.

 Encourage and motivates the employees.

Positive Effects  Fast decisions at the operational level and
strict control by the top level.

 Complete centralization will result in a delay in decision.

Negative Effects  Complete decentralization will result in misuse of
authority.
 Principle of Scalar Chain
 Scalar chain means line of authority or chain of superiors from highest to lowest rank.
 Fayol insists that this chain must be followed strictly in the organization. Every piece of
information must pass through every key of this chain, no skipping of any one key should be
allowed.
 According to this, If E wants to contact O he has to move through E-D-C B-A-L-M-N and then O.
If this chain is broken there are chances of a communication gap. In case of emergency, Fayol
permitted a shortcut in the chain which is called Gangplank.
 Gangplank permits direct communication between employees working in different position
without following the scalar chain.

 The systematic flow of information. A

B L
Positive Effects  No communication gap in the
C M
organization.
D N
E O
 There may be communication gap. GANG PLANK
F P
Negative Effects  No clarity in the authority- (BRIDGE)
G Q
responsibility relationship.
 Principle of Order
 In this principle, order does not mean command but it refers to the
orderly arrangement of men and material that is a fixed place for
everything and everyone in the organization.
 Fayol insists that there must be a fixed place to keep every
material and thing used in the organization.
 For example : In a school, books are kept in the office, chalk in the library and office
records in the staff room. In this case, the management principle of order is violated.
 In the absence of order lines, school objectives will not be achieved effectively and
efficiently.

 No wastage of time in search of men or material.

Positive Effects
 Smooth and systematic working of the organization.

 Wastage of time and energy in search of men or

Negative Effects material.
 Not able to contact the people at the right time.
 Principle of Equity
 Equity means no discrimination on account of sex, religion, language, caste, belief or
nationality.
 In other words, Equity refers to the kind, fair and just treatment of employees. Employees will
put in their maximum efforts only when they are treated with kindness and justice.
 Equity does not mean equal salary to a peon and supervisor but equity means the application
of some disciplinary rules, and leave rules, in the same way, irrespective of their grades,
positions and gender.
 For example : In multinational corporations, people of various
nationalities work together in a discrimination-free environment.
Equal opportunities are available for everyone in such companies to rise.

 Employees get satisfied.

 Motivate the employees and boost their
Positive Effects
morale of the employees.
 Creates a sense of job satisfaction.

 Dissatisfaction with employees.

Negative Effects  Increase in Labour turnover.
 Unhealthy relations between superiors and subordinates.
 Initiative
 The initiative refers to taking the first step
with self-motivation.
 Fayol suggested that employees in the
organization must be allowed to take some
initiative in making and executing a plan.
 Workers should be encouraged to develop
and carry out their plans for improvements
within the prescribed limits of authority.
 Develops a feeling of belongingness in employees.
Positive Effects
 Increases the sense of commitment.

 Leads to frustration among employees.

Negative Effects
 Causes a lack of creativity.
 Stability of Tenure of Personnel
 It refers to no frequent termination and transfer of employees.
 According to this principle, the management must provide the
feeling of job security among the employees because, with the
feeling of insecurity for the job, the employees cannot
contribute their maximum.
 Frequent turnover of employees is bad
for the organization and such decisions must
be taken when they are almost unavoidable.
 Improves efficiency level of employees.
Positive Effects
 No wastage of time and resources.

 Wastage of resources in learning the new job.

Negative Effects
 Frustration and dissatisfaction among employees.
 Esprit De Corps
 Management must encourage and
promote team spirit, unity and harmony.
 This will bring coordination and
cooperation to the organization.
 A manager should replace “I” with “We”. This
will give rise to mutual trust and belonging among
team members. It will minimize the need for using penalties.
 This principle was used in the movie 'Chak De‟.
 Develops team spirit.
Positive Effects
 Achievement of group goal.

 Team goals may not be achieved.

Negative Effects
 No team spirit and more stress on individualism.
 Scientific
Management
Scientific management can be
defined as the application of science
to every element of management.

According to Taylor, “Scientific

management means knowing
exactly what you want men to do
and seeing that they do it in the
best and cheapest way”.
 Scientific Principles of Management
Science, Not the Rule of Thumb
 According to this principle, Taylor insists that each job performed in the organization should be based on
scientific inquiry and not on intuition, experience and „Hit and Miss Methods‟.
 Rule of thumb means the dictatorship of managers whereas scientific decisions are based
on cause and effect and scientific measurement of methods and ways of production.
 Taylor believed that there is only one best method to maximize efficiency this method
can be developed through work-study and analysis.

Harmony, Not Discord

 According to this principle, those who work together in an organization must
work in harmony that is with mutual consent and proper understanding.
 Generally, in every organization, there are two groups of people—the worker‟s group and the management
group and both groups work as rivals of each other as workers always feel that they are underpaid and are
overburdened with the work and management always feels that workers are good for nothing.
 Taylor insists that there is a need for both groups to change their attitudes toward each other. He insists on a
mental revolution which means a complete change of attitude and outlook for each other. He insists on a
mental revolution which means a complete change of attitude and outlook for each other.
Mental Revolution : The objectives of the mental revolution are :
 Change in mental attitudes of workers and management towards each other.
 Cooperation between workers and management.
 Ruling out the feeling of suspicious or prejudice from the minds of workers and management to adopt systematic thinking
 Taylor said that generally in the organization workers feel that management exploits them, overburdens them with excess
work and pays less; on the other hand, the manager feels that workers always grumble.
 Taylor stressed that there is a need to drastically change the attitude of both groups towards each other. He referred to the
change as a revolution of mind to develop positive thinking and a feeling of cooperation for each other.

Cooperation, Not Individualism

 This principle is the extension of harmony, not discord. According to Taylor, “There should
be an almost equal division of work and responsibility between worker and management.”
 “All day long the management should work almost side by side with the workers
helping, encouraging and smoothing the way for them”.
 There should be complete cooperation between the labour and the management
instead of individualism. Competition should be replaced by cooperation.

Development of Workers to their Greatest Efficiency and Prosperity

 Industrial efficiency depends upon the efficiency of workers. Workers' efficiency
depends upon proper training and selection.
 Taylor insisted due care should be taken while selecting the employees and after
selecting they must be given a job according to their qualification. Employees
must be sent for training from time to time to update their knowledge.
 This will ensure the greatest efficiency and prosperity for both company and its workers.
 Scientific Techniques of Taylor
1) Functional Foremanship
Factory Manager

Planning Incharge Production Incharge

Instruction Time & Cost Repairs

Route Clerk Disciplinarian Speed Boss Gang Boss Inspector
Card Clerk Clerk Boss

Workers
 In this technique, Taylor suggested the division of the factory into
two departments :
a) Planning Department
b) Production department
 Taylor felt that workers must be free from the burden of planning
and they must concentrate on work and production. To develop a
specialization in productivity, Taylor suggested under each
department there must be some functional experts to supervise,
guide and instruct the worker.
 This technique is an extension of the division of work and
specialization on the shop floor.
 Function foremanship is a technique which aims to improve the
quality of supervision at top flow by putting a worker under
eight specialist foremen. In this technique, planning is separated
from execution.
 Taylor said a foreman must be intelligent, educated, energetic,
honest, specialized or a professional expert.
 The Eight Functional Experts Suggested by Taylor are :
a) Under the Planning Department :
i. Route Clerk : This foreman is responsible to fix up the sequence of steps for performing
mechanical or manual jobs. It specifies the route of production.
ii. Instruction Card Clerk : This foreman is responsible for giving general instructions
necessary to carry on the job in a specified manner. It drafts instructions for the workers.

iii. Time and Cost Clerk : This foreman is responsible to fix up the time for starting and completing
a job. He also prepares the cost sheet for every job.

iv. Disciplinarian : This foreman is responsible for the performance of the job in an orderly and
systematic way. It ensures discipline.

b) Under the Production Department :

i. Gang Boss : He arranges all the machines, tools and other resources required for the
performance of the job so that there is no delay.
ii. Speed Boss : This foreman assures timely completion of the job.
iii. Repair Boss : This boss ensures that machines and tools are kept in working conditions.
iv. Inspector : This boss keeps a check on the quality control of the output.

Taylor emphasizes that when every foreman instructs and orders, the worker's efficiency will improve.
2) Standardization & Simplification of Work
 Standardization refers to the process of setting standards for every business activity. It
does not mean only quality standards but it refers to setting up standards for the size,
type, weights, measures and quality of the product.
 According to Taylor, to set up standards managers must make use of work-study
techniques which includes time study, motion study and fatigue study.
 The objectives of standardization are :
a) To reduce a given line of products to fixed type, size and characteristics.
b) To maintain quality standards.
c) To set up performance standards for men and machines.
 Simplification emphasizes the elimination of unnecessary
diversity of products, sizes and types.
 As more varieties mean more inventory, more types of machinery, more labour cost etc.
it will also help in improving the quality and reduction of cost.
 For example, A paper manufacturing company in the USA reduced its varieties from
2000 to 200 which brought positive results for the company.
3) Work Study
 It ensures maximum production at minimum cost
and gets the best contribution from every factor.

It includes :
Fatigue Study
Method Study
Motion Study
Time Study
  A person is bound to get tired when he is performing a job for a long time. There
is always a need for a rest interval. Taylor suggested that the time and
frequency of the rest interval should not be decided by the wish and experience
of the manager but to give a scientific approach, a fatigue study must be
conducted.
Fatigue  The technique is conducted to find out :
Study a) Observe an average worker when he performs a job
b) Note down the time when that work starts getting
tiring then give him a break.
c) This time can be noted to decide the frequency of the
rest interval and during the break after how much time the
worker became fresh to rejoin the work can be the time for rest interval.

 The method study technique of scientific management is conducted to find out

the best method or way of performing the job which keeps minimum production
cost and makes maximum use of resources of the organization.
Method  Taylor suggested that the method of production should not be decided by the
rule of thumb method.
Study  All the methods must be tried in the organization and the one which brings
maximum benefits with minimum cost must be selected.
 The objective of the method study is to minimize the cost of production and
maximize quality and customer satisfaction.
  It is to determine the standard time, i.e. the time taken by a worker of
reasonable skill and efficiency to perform a well-defined job.

Time  The objective of the time study is to determine the standard time taken by a
worker number of workers to be employed; frame suitable incentive schemes

Study and determine labour costs.

 Taylor suggested that the time required to perform the job should not be
decided by intuition, will and wish of the manager, but Time Study must be
conducted to determine standard time.

 Motion study refers to the study of movements like lifting, putting objective,
sitting and changing positions etc.; which are undertaken while doing a
typical job.
 The objective of the motion study is to eliminate unnecessary and wasteful

Motion movements so that it takes less time to complete the job efficiently.
 It helps to increase productivity.

Study  For example : On a close examination of the body, it is possible to find out :
a) Productive Motions.
b) Incidental Motions.
c) Unproductive Motions.
 Taylor used stopwatches and various symbols and
colors to identify different motions.
4) Differential Piece Wage System
 This technique emphasizes paying different rates of wages for
efficient and inefficient employees.
 Taylor wanted to differentiate between efficient and
inefficient workers. He wanted to reward efficient workers. So,
he introduced different rate wage payments for those who
performed above standard and those who performed below
standard.
 For example, It is determined that the standard output per
worker per day is 10 units and those who made standard or
more than standard will get Rs 50 per unit and those below
will get Rs 40 per unit.
An efficient worker making 11 units will get 11 x 50 =
Rs 550 per day.
On the other hand, an inefficient worker who makes 9 units
will get 9 x 40 = Rs 360 per day.
According to Taylor, The difference of Rs 190 should be enough
for the inefficient worker to be motivated to perform better.
 Similarities
between  The main aim of Taylor as well as Fayol is
maximizing efficiency.
Taylor & Fayol
 Both insist on cooperation between employees
and employers.

 Both give more importance to the

organization's interest over the individual's
interest.

 Both suggested division of work for

specialization.

 The principle of both is used as the basis for

research in the field of management studies.
The differences between Henry Fayol and F.W. Taylor are
Basis for Comparison Henry Fayol F.W. Taylor

Henry Fayol is a father of modern F.W. Taylor is a father of scientific

management who laid down fourteen management who introduced four principles
Meaning principles of management, for of management, for increasing overall
improving overall administration. productivity.

Concept The general theory of administration. Scientific Management.

Emphasis Top-level management. Lowers level / Floor Level Management.

Applicability Universally applicable. Applies to specialized organizations only.

Basis of formation Personal Experience. Observation and Experimentation.

Orientation Managerial function. Production and Engineering.

System of Wage
Sharing of profit with managers. Differential Payment System.
Payment
Approach Manager‟s approach. Engineer‟s approach.