Advanced Management Theories 97

Advanced Management Theory
ADVANCED MANAGEMENT THEORIES (Paper I)
1. Why Parkinson’s Law frequently quoted in management parlence (2009-I).

2. Review the history of management and the features of contemporary management.(2009-I)
3. Discuss the nature and significance of management grid and immaturity (2009-I).
4. Critically analyze system approach to management.(2009-I)
5. Discuss the measures of managerial performance and their relevance in the present day world
(2009-I).
6. Discuss the role of management in a modern corporate body.(2007)
7. What are the strengths and limitations of MBO? (2007)
8. Compare and contrast need hierarch theory with two factor theory of motivation. (2007)
9. Elucidate the contribution of Henry Fayol to management thought. (2007)
10. “Management is regarded as an art by someone, science by others and inexact science by
many more.” Comment. (2007)
11. Write short notes on the following:
a. Theory Z(2007)
b. Joint sector(2007)
c. Management of Change(2007)
d. Parkinson’s Law. (2007)
12. What is the organizational performance? How does personal performance contribute to
organizational performance? (2006).
13. In what way has liberalization and globalization created challenges and opportunities for
Indian Managers? (2006).
14. How are productivity and quality related? Discuss the quality and productivity technique that
provides an objective way to monitor the performance of a process. (2006).
15. What are the most common reasons that people resist change? How can managers use force-
field analysis to understand organizational change? (2006).
16. “Pearson oriented leadership is OK if you are only interested in employee satisfaction, but if
you want to get the job done, then task oriented leadership is the only way.” Evaluate this
quotation. (2006).
17. What is the basic premise of rational model of decision making? How does it differ from
bounded rationality model? Illustrate with examples. (2006).
18. Why are people considered to be a fundamental part of information systems? What effect
might a new information system have on employee motivation? (2006).
19. Discuss social responsibility of business with the help of examples from the corporate world.
(2006).
20. How does each of the motivation theory you know contribute to the prediction of
performance, satisfaction and other outcome variables? (2006).
21. Explain:
a) Mintzberg’s typology of managerial roles (2006).
b) Theory Z (2006).
c) Corporate planning and national planning (2006).
22. Discuss the nature and functions of management.(200 Unknown)
23. Explain the importance of management in an organization. (200 Unknown)
24. Explain Theory X and Y and compare with Theory Z. (200 Unknown)
25. Discuss three important theories of motivation. (200 Unknown)

26. State the various measurement of performance. (200 Unknown)
27. Discuss the need and importance of MIS. (200 Unknown)
28. Write short notes:
a) Parkinson’s law(200 Unknown)
29. Management is the art of getting things done through and with people in formally organized
groups. Comment and discuss the nature and functions of management.(1996)
30. Explain Herzberg’s two factor theory of motivation. How does it differ from Maslow’s need
hierarchy theory? (1996)
31. What are the assumptions of theory X and Theory Y? Is an autocratic manager likely to view
his employees from theory X or theory Y perspective? Discuss. (1996)
32. State the importance of MIS in the present day context. How does it help in managerial
decision making? (1996)
33. Organizational analysis and managerial planning involves the development of policies,
procedures, programmes, budgets and schedules. Comment and discuss the nature and role
objectives. (1996)
34. What is meant by objectivity? How far quantification in management practices ensures
objectivity? Discuss. (1996)
35. What are the reasons for resistance to change? Offer suggestions to overcome resistance to
change. (1996)
36. Distinguish between corporate planning and national planning. Explain the management
practices of public sector undertakings in India. (1996)
37. Describe the following
a) Parkinson’s Law(1996)
b) Peter Principle(1996)
c) Theory Z(1996)
CHPTER ONE
Meaning, Functions and Nature of Management
Management Defined
There are a variety of views about the term management. Traditionally, the term "management"
refers to the activities (and often the group of people) involved in the four general functions
(planning, organizing, leading, controlling).
Another common view is that "management" is getting things done through others. Yet another
view, quite apart from the traditional view, asserts that the job of management is to support
employee's efforts to be fully productive members of the organizations and citizens of the
community.
To most employees, the term "management" probably means the group of people (executives and
other managers) who are primarily responsible for making decisions in the organization. In non-
profit organizations, the term management might refer to all or any of the activities of the board,
executive director and/or program directors.
In general, management is a set of activities directed at the efficient and effective utilization of
resources in the pursuit of one or more goals.
Human Physical
resources
Resources
Effective and Goals

Managerial
activities efficient
utilization
Financial
Resources
Information
resources
Management is defined as working with human, financial and physical resources to achieve
organizational objectives by performing the planning, organizing, leading, and controlling
functions.
The Functions of Management
The elements of management process are known as functions of management. However various
authors have classified these differently. Henry Foyal classified them into
(POCCC)
1. Planning
2. Organizing
3. Commanding
4. Coordinating and
5. Controlling
Luther Gullick has given the word 'POSDCORB' which stands for
1. Planning (P)
2. Organizing (O)
3. Staffing (S)
4. Directing (D)
5. Controlling (CO)
6. Reporting (R) and
7. Budgeting (B)
Koontz and O'Donnell have suggested
1. Planning
2. Organizing
3. Staffing
4. Directing and
5. Controlling
Erneast Dale has in addition mentioned 'innovation' and 'representation' as a function of

management.
In short it is the function of the manager to secure the optimized working of the organization.
Maximization of results is his duty and satisfy the interests of all those who are deemed to
constitute the organization, the share holders (who look for a proper return on their investment),
the employees (who aspire for a rewarding career) and the large number of consumers (who look
for punctual supply of the goods and services provided by the organization at a competitive price).
So the steps that the manager takes to achieve this goal and to reach his destination constitute his
functions.
Planning
The first function of the manager is planning. It is also the foremost and the essential function.
Planning defines the goals and objectives to be reached in the plan period. It also consists of
policies, procedures, methods, budgets, strategy and programmes that are needed to achieve the
goals set. Decision-making is the most important and integral part of planning.
Planning is the most basic and pervasive process involved in managing. It means deciding in
advance what actions to take and when and how to take them.
Planning is needed, firstly for committing and allocating the organization’s limited resources
towards achieving its objectives in the best possible manner and, secondly for anticipating the
future opportunities and problems.
Planning is putting down in black and white the actions which a manager intends to take. Each
manager is involved in planning though the scope and character may vary with the level of the
manager.
Importance of Planning
1. Planning affects performance.

2. Planning puts focus on objectives.
3. Planning anticipates problems and uncertainties.
4. Planning is necessary to facilitate control.
5. Planning helps in a process of decision making.
Types of plans
Organizational plans are usually divided into two types, namely standing plans and single use
plans.
Standing plans are those which remain roughly the same for long periods of time and are used in
organizational situations that occur repeatedly.
Single use plans focus on relatively unique situations within the organization and may be required
to be used only once.
Standing plans:
Policies: A policy is a statement and pre-determined guideline that provides direction for decision
making and action taking. Policies are usually general enough to give the manager sufficient
freedom to make judgments.
Procedures: while policies cover a broad area of action, procedures prescribe the exact manner in
which an activity is to be completed. It is a series of steps established to accomplish a specific
project. They generally indicate how a policy is to be implemented and carried out. They are more
precise guidelines permitting little or no individual discretion. Procedures are a series of related
tasks that make up the chronological sequence and the established way of performing the work to
be accomplished.
Rules: Whereas procedures specify a chronological sequence of steps to be performed, a rule is very
specific and a narrow guide to action. These are plans that describe exactly how one particular
situation is to be handled. A rule is meant to be strictly followed and is generally enforced by
invoking penalties.
Organizational plans
Standing plans Single use plans
Programs
Policies
Budgets
Procedures
Rules
Single use plans:
Programmes: A programme is a single use plan designed to carry out a special project, solving a
problem or achieving a group of related goals. This project or problem is not intended to be in
existence over the entire life of the organization like the standing plans.
Budgets: A budget is another single use programme which is a financial plan that covers a specified
period of time. This plan identifies as to how funds will be raised and how these funds will be
utilized for procuring resources such as labour, raw materials, information systems and other
business functions such as marketing, research and development and so on.
Levels of Planning
There are basically three levels of planning associated with the different managerial levels.
1. Strategic Planning: is the process of determining overall objectives of the organization and
the policies and strategies adopted to achieve those objectives. It is a process by which an
organization makes decisions and takes actions that affect its long-term performance. Top
management of the organization is involved in strategic planning, which is a long-range and
has a major impact on the organization. It usually covers a time period of up-to ten years
and involves a major commitment of resources.
2. Tactical Planning: While strategic planning focuses on where the organization will be in the
future, tactical planning, also known as intermediate planning emphasizes how it will be
done. Such planning generally covers a shorter period of time, usually between one and two
years and involves middle level management.
3. Operational planning: operational plans are the responsibility of lower level management
and involve unit supervisors, foremen and so on. These are short range plans covering a
time span of about one week to one year. These plans are more specific and they determine
how a specific job is to be completed in the best possible way. Most of them are divided into
functional units.
Steps in Planning
The steps generally involved in planning are as follows:
1. Establishing Verifiable Goals or Set of goals to be achieved

2. Establishing Planning Premises
3. Deciding the planning Period
4. Finding Alternative Course of Action
5. Evaluating and selecting a Course of Action
6. Developing Derivative plans
7. Measuring and Controlling the progress
Organizing
Organizing is to give a proper shape to the structure that should execute the plan smoothly to
achieve its success. It is the function of putting together different parts forming an enterprise and
makes it an organic whole to enable it to carry out defined operations. Various activities to fulfill
the goals have to be grouped and these are to be assigned to people in-groups or departments. The
authority, responsibility, accountability needed at each level to execute the plan is to be defined and
delegated.
Organizing simply can be defined as a process that results in organizational structure through
departmentalization, linking departments together, defining authority and responsibility and
prescribing authority relationship sub activities.
The purpose of the organizing function is to make the best use of the organization's resources to
achieve organizational goals. Organizational structure is the formal decision-making framework
by which job tasks are divided, grouped, and coordinated. Formalization is an important aspect of
structure. It is the extent to which the units of the organization are explicitly defined and its
policies, procedures, and goals are clearly stated.
The organizing function deals with all those activities that result in the formal assignment of tasks
and authority and a coordination of effort. The supervisor staffs the work unit, trains employees,
secures resources, and empowers the work group into a productive team.
The process of organizing consists of the following steps:
a. Determining and defining the activities required for the achievement of planned goals;
b. Grouping the activities into proper and convenient units;
c. Assigning the duties and activities to specific positions and people
d. Delegating authority to those positions and people;
e. Defining and fixing responsibility for performance; and
f. Establishing horizontal and vertical authority-responsibility relationship throughout the

organization.
Organizing refers to the formal grouping of people and activities to facilitate achievement of
the firm's objectives. It is concerned with deciding the types of organisation structure,
degree of centralization, levels of management, span of control, delegation of authority,
unity of command, line and staff relationship, and staffing.
 Structure refers to the specific manner in which people are grouped or departments are
formed which is technically called departmentalization. An organisation can group its
people ,units or activities on the basis of:
The various functions (such as production, personnel, finance, marketing) that results in
functional departmentalization. Functional departmentalization organizes by the
functions to be performed. The functions reflect the nature of the business. The
advantage of this type of grouping is obtaining efficiencies from consolidating similar
specialties and people with common skills, knowledge and orientations together in
common units.
Geographical territories
Around specific products or product lines. Departmentalization by product assembles

all functions needed to make and market a particular product are placed under one
executive. For instance, major department stores are structured around product groups
such as home accessories, appliances, women's clothing, men's clothing, and children's
clothing.
Departmentalization by process groups jobs on the basis of product or customer flow.

Each process requires particular skills and offers a basis for homogeneous categorizing
of work activities. A patient preparing for an operation would first engage in
preliminary diagnostic tests, then go through the admitting process, undergo a
procedure in surgery, receive post operative care, be discharged and perhaps receive
out-patient attention. These services are each administered by different departments.
Another type of organization is by the type of customers served. E.g., institutions versus
individuals’ departmentalization.
The concept of matrix organization is a recent evolution and combines the functional
and product organization. This type of organization is especially useful in case of
projects which require both specialists as well as functional experts to execute a project
within a specified time frame.
 Centralization refers to the point or level where all decision-making authority is

concentrated. One-man enterprises; such as a small bread and butter stores, vegetable
vendor, a self-employed car mechanic, are examples of complete centralization. As the
enterprise grows, it becomes increasingly difficult for one person to manage alone and he
has to necessarily line up other. People and give them authority to make some decisions.
These decisions may be routine, programmable decisions but complete centralization is no
longer possible. The decision-making authority is now vested in more than one individual.
This is decentralization.
 Closely related to the concept of centralization are the concepts of levels of management and
span of control.
 A level of management refers to the number of hierarchical levels under the control of a
particular manager. There is a great deal of controversy regarding the ideal number of
people that a manager can effectively control or the ideal span of control. Many
management thinkers are of the view that three to seven is the ideal range. In practice, this
may actually vary from one individual manager to another. At each level of management,
there is a reporting relationship between the manager and the workers. The fewer the
number of people that a worker has to report to, the less will be the problem of conflict in
instructions, and greater the feeling of responsibility for results. Similarly, the clearer the
line of authority from the manager to the workers, the better the decision-making and
communication. The staff functionary reports directly to the top management and is not a
part of the chain of command.
 A company may draw up any number of ambitious plans, but if it does not have the right
kind of people, it can never succeed in implementing these plans.
 The staffing function involves identifying/selecting the right person for executing each task
planned. By carrying the functions of organizing and staffing the "plan" is transformed from
a document level to the operational stage. The staffing function includes all the jobs
connected with recruitment, selection of staff, their training, placement, remuneration
appraisal, promotion, retirement etc.
 Having found the right candidate, it is equally important that you are able to retain him.
Among other things, motivation and leadership provided by the top management of
organization also plays an important role.
 An organization changes its structure and practices as a result of the forces from internal
origins as well as from external pressures arising in the environment.
 There are two primary aspects of organizational structure-differentiation and integration.
 Differentiation is the division of the organization into subsystems, e.g. research, sales,
production etc. Each differentiated subsystem develops particular attributes in
responding to the requirements posed by its relevant external environment. However,
differentiation requires the integration of these subsystems to achieve unity of effort and
the accomplishment of the organization's goals.
 The more turbulent environment would be associated with a higher degree of differentiation
among the organization's sub-parts and also a correspondingly high degree of integrative
effort.
 An organization faced with a stable environment would have less differentiated subsystems
and require fewer integrative procedures. The success of an organization depends upon an
appropriate amount of differentiation to cope with the environment and also the right amount
of integrative or coordinating effort.
Directing/leading
Dozens of participating staff members should learn to think in common for executing the plan and
work in cooperation. It is the duty of the manager to guide his subordinates by training coaching,
instructing and indicating what to do, when to do and how to do. Thereafter closely monitor the
team at work to ensure high standard and efficiency.
Function of directing embraces the following activities:
a. Issuing orders and instructions.

b. Supervising (overseeing) people at work.
c. Motivation, i.e. creating the willingness to work for certain objectives.
d. Communication, i.e. establishing understanding with employees regarding plans and their
implementation, and
e. Leadership or influencing the behavior of employees.
Controlling
Control is the tool for course regulation as the organization marches ahead and correcting it when it
diverts off-course. The results of the activity must confirm to the laid down standards and all
variations should be analyzed and root cause identified. Where possible hindrances in the growth
path are removed.
Controlling includes ongoing collection of feedback, and monitoring and adjustment of systems,
processes and structures accordingly. Examples include use of financial controls, policies and
procedures, performance management processes, measures to avoid risks etc.
Planning and controlling go hand in hand. There can be no control without a plan and plans cannot
be successfully implemented in the absence of controls. Controls provide a means of checking the
progress of the plans and correcting any deviations that may occur along the way.
Control also means deviating from the course to reach the goals, if the present one is not taking us
there. Control system also identifies non-performers or low performers. Constant review/appraisal
should be carried out and corrective steps initiated then and there.
The type of control required will vary according to the factors that are to be controlled, and the
critical importance of the factors to the organization’s success. The more critical the factor the more
complex is the control mechanisms needed to check its progress. Finance is a very critical area of
management and most companies devise elaborate and sophisticated financial controls.
A control is meaningful only when there is clear cut responsibility for activities and results. It is
meaningless to have a control process which simply points out deviations but cannot pinpoint the
area in which they occurred and who is responsible for taking the corrective measures.
Controls maybe used to measure physical quantities (such as volume of output, number of man
hours, number of units of raw material consumed per machine, etc.), monetary results (value of
sale, capital expenditure, return on investment, earnings per share, etc.) or to evaluate intangibles
such as employee loyalty, morale, and commitment to work. Obviously; the third kind of controls
are the most difficult to design and implement: No quantitative measure can be used, but only a
qualitative, descriptive evaluation is possible.
The process of controlling involves the following steps:
a. establishing standards for measuring work performance;

b. measurement of actual performance and comparing it with the standards;
c. finding variances between the two and see the reasons ; and
d. taking corrective action for rectifying deviations so as to ensure attainment of objectives
Establishment of standards: Controls are established on the basis of plans and so the first step is to
have clear plans which in turn become the standards for controlling. However, an effective
control process focuses only on the critical variables rather than controlling all the variables. It
also indicates the permissible range of deviation from the expected target. Only when the actual
performance, is outside this range, does it become a matter of concern for the manager to find
out why this has happened and take corrective action.
Measurement of performance: Having set standards it is necessary to devise a system for
measuring the performance of individuals, departments or the company against these
standards. In some cases quantitative goals can be set, such as number of units to be sold by
each salesman, number of units to be produced per machine, or the profit to be generated by
each branch office.
Correcting deviations: The ultimate objective of the control process is to pinpoint the occurrence
outside the permissible range of action to allow management to take corrective action. The
maximum number of rejects per machine per day is fixed.
The successful control process hinges on the all important concept of feedback. This refers to the
information on the critical control variable of the operation or activity which when feed back to
the manager triggers off corrective action.
Essential Features of the Process/functions of Management
Process consists of a series of sequential operations commencing with a beginning and terminating
with an end, in each cyclic operation, that is necessary to achieve specific goals or results. The
process of management is characterized by the following features.
1. Continuity:
Management is a never-ending and continuous process. The different function like planning,
organizing,, directing, controlling etc. are interrelated and interdependent
2. Circular:
The functions are inter-active. They are non-linear and circular. And in a way all functions
may be considered as sub-functions of each other. For example, planning, organizing,
staffing and controlling may all occur within a planning process.
3. Social:
Management deals with human elements from within and outside. It influences
significantly the whole society. Management decisions may have far-reaching social
consequences (like the ill-conceived decision of some industries to engage 'child labour';
industries polluting the environment with poisonous gases and effluents etc). A Manager,
therefore, while taking decisions must remember the likely impact of his decision on society
and ensure that management decisions do not act in conflict with accepted social values.
4. Composite:
The functions of management should be considered in its entirety. The functions are
integrated and overlapping. Thus we cannot perform staffing functions without planning
and organizing etc. Similarly planning will be empty without being followed by other
functions.
1.3. Levels, Skills and Roles of Managers
Levels of Managers:
The First Level Managers:
 These managers are in direct contact with the employees, who usually produce the goods or
service outputs of an organisation.
 They are referred to as supervisors or foremen in some organizations.
 In some government offices, the superintendent of the office supervising the work of typists,
dispatch clerks, etc. belongs to this category.
 In the industry, it is the foreman, who is in direct contact with the rank-and-file workers,
producing goods or services.
The Middle Level Managers:
 These managers are those with a number of responsibilities and linking or connecting
activities.
 They direct the activities of the first level managers.
The Top Level Managers:
 The top level managers are a small group of policy makers responsible for the overall
strategic management of the organizations.
 It is the responsibility of the top managers to develop the objectives and strategies of the
organisation.
 It is the top management that must sense the demands of the political, social and
competitive environments on the organisation.
 A President or a Chief Executive or a District Magistrate is examples of top managerial level.
The Managerial Skills
 These skills refer to the personal ability put to use by the manager in specific position that
he or she holds in the organizational hierarchy.
 As one moves up in the hierarchy of the managerial positions, the responsibility increases.
 The fundamental functions of a manager such as planning, organizing, leading, controlling
and decision-making requires skills that has to be mastered by the managers.
 In order to exercise these functions, one has also to keep in mind, the type of job, the size of
organisation, the skills and experiences of the people one works with and the time available
at his disposal to do these management functions.
 There are three types of skills that are recognized by all managers. These are the technical,
the human and the conceptual skills. The use of these skills differs for various levels of
managers.
Technical skill
 It is the ability to work with resources in a particular area of expertise.
 Technical skill implies an understanding of, and proficiency in, a specific kind of activity
particularly the one involving methods, processes, procedures or techniques.
 Such functions involve specialized knowledge, analytical ability within the specialized field,
facility in the use of tools and the techniques of the specific discipline.
 Without the technical skill, one is not able to manage the work effectively.
 The first line supervisor needs greater knowledge about the technical aspects of the job
compared to his top boss.
 In a small organisation, even the top boss who owns the company needs to know a lot of
technical skills.
 Mostly the vocational and on-the-job training programmes are concerned with developing
this specialized technical skill.
 As you move up in the managerial hierarchy, perhaps this skill becomes relatively less
important than the human and conceptual skills.
b) Human skill
 Human skill is the manager's ability to work effectively as a group member and to build
cooperative effort within the team he leads.
 Every managerial level requires managers to interact with other people.
 If you have a highly developed human skill and if you are aware of your own attitudes,
assumptions, and beliefs, about other individuals and groups, you are able to see their
usefulness and limitations. And you are likely to accept others' viewpoint, perceptions and
beliefs, which might be different from yours.
 Your human skills will help you to build a work atmosphere of approval and security,
where people working with you as subordinates feel free to express themselves without fear
of being ridiculed and to participate in the planning and carrying out of those things which
directly affect them. You feel sensitive to others' reactions to your actions and you will act
after taking others' perceptions into account.
c) Conceptual skill
 This skill means the ability to see the organisation as a whole and it includes recognizing
how the various functions of the organisation depend on one another.
 It also makes the individual aware how changes in any one part of the organisation affect all
the others.
 It extends to visualizing the relationship of the individual business to the industry, the
community and the political, social and economic forces of the nation as a whole. Thus the
manager gains insight into improving the overall welfare of the total organisation.
 As a manager you should have the ability to coordinate and integrate a variety of factors.
You need to view situations and determine the inter-relatedness of various factors. The
success of any decision depends on the conceptual skill of the people who make the decision
and those who put it into action.
 Your success as a manager heavily depends on your conceptual skills or creative ability to
perceive and respond to the direction in which the business should grow, organizations
objectives and policies and stock holders' and employees' interest. You can, by virtue of
conceptual skill, be in a position to change the way of doing business in your organisation
compared to another.
 Conceptual skill compared to technical and human skills is more important at the top level
of management. At the first level, one has relatively few factors to consider.
 Technical skill is responsible for many of the great advances of modern industry. It is
indispensable to efficient operation. It has the greatest importance at the lower level of
administration.
 As the manager moves up in level, the need for technical skill becomes less important, if he
has skilled subordinates to help them solve their own problems. When the manager reaches
the top, technical skill may not be existent, but with a highly developed human and
conceptual skill, he or she may still be able to perform effectively.
 Human skill is required at every level, but with difference in emphasis.
 Managers at all levels require some competence in each of the three personal skills.
 Even, managers at the first level must continually use all of them.
 To briefly state it, the top level manager uses the conceptual skill to deal with environmental
demands on his organisation. The limited physical and financial resources available to him
make him effectively use his technical skill. The capabilities and demands of the persons
with whom he deals make it essential that he possesses the human skill.
Figure: Level-wise Skills in Management SKILLS
Managerial Roles:
 To meet the many demands of performing their functions, managers assume multiple roles.
 A role is an organized set of behaviors.
 Henry Mintzberg has identified ten roles common to the work of all managers. The ten roles
are divided into three groups: interpersonal, informational, and decisional.
 The informational roles link all managerial work together.
 The interpersonal roles ensure that information is provided.
 The decisional roles make significant use of the information.
 The performance of managerial roles and the requirements of these roles can be played at
different times by the same manager and to different degrees depending on the level and
function of management.
 The ten roles are described individually, but they form an integrated whole.
 The three interpersonal roles are primarily concerned with interpersonal relationships.
 In the figurehead role, the manager represents the organization in all matters of formality. The
top level manager represents the company legally and socially to those outside of the
organization. The supervisor represents the work group to higher management and higher
management to the work group.
 In the liaison role, the manger interacts with peers and people outside the organization. The top
level manager uses the liaison role to gain favors and information, while the supervisor uses it to
maintain the routine flow of work.
 The leader role defines the relationships between the manger and employees.
 The direct relationships with people in the interpersonal roles place the manager in a unique
position to get information. Thus, the three informational roles are primarily concerned with the
information aspects of managerial work.
 In the monitor role, the manager receives and collects information.
 In the role of disseminator, the manager transmits special information into the organization. The
top level manager receives and transmits more information from people outside the organization
than the supervisor.
 In the role of spokesperson, the manager disseminates the organization's information into its
environment.
 The unique access to information places the manager at the center of organizational decision
making. There are four decisional roles.
 In the entrepreneur role, the manager initiates change.
 In the disturbance handler role, the manger deals with threats to the organization.
 In the resource allocator role, the manager chooses where the organization will expend its efforts.
 In the negotiator role, the manager negotiates on behalf of the organization.
 The supervisor performs these managerial roles but with different emphasis than higher
managers. Supervisory management is more focused and short-term in outlook. Thus, the
figurehead role becomes less significant and the disturbance handler and negotiator roles increase
in importance for the supervisor. Since leadership permeates all activities, the leader role is
among the most important of all roles at all levels of management.
1.4. Importance and Nature of Management

Importance of management
The importance of management may be traced in the following contexts:
1. Effective Utilization of Resources: Managers try to make effective utilization of various
resources. The resources are scarce in nature and to meet the demand of society, their
contribution should be maximum for the general interest of society. Management not only
decides in which particular alternative a particular resource should be used, but also takes
actions to utilize it in the particular alternative in the best way.
2. Development of Resources: Management develops various resources. This is true with
human as well as non-human factors. Thus through the development of resources,
management improves the quality of lives of people in the society.
3. To incorporate Innovations: Today changes are occurring at a very fast rate in both
technology and social process and structure. The changes need to be incorporated to keep
the organizations alive and efficient. Businesses organizations are moving from primitive to
sophistication. Therefore, they require high degree of specialization, high level of
competence, and complex technology. All these require efficient management so that
organizations work in the most efficient way.
4. Integrating various Interest Groups: In the organized efforts, there are various interest
groups (e.g., shareholders, employees, government, etc.,) and they put pressure over other
groups for the maximum share in the combined output. Management has to balance these
pressures from various interest groups.
5. Stability in the Society: Management provides stability in the society by changing and
modifying the resources in accordance with the changing environment of the society. In the
modern age, more emphasis is on new inventions for the betterment of human beings. These
inventions make old systems and factors mostly obsolete and inefficient. Management
provides integration between traditional and new inventions so that continuity in social
process is maintained.
6. Management is a critical element in the economic growth of a country: By bringing
together the four factors of production (viz., men, money, material, and machine),
management enables a country to experience a substantial level of economic development.
A country with enough capital, human resource and other natural resources can still be poor
if it does not have competent managers to combine and coordinate these resources.
Nature of Management
The nature of management can be described as follows:
1. Multidisciplinary: This implies that, although management has been developed as a
separate discipline, it draws knowledge and concepts from various disciples. It freely draws
ideas and concepts from such disciplines as psychology, sociology, anthropology,
economics, ecology, statistics, Operations Research, history etc. Management integrates the
ideas and concepts taken from these disciplines and presents newer concepts which can be
put into practice for managing the organizations. In fact, the integration of knowledge of
various disciplines is the major contribution of management.
2. Dynamic Nature of Principles: Principle is a fundamental truth which establishes cause and
effect relationship of a function. Based on integration and supported by practical evidences,
management has framed certain principles. However, these principles are flexible in nature
and change with the changes in the environment. Because of the continuous development in
the field, many older principles are being changed by new principles. No principle is
regarded as a final truth. There is nothing permanent in the landslide of management.
3. Relative, not absolute principles: Management principles are relative, not absolute, and
they should be applied according to the need of the organization. Each organization may be
different from others. The difference may exist because of time, place socio-cultural factors,
etc. However, individuals working within the same organization may also differ. Thus a
particular management principle has different strengths in different conditions. Therefore,
principles of management should be applied in the light of prevailing conditions. Allowance
must be made for different changing environment.
4. Management: Science or Art: There is very old controversy whether management is science
or art. However, management is both science and an art. Much of the controversy is on
account of the fact that, the earlier captains of industry and managers have used intuition,
hunches, commonsense, and experience in managing organizations. They were not trained
managers, although they were very brilliant and had developed commonsense through
which they managed well. Common sense and science are indeed very different. Science is
based on logical consistency, systematic explanation, critical evaluation, and
experimentation analysis. Science is a body of systematized knowledge accumulated and
accepted with reference to the understanding of general truths concerning a particular
phenomenon, subject or object of study. Recasting from the definition of science,
management can not be regarded as science because it is only halfway. It may be called in-
exact science or pseudo science. Management is not as exact as natural or physical sciences
are. Because:
 Science, and all its branches or constituents, should attempt to provide a set of
internally consistent hypothesis principles, laws and theories dealing with an
aspect of total knowledge. However, management since it is young science only

approximates this state.
 In science concepts have to be defined clearly in terms of the procedures involved in
their measurement. One has to know exactly what one is talking about while using a
particular term. Meanings have to be clear and an ambiguous to avoid confusion.
However, in management various terms are not used in the same way and giving
same meaning.
 In science, observations must be controlled so that causation may be imputed
correctly. This actually can be done by keeping constant the varying factor in the
observation. However, this is the difficult activity in management particularly in
studying organizational phenomena.
 Theories in science are in terms that permit empirical conformation. Scientific
statements are testable and the tests are capable of repetition with same result.
Furthermore, explanatory statements are logically consistent with other explanatory
statements that have been frequently confirmed. Thus rationality is maintained.
However, this does not happen in management. Many management principles lack
empirical evidence and are not testable. Further, these principles do not give similar
results under varying conditions, and therefore lack universal application.
Management is also considered as an art. Art is bringing a desired result through the
application of skills. Whereas under science one learns the why of phenomena, under
art, one learns the how of it. Art is thus concerned with the understanding of how
particular work can be accomplished, that is, art has to do with applying knowledge or
science or experiences in performance. Science and arts are complementary fields of
studying, they are not mutually exclusive. Management as an art can be seen from the
following facts:
 The process of management does involve the use of know-how and skills like
any other arts like music, painting, sculpture, etc.
 The process of management is directed to achieve certain concrete results as
other fields of arts do.
 Management is creative like any other art. Creativity is a major dimension in
managerial success. It creates new situations for further improvement.
 Management is personalized meaning thereby that there is no one best way of
managing. Every person in his profession has individual approach and technique
in solving the problems. The success of managerial task is related with the
personality of the person apart from the character and quality of the general
body of knowledge.
Thus management can be concluded that it is both science and an art.
5. Management as Profession: Management has been regarded as a profession by many while

many have suggested that it has not achieved the status of a profession. Profession is a n
occupation for which specialized knowledge, skills and training are required and the use of
these skills is not meant for self satisfaction but these are used for larger interests of the
society and the success of the use of these skills is measured not interms of money alone.
The various characteristics of a profession are:
 Existence of an organized and systematized body of knowledge
This is true for management as well. Management has been developed as a distinct body of
knowledge over the last five-six decades. The development of knowledge in management field
has been due to the need for managing complex and large organizations in a better way.
However, the concept of management is still evolving and continuously new principles are
being developed though this does not affect its status as being a profession.
 Formal method of acquisition of knowledge
An individual can enter a profession only after acquiring knowledge and skills through
training. However, from this point of view, management can not be regarded as a profession
because the entry to a managerial cadre in an organization is not limited to management
graduates only, though it can be said that management graduates can put in better performance
in the organization because of their familiarity with the various techniques of management.
 Existence of an association with professionalisation as its goals
An occupation, which claims to be a profession, should have an association. A professional
association consists of firms and individuals whose membership is based on common
professional, scientific, or technical aims. In the field of management there are associations at
various levels. However, managers do not belong to a single, unified professional group.
Instead, individuals and firms affiliate with a variety of interest groups.
 Formulation of ethical codes
For every profession, some ethical standards are provided and every individual of the
profession is expected to maintain conformity with these standards. Though there is a lack of
universally accepted ethical codes for managers throughout the world, in most of the countries
managers are supposed to be socially responsible, and it is their duty to protect the interest of
all parties associated with an organization.
 Service motives
Service motive concept suggests that professionals should keep social interest in their mind
while charging fees for their professional services. This is true for management. As management
is an integrating agency and its contribution in the society by way of integrating various
resources into productive units is very important for the stability of the society.
 The above points indicate that management does not fulfill all the requirements of
professionalisation and hence it can be labeled as an emerging profession.
6. Universality of Management: Management is a universal phenomenon. However,

management principles are not universally applicable but are to be modified according to
the needs of the situation. There are two opposing ideas on the topic as well.
b) Arguments for Universality
Experts subscribing to the concept of universality of management suggests that the basics of
management are universal and can be found in all types of organizations situated in any
country or culture. There is a general logic of management development which has applicability
both to advanced and industrializing countries in the modern world.
The following arguments can be advanced to suggest the view of universality of management.
 Management as a process: management as a process is universal. It is argued that
management as a process is found in all organized activities irrespective of country,
culture, or size. The various elements of management process –planning, organizing,
leading and controlling- are universal for all organizations and as a manager each one
must, at one time or another carry all these duty characteristic of managers. Only the
intensity of a particular element may differ depending on the variables affecting
management practices.
 Distinction between Management Fundamentals and Techniques: Management
fundamentals are the basic principles and theories while management techniques are the
tools for performing managerial functions. Whereas managerial techniques may differ
from country to country, management fundamentals will remain the same.
 Distinction between Management Fundamentals and Practices: Universality of

management suggests that management fundamentals are the same, only practices
differ. This is so because management is both an art and science. The most productive
art is always based on an understanding of the science underlying it. The art of
managing or the practice of managing makes use of organized knowledge that is
science. However, its practice is subject to variations under different conditions. This
may be true even with science also.
b) Arguments against universality
According to this view, management is entirely situational and there is nothing like universal
principles of management. Therefore, there is no such way as the right way for manager to
operate or behave. The arguments against the universal application of management principles
suggest that there are certain factors which affect the application of a principle or a set of
principles of management. These factors are:
 Cultural Characteristics. The application of management principles is determined by
the culture of a country. Therefore, it can be said that management is culture bound.
Culture is a set of beliefs, attitudes and values that are shared commonly by the
members of the society. Culture affects people’s behavior significantly and any people-
oriented process may be affected by cultural characteristics. Management is a people
oriented process. Therefore, management is affected by the cultural characteristics of the
country concerned. Since the cultural characteristics of one country differ from others,
hence applicability of the management principles.
 Management Philosophy: Differences in philosophies of various organizations put limit
on the person being good manager in all types of organizations. Philosophy can mean an
attitude toward certain activities as in a person’s philosophy of doing business. It may
be an evaluation or interpretation of what is important or meaningful in life. Every
organization, like an individual, has philosophy of doing business. Differences in
philosophy of various organizations require different kinds of managerial techniques.
Even two business organizations having different philosophy may require different
philosophy may require different types of managerial approach.
 Organizational Objectives: The objectives of enterprises determine the types of
management required. The skills, competence, and experiences of a management cannot
as such be transferred and applied to the business organizations and running of other
institutions. Since the main objective of businesses differ from that of non-profit
organizations, management can transfer only analytical and administrative types of
skills, abilities and experiences. Transferability of management is determined by the
extent of the difference between two types of industries. Therefore, it implies that a
person cannot demonstrate equal effectiveness in different types of organizations.
1.5. Development of Management Thought

Early Contribution
In the hostile world of early humankind, food, shelter, and safety needs usually required cooperative
efforts, and cooperative efforts required some form of management. Certainly management was vested in
the heads of early families via the patriarchal system. The oldest member of the family was the most
experienced and was presumed to be the wisest member of the family and thus was the natural manager.
As families grew into tribes and tribes evolved into nations, more complex forms of management was
required and did evolve.
 Divisions of labor and supervision practices are recorded on the earliest written record, the clay tablets
of the Sumerians. In Sumerian society, as in many others since, the wisest and best managers were
thought to be the priests and other religious leaders.

 Likewise, the ancient Babylonian cities developed very strict codes, such as the code of Hammurabi.
King Nebuchadnezzar used color codes to control production of the hanging gardens, and there were
weekly and annual reports, norms for productivity, and rewards for piecework.
 The Egyptians organized their people and their slaves to build their cities and pyramids. Construction
of one pyramid, around 5000 BC., required the labor of 100,000 people working for approximately 20
years. Planning, organizing, and controlling were essential elements of that and other feats, many of
them long term. The ancient Egyptian Pharaohs had long-term planners and advisors, as did their
contemporaries in China.
 China perfected military organization based on line and staff principles and used these same
principles in the early Chinese dynasties. Confucius wrote parables that offered practical suggestions
for public administration.
 In the Old Testament, Moses led a group of Jewish slaves out of Egypt and then organized them into a
nation. Exodus, Chapter 18, describes how Moses “chose able men out of all Israel and made them
heads over the people, and differentiated between rulers of thousands, rulers of hundreds, rulers of
fifties and rulers of tens.” A system of judges also evolved, with only the hard cases coming to Moses.
 The city-states of Greece were commonwealths, with councils, courts, administrative officials, and
boards of generals. Socrates talked about management as a skill separate from technical knowledge
and experience. Plato wrote about specialization and proposed notions of a healthy republic.
 The Roman Empire is thought by many to have been so successful because of the Romans’ great ability
to organize the military and conquer new lands. Those sent to govern the far-flung parts of the empire
were effective administrators and were able to maintain relationships with leaders from other
provinces and across the empire as a whole.
 Many concepts of authority developed in a religious context. One example is the Roman Catholic
Church with its efficient formal organization and management techniques. The chain of command or
path of authority, including the concept of specialization, was a most important contribution to
management theory.
 Machiavelli also wrote about authority, stressing that it comes from the consent of the masses.
However, the ideas Machiavelli expressed in The Prince are more often viewed as mainly concerned
with leadership and communication.
 Much management theory has military origins, probably because efficiency and effectiveness are
essential for success in warfare. The concepts of unity of command, line of command, staff advisors,
and division of work all can be traced back at least to Alexander the Great, or even earlier, to Lao Tzu.
Classical management Approach
In the 19th century, America was undergoing rapid growth and expansion. Midwestern and western lands
were sparsely inhabited and contained large quantities of untapped minerals, forest reserves, and fertile
farmland. As the population moved westward, new markets were opened for enterprises, and the need for
power, transportation, and communication became critical. With the development of rail systems and the
establishment of telegraph lines, entrepreneurial activity was abundant and highly competitive. The need
to develop management techniques that would integrate technology, materials, and worker activities in a
productive and efficient manner was a central concern during this period. Because of these events in the
United States and the impact of the Industrial Revolution in Europe, classical management theory evolved
in an effort to develop techniques that would solve problems of organizational efficiency in the production
of goods and services.
Classical management theory can be divided into three perspectives distinguished by the issues and
problems that they address.
 Scientific management emerged primarily among American scholars and managers and focused on
issues involved in the management of work and workers. The theory of scientific management
developed by F.W.Taylor and others accepted the empirical methods for arriving at conclusions.
 Administrative theory (also called Functional approach) evolved from a concern by both European
and American academicians and managers with the nature and management of the total organization.
Issues and problems that they sought to address focused on the technical efficiency of the organization.
Other thinkers like Henry Fayol following the functional approach emphasized on the importance of
managerial functions and principles for universal application. They followed a wider perspective by
focusing on the efficiency of the total organization rather than technical efficiency alone.
 The German sociologist, Max Weber followed the classical approach and developed his theory of
Bureaucracy, which portrays the structure and design of organization characterized by a hierarchy of
authority, formalized rules and regulations that serve to guide the coordinated functioning of an
organization.
A. Scientific Management Theory

The classical scientific branch arose because of the need to increase productivity and efficiency.
The emphasis was on trying to find the best way to get the most work done by examining how the
work process was actually accomplished and by scrutinizing the skills of the workforce.
I. Frederick W. Taylor (1856–1915)

F.W. Taylor is considered as the "Father of scientific management" and his contributions mark a new era in
Modern Management Thought. Taylor formalized the principles of scientific management, and the fact-
finding approach put forward and largely adopted was a replacement for what had been the old rule of
thumb.
He also developed a theory of organizations, which has been largely accepted by subsequent Management
Philosophers.
F.W. Taylor’s Principles of Scientific Management
Based on his experiments and observations as a manufacturing manager in a variety of settings, Taylor
developed four principles to increase efficiency in the workplace.
1. The development of a true science of management, so that the one best method for
performing each task could be determined.
2. The scientific selection of workers, so that each worker would be given responsibility for the
task for which he or she was best suited and the scientific education, training and
development of these worker.
3. Intimate, friendly cooperation between management and labour.
4. Dividing work between workers and management in almost equal shares, with each group
taking over the work for which it is best fitted
Principle 1 : The development of a true science of management, so that the one best method for performing
each task could be determined.
To discover the most efficient method of performing specific tasks, Taylor studied in great detail and
measured the ways different workers went about performing their tasks. One of the main tools he used
was a time-and-motion study, which involves the careful timing and recording of the actions taken to
perform a particular task. Once Taylor understood the existing method of performing a task, he tried
different methods of dividing and coordinating the various tasks necessary to produce a finished product.
Usually this meant simplifying jobs and having each worker perform fewer and more routine tasks. Taylor
also sought ways to improve each worker’s ability to perform a particular task—for example, by reducing
the number of motions workers made to complete the task, by changing the layout of the work area or the
type of tool workers used, or by experimenting with tools of different sizes. Once the best method of
performing a particular task was determined, Taylor specified that it should be recorded so that the
procedures could be taught to all workers performing the same task. These rules could be used to
standardize and simplify jobs further—essentially, to make jobs even more routine. In this way, efficiency
could be increased throughout an organization.
Principle 2: Carefully select workers so that they possess skills and abilities that match the needs of the
task, and train them to perform the task according to the established rules and procedures.
To increase specialization, Taylor believed workers had to understand the tasks that were required and be
thoroughly trained in order to perform the tasks at the required level. Workers who could not be trained to
this level were to be transferred to a job where they were able to reach the minimum required level of
proficiency.
Principle 3: Intimate, friendly cooperation between management and labour
To encourage workers to perform at a high level of efficiency, and to provide them with an incentive to
reveal the most efficient techniques for performing a task, Taylor advocated that workers should benefit
from any gains in performance. They should be paid a bonus and receive some percentage of the
performance gains achieved through the more efficient work process.
F.W. Taylor's Contribution
His framework for organization was:
 clear delineation of authority

 responsibility
 separation of planning from operation
 incentive schemes for workers
 management by exception
 task specialization
Criticism of Theories Expounded by Taylor
Taylor's Philosophy though gained immense popularity, was also widely criticized on three grounds.
1. Scientific management ignored human side of organization. Taylor viewed on average worker as a
machine that could be motivated to work hard through economic incentives. Workers and Trade
Unions opposed his views strongly on the plea that it was exploitative.
2. Taylor's theory is narrow in scope having direct application to factory jobs at the Shop Floor Level.
Taylor and his disciples were called "Efficiency Experts" because they concentrated attention on
improving efficiency of workers and machines. Scientific management is therefore restricted in
scope as a theory of Industrial Engineering or Industrial Management, rather than a general theory
of management.
3. Taylor advocated excessive use of specialization and separation of planning from doing. Excessive
division of labour had disastrous consequences in the form repetitive and monotonous jobs and
discontent among workers.
II. Henry I. Gantt
Henry L. Gantt (1861–1919) worked with Taylor on several projects. But when he went out on his
own as a consulting industrial engineer, Gantt began to reconsider Taylors incentive system.
Abandoning the differential rate system as having too little motivational impact, Gantt came up
with a new idea. Every worker who finished a day’s assigned work load would win a 50 cent
bonus. Then he added a second motivation. The supervisor would earn a bonus for each worker
who reached the daily standard, plus an extra bonus if all the workers reached it. This, Gantt
reasoned, would spur supervisors to train their workers to do better job.
Every workers progress was rated publicly and recorded on individual bar charts – in black on
days the worker made the standard, in red when he or she fell below it. Going beyond this, Gantt
originated a charting system for production scheduling: the Gantt chart is still in use today. It also
formed the basis for two charting devices which were developed to assist in planning, managing,
and controlling complex organizations: the Critical Path Method (CPM) originated by Du Pont, and
Program Evaluation and Review Technique (PERT), developed by the Navy, Lotus 1-2-3 is also a
creative application of the Gantt chart.
III. The Gilbreths

Frank B. and Lillian M. Gilbreth (1868– 1924) and (1878–1972) made their contribution to the
scientific management movement as a husband and wife team. Lillian and Frank collaborated on
fatigue and motion studies and focused on ways of promoting the individual workers welfare. To
them, the ultimate aim of scientific management was to help workers reach their full potential as
human being.
In their conception, motion and fatigue were intertwined-every motion that was eliminated
reduced fatigue. Using motion picture cameras, they tried to find the most economical motions for
each task in order to upgrade performance and reduce fatigue. The Gilbreths argued that motion
study would raise worker morale because of its obvious physical benefits and because it
demonstrated managements concern for the worker.
B. Administrative theory/Functional management Theory
Administrative theory focuses on the total organization and attempts to develop principles that will direct
managers to more efficient activities.
Whereas scientific management focused on the productivity of individuals, the classical

administrative approach concentrates on the total organization. The emphasis is on the
development of managerial principles rather than work methods.
Classical administrative theory, like its near-contemporary the scientific management approach,
rests on the premises that organizations are un-problematically rational and (effectively) closed
systems. In other words, organizations are assumed to have unambiguous and unitary objectives,
which the individuals within them pursue routinely, by obeying the rules and fulfilling their role
expectations, according to the prescribed blueprint and structure. Moreover, in the attempt to
maximize efficiency, it is only variables within that structure that need to be considered and
manipulated.
Developed at same time as scientific management, the administrative theory "emphasized
management functions and attempted to generate broad administrative principles that would serve
as guidelines for the rationalization of organizational activities".
The principal contributors to this management theory were Henri Fayol (1949), Mooney and Reiley (1939)
and Gulick and Urwick (1937).
Administrative theorists looked at productivity improvements from the "top down", as distinguished from
the Scientific Approach of Taylor, who reorganized from "bottom up". Administrative theorists developed
general guidelines of how to formalize organizational structures and relationships. They laid emphasis on
the job in preference to the worker. The focus was the determination of the types of specialization and
hierarchy that would optimize the efficiency of the organisation.
Henri Fayol (1841-1925)
Henri Fayol was a French mining engineer who spent many of his later years as an executive for a French
coal and iron combine. In 1916, as director of the company, Fayol penned the book General and Industrial
Management. In this book, Fayol classified the study of management into several functional areas which
are still commonly used in executive training and corporate development programs. The functional areas
identified by Fayol are planning, organizing, commanding, coordinating, and controlling.
Fayol set down specific principles for practicing managers to apply that he had found useful during his
years as a manager. He felt these principles could be used not only in business organizations but also in
government, the military, religious organizations, and financial institutions.
In sum, the principles emphasize efficiency, order, stability, and fairness. While they are now over 80 years
old, they are very similar to principles still being applied by managers today. The problem with Fayol's
principles of management is knowing when to apply them and how to adapt them to new situations.
He emphasized the role of administrative management and concluded that all activities that occur in
business organizations could be divided into six main groups.
1. Technical (production, manufacturing);

2. Commercial (buying, selling, exchange);
3. Financial (obtaining and using capital);
4. Security (protection of property and persons);
5. Accounting (balance sheet, stocktaking, statistics, costing);
6. Managerial (planning, organizing, commanding, coordinating, controlling).
He concluded that the six groups of activities are interdependent and that it is the role of management to
ensure all six activities work smoothly to achieve the goals of an enterprise.
Fayol's 14 principles of management

1. Division of labor: work must be subdivided to facilitate specialization;
2. Authority and responsibility: Authority is the right to give orders and the power to exact obedience. A
manager has official authority because of her position, as well as personal authority based on individual
personality, intelligence, and experience. Authority creates responsibility. And, hence authority and
responsibility should go hand in hand;
3. Discipline; discipline is important to develop obedience, diligence, energy and respect;
4. Unity of command: subordinates must report to one superior;
5. Unity of direction: all operations with the same objective must have one manager and one plan;
6. Subordination of individual interest to general interest: the interest of one individual or group should
not dominate the interest of the enterprise as a whole;
7. Remuneration: remuneration and all other methods of payment should be fair;
8. Centralization: managers always hold final responsibility but should delegate certain authority to
subordinates;
9. Scalar chain: a clear line of authority or chain of command should extend from the highest to the
lowest level of an enterprise. This helps to ensure an orderly flow of information and complements the
principle of unity of command;
10. Order: there is a place for everything and everything in its place. Proper scheduling of work and
timetables to complete work is important. This can facilitate the channeling of materials to the right place
at the right time;
11. Equity: employees should be treated with kindliness and justice;
12. Stability of tenure of personnel: management should work towards obtaining long-term commitments
from staff and avoid unnecessary turnover of staff which is costly and works against overall goal
accomplishment;
13. Initiative: workers should feel like an active part of the organization through conceiving and executing
plans in order to develop their capacity to the fullest;
14. Esprit de corps: harmony and union help to build the strength of an enterprise. It is an extension of the
principle of unity of command, emphasizing the need for teamwork and the importance of
communication.
Until today, his principles remain important as they continue to have a significant impact on current
managerial thinking. Fayol's main contribution was the idea that management was not a talent related to
genetic hereditary, but a skill that could be taught. He created a system of ideas that could be applied to
many areas of management and laid down basic rules for managing large organizations.
C. The Theory of Bureaucracy

I. Max Weber
Max Weber (1864-1920) was born to a wealthy family with strong political ties in Germany. As a
sociologist, editor, consultant to government, and author, Weber experienced the social upheaval brought
on by the Industrial Revolution and saw the emerging forms of organization as having broad implications
for managers and society. Adhering to a perspective that viewed society as becoming increasingly rational
in its activities, Weber believed that organizations would become instruments of efficiency if structured
around certain guidelines. In order to study this movement towards "rationality" of organizations, Weber
constructed an ideal type, termed a bureaucracy that described an organization in its most rational form.
Weber developed the principles of bureaucracy—a formal system of organization and administration
designed to ensure efficiency and effectiveness. A bureaucratic system of administration is based on five
principles.
1. In a bureaucracy, a manager’s formal authority derives from the position he or she holds
in the organization.
Authority is the power to hold people accountable for their actions and to make decisions
concerning the use of organizational resources. Authority gives managers the right to direct and control
their subordinates’ behavior to achieve organizational goals. In a bureaucratic system of administration,
obedience is owed to a manager, not because of any personal qualities that he or she might possess-such
as personality, wealth, or social status—but because the manager occupies a position that is associated
with a certain level of authority and responsibility.
2. A well-defined hierarchy. All positions within a bureaucracy are structured in a
way that permits the higher positions to supervise and control the lower positions. This clear
chain of command facilitates control and order throughout the organization.
3. Division of labor and specialization. All responsibilities in an organization are
specialized so that each employee has the necessary expertise to do a particular task.
4. Rules and regulations. Standard operating procedures govern all organizational
activities to provide certainty and facilitate coordination.
5. Impersonal relationships between managers and employees. Managers should
maintain an impersonal relationship with employees so that favoritism and personal prejudice do
not influence decisions.
6. Competence. Competence, not “who you know,” should be the basis for all
decisions made in hiring, job assignments, and promotions in order to foster ability and merit as
the primary characteristics of a bureaucratic organization.
7. Records. A bureaucracy needs to maintain complete files regarding all its activities.
Some authors summarize these principles as;

 Hierarchy of authority
 Impersonality
 Written rules of conduct
 Promotion based on achievement
 Specialized division of labor
 Efficiency
Weber believed that organizations that implementing all these principles will establish a bureaucratic
system that will improve organizational performance. The specification of positions and the use of
rules and SOPs to regulate how tasks are performed make it easier for managers to organize and
control the work of subordinates.
Similarly, fair and equitable selection and promotion systems improve managers’ feelings of security,
reduce stress, and encourage organizational members to act ethically and further promote the
interests of the organization. If bureaucracies are not managed well, however, many problems can
result. Sometimes, managers allow rules and SOPs—“bureaucratic red tape”—to become so
cumbersome that decision making becomes slow and inefficient and organizations are unable to
change. When managers rely too much on rules to solve problems and not enough on their own skills
and judgment, their behaviour becomes inflexible. A key challenge for managers is to use
bureaucratic principles to benefit, rather than harm, an organization.
II. Chester Barnard
Chester Barnard (1886-1961) drew on his own experiences as a manager and his extensive reading of
sociological theory in constructing a theory of the organization. Born on a farm in Massachusetts,
Barnard received a scholarship to attend Harvard which he supplemented by tuning pianos and
running a small dance band. He completed the requirements for an economics degree in three years
but was denied a degree for failing to attend a science laboratory section. Even without a degree,
however, he was hired by American Telephone and Telegraph in 1909 and became the president of
New Jersey Bell in 1927. A tireless "organization man," Barnard was very active in volunteer work.
Barnard's most famous work, The Functions of the Executive, viewed the organization as a
"cooperative system" of individuals embodying three essential elements: (1) willingness to
cooperate, (2) a common purpose, and (3) communication.' The absence of any one of these three
elements would lead to the disintegration of the organization, according to Barnard.
Like Weber, Barnard viewed the distribution of authority as an important process within the
organization. However, he felt that the source of authority did not reside in the person who gave the
orders; rather, authority resided in the subordinates who could choose to either accept or reject
directives from their superiors. Subordinates would assent to authority when four conditions were
satisfied: (1) they could and did understand the communicated directive; (2) they believed that the
directive was consistent with the purpose of the organization; (3) they believed that the directive was
compatible with their own personal interests; and (4) they were mentally and physically able to
comply with the directive.' This view of authority has become known as acceptance theory.
D. Neoclassical management theory/Behavioral School:

The Organization Is People
The behavioral school emerged partly because the classical approach did not achieve
sufficient production, efficiency and workplace harmony.
People did not always follow predicted or expected patterns of behavior. Thus there was
increased interest in helping managers deal more effectively with the people side of their
organizations. Several theorists tried to strengthen neoclassical management theory with the
insights of sociology and psychology.
1. Human relations approach

Human relation is frequently used as a general term to describe the ways in which managers
interact with their employees. When ‘employee management’ stimulates more and better
work, the organization has effective human relations, when morale and efficiency deteriorate,
its human relations are said to be ineffective. The human relations movement/approach
arose from early attempts to systematically discover the social and psychological factors that
would create effective human relations.
THE HAWTHRONE EXPERIMENTS
 The human relations movement grew out of a famous series of studies conducted at the
Western Electric Company from 1924 to 1933.
 These eventually became known as the Hawthorne Studies because many of them were
performed at Western Electrics Hawthorne plant near Chicago.
 The Hawthorne Studies began as an attempt to investigate the relationship between the
level of lighting in the workplace and worker productivity.
 In some of the early studies, the Western Electric researchers divided the employees into
test groups, who were subjected to deliberate changes in lighting, and control groups,
whose lighting remained constant throughout the experiments.
 The results of the experiments were ambiguous.
 When the test groups lighting was improved, productivity tended to increase, although
erratically.
 But when lighting conditions were made worse, there was also a tendency for
productivity to increase in the test group.
 To compound the mystery, the control groups output also rose over the course of the
studies, even though it experienced no changes in illumination, obviously, something
besides lighting was influencing the workers performance.
 In a new set of experiments (the second phase of Hawthorne experiment whereby Elton
Mayo (1880-1949) and some associates from Harvard University, including Fritz J.
Roethlisberger and William J. Dickson, became involved), a small group of workers was
placed in a separate room and a number of variables were altered.
 Wages were increased

 Rest periods of varying length were introduced,
 The workday and work week were shortened.
 Groups choose their own rest periods and have given an opportunity a say in
other suggested changes.
 Again, the results were ambiguous. Performance tended to increase over time, but it also
rose and fell erratically.
 In these and subsequent experiments, Mayo and his associates decided that a complex
chain of attitudes had touched off the productivity increased.
 Because they had been singled out for special attention, both the test and the control
groups had developed a group pride that motivated them to improve their work
performance.
 Sympathetic supervision had further reinforced their motivation. The researchers
concluded that employees would work harder if they believed management was
concerned about their welfare and supervisors paid special attention to them. This
phenomenon was subsequently labeled the Hawthrone effect. Since the control group
received no special supervisory treatment or enhancement of working conditions but still
improved its performance, some people (including Mayo himself) speculated that the
control groups productivity gains resulted from the special attention of the researchers
themselves.
 The researchers also concluded that informal work groups the social environment of
employees have a positive influence on productivity.
 Many of Western Electrics employees found their work dull and meaningless, but their
associations and friendships with coworkers, sometimes influenced by a shared
antagonism toward the bosses, imparted some meaning to their working lives and
provided some protection from management. For these reasons, group pressure was
frequently a stronger influence on worker productivity than management demands.
 To Mayo then, the concept of ‘social man’ motivated by social needs, wanting rewarding
on the join relationships, and responding more to work group pressures than to
management control was necessary to complement the old concept of rational man
motivated by personal economic needs. All these findings might seem unremarkable
today. But compare what Mayo and his associates considered relevant with what Ford
and Weber found relevant, and you see what a change these ideas brought to
management theory.
2. Human behavioral approach
FROM HUMAN RELATIONS TO THE BEHAVIOURAL SCIENCE APPROACH
Mayo and his colleagues pioneered the use of the scientific method in their studies of people
in the work environment. Later researchers, more rigorously trained in the social sciences
psychology, sociology, and anthropology used more sophisticated research methods and
became known as behavioral scientists rather than human relations theorists.
The behavioral scientists brought two new dimensions to the study of management and
organizations. First they advanced an even more sophisticated view of human beings and
their drives than did Mayo and his contemporaries. Abraham Maslow and Douglas
McGregor, among others, wrote about self actualizing people. Their work spawned now
thinking about how relationships can be beneficially arranged in organizations. They also
determined that people wanted more than instantaneous pleasure or rewards. If people were
this complex in the way they led their lives, then their organizational relationships needed to
support that complexity.
Second, behavioural scientists applied the methods of scientific investigation to the study of
how people behaved in organizations as whole entities. The classic example is the work of
James March and Herbert Simon in the late 1950s. March and Simon developed hundreds of
propositions for scientific investigation, about patterns of behaviour, particularly with regard
to communication, in organizations. Their influence in the development of subsequent
management theory has been significant and ongoing.
Behavioural Scientist: Maslow

According to Maslow, -the needs that people are motivated to satisfy- (Physiological needs,
Security needs, Social Needs, Esteemed Needs, Self Actualisation Needs) fall into a hierarchy.
Physiological and safety needs are at the bottom of the hierarchy, and at the top are ego needs
the need for respect, for example and self actualizing need such as the need for meaning and
personal growth. In general Maslow said lower-level needs must be satisfied before higher
level needs can be met. Since many level needs must be satisfied before higher level needs can
be met. Since many lower level needs are routinely satisfied in contemporary society, most
people are motivated more by the higher level ego and self actualizing needs.
Some later behavioral scientists feel that even this model cannot explain all the factors that
may motivate people in the workplace. They argue that not everyone goes predictably from
one level of need to the next. For some people, work is only a means for meeting lower level
needs. Others are satisfied with nothing less than the fulfillment of their highest level needs:
they may even choose to work in jobs that threaten their safety if by doing so they can attain
uniquely personal goals. The more realistic model of human motivation, these behavioral
scientists argue, is complex person. Using this model, the effective manager is aware that no
two people are exactly alike and tailors motivational approaches according to individual
needs.
Behavioral Scientist: McGregor
McGregor provided another angle on this complex person idea. He distinguished two
alternative basic assumptions about people and their approach to work. These two
assumptions, which he called Theory X and Theory Y take opposite views of peoples
commitment to work in organizations.
Theory X managers, assume that: people must be constantly coaxed into putting forth effort
in their jobs.
Theory Y managers, assume that: people relish work and eagerly approach their work as an
opportunity to develop their creative capacities.
E. Modern Management Theories
1. Quantitative School
 During World War II, mathematicians, physicists, and other scientists joined together to
solve military problems. The quantitative school of management is a result of the
research conducted during World War II.
 The quantitative approach to management involves the use of quantitative techniques,
such as statistics, information models, and computer simulations, to improve decision
making.
 This school consists of several branches, described in the following sections.
Management science
 The management science school emerged to treat the problems associated with global
warfare. Today, this view encourages managers to use mathematics, statistics, and other
quantitative techniques to make management decisions.
 Managers can use computer models to figure out the best way to do something — saving
both money and time.
 Managers use several science applications:
 Mathematical forecasting helps make projections that are useful in the planning
process.
 Inventory modeling helps control inventories by mathematically establishing how and
when to order a product.
 Queuing theory helps allocate service personnel or workstations to minimize customer
waiting and service cost.
The salient features of the management science theory are as under:-
a. Process of Management consists of a series of decision-making. The need therefore is

for securing the best inputs for the most appropriate decisions.
b. The theory postulates at the development of a prototype decision situation, by
presenting the variables in the form of a mathematical model. The model consists of a
set of functional equations setting out the quantitative inter-relationship of the
variables.
c. Best solutions to the model are secured, where the model is correctly formulated and
equations are properly solved.
d. Organization goals seek to achieve specific and measurable economic goals.
e. Optimal decisions are needed to be made through scientific formal reasoning backed
by quantification
f. The decision making models formulated should be evaluated in the light of criteria
like cost reduction, return on investment, meeting time schedule etc.
g. The level of making quality decisions in diverse situations decides the quality of
management and its efficacy.
 Management science offered a whole new way to think about time. With sophisticated
mathematical models, and computers to crunch the numbers, forecasting the future
based on the past and present became a popular activity.
 Managers can now play with the what if the future looks like this questions that
previous management theories could not handle.
 At the same time, the management science school pays less attention to relationships per
se in organizations. Mathematical modeling tends to ignore relationships as data,
emphasizing numerical data that can be relatively easily collected or estimated. The
criticism is thus that management science promotes an emphasis on only the aspects of
the organization that can be captured in numbers, missing the importance of people and
relationships.
Operations management
 Operations management is a narrow branch of the quantitative approach to
management.
 It focuses on managing the process of transforming materials, labor, and capital into
useful goods and/or services.
 The product outputs can be either goods or services; effective operations management is
a concern for both manufacturing and service organizations.
 The resource inputs, or factors of production, include the wide variety of raw materials,
technologies, capital information, and people needed to create finished products.
 The transformation process, in turn, is the actual set of operations or activities through
which various resources are utilized to produce finished goods or services of value to
customers or clients.
Management information systems
 Management information systems (MIS) is the most recent subfield of the quantitative
school.
 A management information system organizes past, present, and projected data from
both internal and external sources and processes it into usable information, which it
then makes available to managers at all organizational levels.
 The information systems are also able to organize data into usable and accessible
formats. As a result, managers can identify alternatives quickly, evaluate alternatives by
using a spreadsheet program, pose a series of “what-if ” questions, and finally, select
the best alternatives based on the answers to these questions.
Systems approach
 Rather than dealing separately with the various segments of an organization, the systems
approach to management views the organization as a unified, purposeful system
composed of interrelated parts.
 This approach gives managers a way of looking at the organization as a whole and as a
part of the larger, external environment.
 Systems theory tells us that the activity of any segment of an organization affects, in
varying degrees, the activity of every other segment.
 The point of the systems approach is that managers cannot function wholly within the
confines of the traditional organization chart. They must mesh their department with
the whole enterprise. To do that, they have to communicate not only with other
employees and departments, but frequently with representative of other organizations
as well. Clearly systems managers grasp the importance of webs of business
relationships to their efforts.
 Some key concepts in system theory are explained below:
a. Subsystems: The parts that make up the whole of a system are called subsystems.
And each system in turn may be a subsystem of a still larger whole. Thus a
department is a subsystem of a plant, which may be a subsystem of a company,
which may be a subsystem of a conglomerate or an industry, which is a subsystem
of the national economy, which is a subsystem of the world system.
b. Synergy: Synergy means that the whole is greater than the sum of its parts. In
organizational terms, synergy means that as separate departments within an
organization cooperate and interact, they become more productive than if each
were to act in isolation.
c. Open and Closed Systems: A system is considered an open system if it interacts
with its environment, it is considered a closed system if it does not. All
organizations interact with their environment, but the extent to which they do so
varies. An automobile plant, for example, is a far more open system than a
monastery or a prison.
d. System Boundary: Each system has a boundary that separates it from its
environment. In a closed system the system boundary is rigid; in an open system,
the boundary is more flexible. The system boundaries of many organizations have
become increasingly flexible in recent years.
e. Flow: A system has flows of information, materials and energy including human
energy. These enter the system from the environment as inputs raw materials,
undergo transformation processes within the system operations that alter them,
and exit the system as outputs goods and services.
f. Feedback: Feedback is the key to system controls. As operations of the system
proceed, information is fed back to the appropriate people, and perhaps to a
computer, so that the work can be assessed and, if necessary, corrected.
g. Entropy: is the tendency of systems to deteriorate or break down over time.
 System theory calls attention to the dynamic and interrelated nature or organizations
and the management task. Thus it provides a framework within which we can plan
actions and anticipate both immediate and far-reaching consequences, while
allowing us to understand unanticipated consequences as they develop.
 With a systems perspective, general managers can more easily maintain a balance
between the needs of the various parts of the enterprise and the needs and goals of
the whole firm.
2. Contingency approach/Situational approach
 The contingency approach (sometimes called the situational approach) was developed
by managers, consultants and researchers who tried to apply the concepts of the major
schools to real life situations.
 When methods highly effective in one situation failed to work in other situations, they
sought an explanation. Why for example, did an organizational development program
work brilliantly in one situation and fail miserably in another. Advocates of the
contingency approach had a logical answer to all such questions. Results differ because
situations differ. A technique that works in one case will not necessarily work in all
cases.
 According to the contingency approach, the managers’ task is to identify which
technique will in a particular situation, under particular circumstances, and at a
particular time, best contribute to the attainment of management goals.
 Where workers need to be encouraged to increase productivity, for example, the
classical theorist may prescribe a new work simplification scheme. The behavioral
scientist may instead seek to create a psychologically motivating climate and
recommend some approach like job enrichment the combination of tasks that are
different in scope and responsibility and allow the worker greater autonomy in making
decisions.
 But the manager trained in the contingency approach will ask which method will work
best here. If the workers are unskilled and training opportunities and resources are
limited, work simplification would be the best solution. However, with skilled workers
driven by pride in their abilities, a job enrichment program might be more effective.
The contingency approach represents an important turn in modern management theory,
because it portrays each set of organizational relationships in its unique circumstances.
3. Quality School of Management

 The quality school of management is a comprehensive concept for leading and operating
an organization, aimed at continually improving performance by focusing on customers
while addressing the needs of all stakeholders.
 In other words, this concept focuses on managing the total organization to deliver high
quality to customers.
 The quality school of management considers the following in its theory:
 Organization makeup. Organizations are made up of complex systems of
customers and suppliers. Every individual, executive, manager, and worker
functions as both a supplier and a customer.
 Quality of goods and services. Meeting the customers’ requirements is a
priority goal and presumed to be a key to organizational survival and growth.
 Continuous improvement in goods and services. Recognizing the need to
pinpoint internal and external requirements and continuously strive to
improve. It is an idea that says, “the company is good, but it can always
become better.”
 Employees working in teams. These groups are primary vehicles for planning
and problem solving.
 Developing openness and trust. Confidence among members of the
organization at all levels is an important condition for success.
 There are two techniques of quality management:
 The Kaizen approach uses incremental, continuous improvement for people,
products, and processes.
 The reengineering approach focuses on sensing the need to change, seeing
change coming, and reacting effectively to it when it comes.
a. Kaizen approach
The very notion of continuous improvement suggests that managers, teams, and individuals
learn from both their accomplishments and their mistakes. Quality managers help their
employees gain insights from personal work experiences, and they encourage everyone to
share with others what they have learned. In this way, everyone reflects upon his or her own
work experiences, including failures, and passes their newfound knowledge to others.
Sharing experiences in this manner helps to create an organization that is continuously
discovering new ways to improve. Kaizen is the commitment to work toward steady,
continual improvement.
The best support for continuous improvement is an organization of people who give a high
priority to learning. In this process, everyone in the organization participates by identifying
opportunities for improvement, testing new approaches, recording the results, and
recommending changes.
b. Reengineering approach
The reengineering approach to management focuses on creating change— big change — and
fast. It centers on sensing the need to change, seeing change coming, and reacting effectively
to change when it comes.
Reengineering is the radical redesign of business processes to achieve dramatic improvements
in cost, quality, service, and speed — requires that every employee and manager look at all
aspects of the company’s operation and find ways to rebuild the organizational systems to
improve efficiency, identify redundancies, and eliminate waste in every possible way.
Reengineering is neither easy nor cheap, but companies that adopt this plan have reaped
remarkable results.
Reengineering efforts look at how jobs are designed, and raise critical questions about how
much work and work processes can be optimally configured. Although many people believe
that reengineering is a euphemism for downsizing or outsourcing, this is not true. Yes,
downsizing or outsourcing may be a byproduct of reengineering. However, the goal of
reengineering is to bring about a tight fit between market opportunities and corporate
abilities. After organizations are able to find this fit, new jobs should be created.
Management in the Future

Modern management approaches respect the classical, human resource, and quantitative
approaches to management. However, successful managers recognize that although each
theoretical school has limitations in its applications, each approach also offers valuable
insights that can broaden a manager’s options in solving problems and achieving
organizational goals.
Successful managers work to extend these approaches to meet the demands of a dynamic
environment.
Modern management approaches recognize that people are complex and variable. Employee
needs change over time; people possess a range of talents and capabilities that can be
developed. Organizations and managers, therefore, should respond to individuals with a
wide variety of managerial strategies and job opportunities.
Key themes to be considered, as the twenty-first century progresses, include the following:
 The commitment to meet customer needs 100 percent of the time guides organizations
toward quality management and continuous improvement of operations.
 Today’s global economy is a dramatic influence on organizations, and opportunities
abound to learn new ways of managing from practices in other countries.
 Organizations must reinvest in their most important asset, their people. If organizations
cannot make the commitment to lifelong employment, they must commit to using
attrition to reduce head count. They will not receive cooperation unless they make it
clear that their people will not be working themselves out of a job.
 Managers must excel in their leadership responsibilities to perform numerous different
roles.
1.5. Styles of Management
Managerial Grid
 Managerial grid is a behavioral approach in studying managerial style.
 Was developed by Robert Blake and Jane Mouton.
 Originally called Managerial Grid there is a tendency recently changing the name to
leadership style.
 Is widely used typology of managerial styles.
 Uses a chart to describe five types of managerial styles.
 Make use of the terms
Concern for production
Concern for people
 These two dimensions are plotted on a 9-point scale on two separate axes.
 Concern for production is usually shown on the horizontal axis and concern for people is
shown on the vertical axis.
 There are 81 combinations of the concerns represented on the grid. But the main dominant
ones are only 5( the four corners and 1 the most middle cells )
9 C D
8
7
6
Concern for People
5 E
4
3
2
1 A B
1 2 3 4 5 6 7 8 9
Concern for Production
 Explanation:
A-Coordination(1,1)
 is known as Impoverished Management.
 The manager makes minimum efforts to get the required work
accomplished.
 Minimum standards of performance and minimum work dedication.
 He wants just enough being done to get by.
 Is the “speak no evil, hear no evil, see no evil” approach.
B- Coordination( 9,1)
 Is known as Authority Compliance or Task management.
 Excellent work design.
 Efficiency in operations.
 Well established procedures.
 Orderly performance.
 Human elements interference to a minimum degree.
C-Coordinates(1,9)
 Is known as Country Club Management.
 Thoughtful attention is the needs of people.
 Personal and meaningful relationship with workers.
 Friendly atmosphere and high morale.
 Loosely structured work design.
 Primary concern for people, production secondary.
 Is a reverse of authority compliance management.
 Assumes that contented people will produce as well as contented cows.
 Is the “love conquers all” approach.
D-Coordinates(9,9)
 Is known as Team Management.
 Ultimate in managerial efficiency.
 Work accomplishment from thoroughly committed people.
 Trustworthy and respectful atmosphere.
 Highly organized task performances.
 Interdependence of relationships through a common stake in
organizational purpose.
 Maximum concern for people is based on the workers’ task-related
morale and not just good social relations.
 Maximum concern for production is based on decisions arrived at with
worker’s participation.
 Assumes that “one plus one can add up to three”.
E-Coordinates(5,5)
 Known as Middle –of –the Road Management.
 Also known as dampened pendulum mgt style.
 Is concerned with balancing the necessity to get the work done with
balancing the necessity to get the work done while maintaining worker
morale at a satisfactory level.
 Moderate concern for both production and people.
 “Get results but do not kill yourself”
 The managerial grid provides a reasonable indication of the health of the organization
and the ability of the managers.
 The model assumes that there is one best or most effective style of management, which
is the style indicated by coordinates (9, 9).
 It is the objective of all management to move as close to this style as possible, because
the managers who emphasize both high concern for people and productivity are
presumed to be more successful.
 Accordingly, managers should be carefully selected and trained so that they are able to
coordinate people and tasks for optimum benefit.
 It should be noted that although the team management and task management are
similar in their concern for production, their ways of achieving production are vastly
different.
 Similarly, although the team management and the country club management are
similar in their concern for people, their bases of concern are different. Whereas the
country club management seeks to increase people’s morale based on non -work
aspects of the situation such as good social relations, the team management seeks to
increase workers’ task related morale.
 Lacks empirical evidences to support whether the team management is the best
management style.
Maturity theory/Heresy and Blanchard Model

 Developed by Paul Heresy and Kenneith Blanchard.
 Generally proposes managerial style should be flexible.
 Is one of the situational theories of managerial styles.
 Was originally known as the “life cycle theory”
 Focuses on the maturity of the followers as a contingency variable affecting the style of
management.
 Maturity is the crux of this theory.
 The style of the management would depend upon the level of maturity of the
followers.
 The maturity of the followers can be defined as their ability and willingness to take
responsibility for directing their own behavior in relation to a given task.
 Ability is the knowledge, the experience and skills that an individual or a group has in
relations to a particular task being performed.
 Willingness refers to the motivation and commitment of the individual or the group
to successfully accomplish such given task.
 The level of such maturity would determine the leader’s emphasis on task behavior
(giving guidance and direction) and relationship behavior (providing socio-economic
support).
 Task behavior can be defined as the extent to which the leader engages in specifying
and clarifying the duties and responsibilities of an individual or a group. Such behavior
includes telling people what to do, how to do it, when to do it, where to do it and who to
do it. Task behavior is characterized by one –way communication from the leader to the
follower and his communication is meant to direct the subordinate to achieve his goal.
 Relationship behavior is defined as the extent to which the leader engages in two-way
communication. Such behavior includes listening, facilitating and being supportive.
 Heresy and Blanchard believe that the managerial style to be followed moves through
four phases as subordinates develop and “mature” and those managers need to vary
their leadership style with each phase.
 To determine the appropriate leadership style to use in a given situation, a leader must
first determine the maturity levels of his or her followers in relationship to the specific
task. As employee maturity levels increase, a leader should begin to reduce task
behavior and increase relationship behavior until his or her followers reach moderate
maturity levels. As the employees move into above-average maturity levels, the
leader should decrease not only task behavior but also relationship behavior.
 The success of managers depends on the best match of managerial behavior and
followers’ maturity. The ideal match is shown below:
high
Selling
Participating
Relationship Behavior
S3 S2 Telling
Delegating S1
Low
S4
Low high
Task Behavior
M4 M3 M2 M1
High low
Maturity of Followers
 These various combinations of managerial styles and levels of followers maturity are
explained below:
I. (S1).Telling
 Is best for low maturity followers.
 The followers feel very insecure about their task and are unable and unwilling to accept
responsibility in directing their own behavior.
 Thus they require specific instructions as to what, how and when to do various tasks so
that a directive managership behavior is more effective in such a situation.
 Involves high task behavior and low relationship behavior.
II. (S2) Selling
 Is most suitable where followers have low to moderate level of maturity.
 The leader offers both task direction as well as socio-emotional support for people who
are unable but willing to take responsibility.
 The followers are confident but lack skills.
 It involves high task behavior and high relationship behavior.
 It combines a directive approach with reinforcement for maintaining enthusiasm.
III. (S3) Participating
 Involves high relationship behavior and high task behavior.
 Suitable for followers with moderate to high level of maturity where they have the
ability but not the willingness to accept responsibility, requiring supportive leadership
behavior to enhance their motivation.
 Involves sharing ideas and maintaining two way communications to encourage and to
encourage support the skills that the subordinate have developed.
IV. (S4) Delegating
 The employees have both the job maturity as well as psychological maturity.
 The employees are both able and willing to be accountable for their responsibility
towards task performance and require little guidance and direction.
 It involves low relationship and low task behavior and it is appropriate for the leader to
use delegating style.
Vroom-Yetton Model
 One of the major tasks performed by managers is decision making.
 This model is normative in nature for it simply tells managers how they should behave
in decision making.
 The focus is on the premise that different problems have different characteristics and
should therefore be solved by different decision techniques.
 The effectiveness of the decision is a function of leadership style which ranges from the
leader making decision himself to a total democratic process in which the subordinates
fully participate depending upon the contingencies of the situation which describe
attributes of the problems to be dealt with.
 Vroom and Yetton concluded that leaders often adopt one of the five distinct methods
for making by the leader only on one extreme to totally participative decision making
style at the other extreme.
 Vroom and Yetton proposes that managers should attempt to select the best approach
out of these five approaches by asking several questions about the situations in which
they find themselves.
 These questions relate primarily to two variables, namely: the quality of the decision
and acceptance of the decision.
 Quality of the decision refers not only to importance of the decision to
performance of the subordinates relative to organizational goals but also
whether such performance is optimal in nature and whether all relative
inputs had been considered during decision making process.
 The decision acceptance refers to the degree of the commitment of the
subordinates to the decision. Whether the decision has been made by the
manager himself or with the participation of the subordinates, it must be
accepted whole heartedly by those who are going to implement it.
 These styles are described as follows:
A (Autocratic)
1. AI. The manager makes the decision himself and his decision is based upon whatever
information or facts available to him.
2. AII. The manager makes the decision himself but gets all the information needed
personally from his subordinates. The role of the subordinates is limited to input of
data only. They do not take any part in the decision making process. They may not
even know what the problem is. Even if they know about the problem, they have no
input in generating or evaluating alternatives.
C( Consultative)
3. CI
 While in AII style, the manager simply gets the information from his subordinates. In CI
style, he consults his subordinates, who are expected to be involved with the outcome
of the decision or who are expected to be involved with the outcome of the decision or
who are knowledgeable about certain elements of the problem. He consults them
individually, getting their ideas and suggestions without bringing them together as a
group. The manager may or may not take their suggestion into consideration when
making the final decision.
4. CII
 In this style of decision making, the manager meets with his subordinates as a group,
instead of meeting with them on an individual basis, and gets their ideas and
suggestions relative to the problem. He makes the decision unilaterally and this final
decision may or may not reflect their input.
G (Group)
5. GII
 This is a participative style of decision making.
 The problem is shared with the group and solutions and alternatives are generated and
evaluated together.
 The final solution is decided by the group consensus and such solution is implemented.
1.6. Motivation Theories
Meaning of Motivation
Motivation is the set of processes that move a person toward a goal. Thus, motivated
behaviors are voluntary choices controlled by the individual employee. The supervisor
(motivator) wants to influence the factors that motivate employees to higher levels of
productivity.
Motivation is to inspire people to work, individually or in groups in the ways such as to
produce best results. It is the will to act. It is the willingness to exert high levels of effort
towards organizational goals, conditioned by the efforts and ability to satisfy some individual
need.
Motivation is getting somebody to do something because they want to do it. It was once
assumed that motivation had to be injected from outside, but it is now understood that
everyone is motivated by several differing forces.
Factors that affect work motivation include individual differences, job characteristics, and
organizational practices.
 Individual differences are the personal needs, values, and attitudes, interests and abilities
that people bring to their jobs.
 Job characteristics are the aspects of the position that determine its limitations and
challenges.
 Organizational practices are the rules, human resources policies, managerial practices, and
rewards systems of an organization. Supervisors must consider how these factors interact
to affect employee job performance.
Theories of Motivation
Many methods of employee motivation have been developed. There are many approaches to
classify the theories of motivation. Two primary approaches to motivation are content and
process.
1. Content Theories
The content approach emphasizes what motivates employees, focuses on the assumption that
individuals are motivated by the desire to fulfill inner needs. Content theories focus on the
needs that motivate people.
I. Maslow's Hierarchy of Needs identifies five levels of needs, which are best seen as a
hierarchy with the most basic need emerging first and the most sophisticated need last. People
move up the hierarchy one level at a time. Gratified needs lose their strength and the next
level of needs is activated. As basic or lower-level needs are satisfied, higher-level needs
become operative. A satisfied need is not a motivator. The most powerful employee need is
the one that has not been satisfied.
Level I - Physiological needs are the most basic human needs. They include food,
water, shelter and comfort. The organization helps to satisfy employees' physiological
needs by a paycheck.
Level II - Safety needs are the desires for security and stability, to feel safe from harm.
The organization helps to satisfy employees' safety needs by benefits.
Level III - Social needs are the desires for affiliation. They include friendship and
belonging. The organization helps to satisfy employees' social needs through sports
teams, parties, and celebrations. The supervisor can help fulfill social needs by showing
direct care and concern for employees.
Level IV - Esteem needs are the desires for self-respect and respect or recognition from
others. The organization helps to satisfy employees' esteem needs by matching the skills
and abilities of the employee to the job. The supervisor can help fulfill esteem needs by
showing workers that their work is appreciated.
Level V - Self-actualization needs are the desires for self-fulfillment and the realization
of the individual's full potential. The supervisor can help fulfill self-actualization needs
by assigning tasks that challenge employees' minds while drawing on their aptitude and
training.
II. Alderfer's ERG identified three categories of needs. The most important contribution
of the ERG model is the addition of the frustration-regression hypothesis, which holds that when
individuals are frustrated in meeting higher level needs, the next lower level needs reemerge.
Existence needs are the desires for material and physical well being. These needs are satisfied
with food, water, air, shelter, working conditions, pay, and fringe benefits.
Relatedness needs are the desires to establish and maintain interpersonal relationships. These
needs are satisfied with relationships with family, friends, supervisors, subordinates, and co-
workers.
Growth needs are the desires to be creative, to make useful and productive contributions and
to have opportunities for personal development.
The major conclusions of this theory are:
1. In an individual, more than one need may be operative at the same time.
2. If a higher need goes unsatisfied then the desire to satisfy a lower need intensifies.
3. It also contains the frustration-regression dimension.
III. McClelland's Learned Needs divides motivation into needs for power, affiliation,
and achievement.
Achievement motivated people thrive on pursuing and attaining goals. High-need achievers
possess these characteristics:
1. High-need achievers have a strong desire to assume personal responsibility for performing
a task or finding a solution to a problem. Consequently, they tend to work alone rather than
with others. If the task requires the presence of others, they tend to choose co-workers based
upon their competence rather than their friendship.
2. High-need achievers tend to set moderately difficult goals and take calculated risks.
Consequently, in a ring-toss game where children tossed rings at a peg at any distance they
chose, high-need achievers chose an intermediate distance where the probability of success
was moderate, while low-need achievers chose either high or low probabilities of success by
standing extremely close or very far away from the peg.
3. High-need achievers have a strong desire for performance feedback.
These individuals want to know how well they have done, and they are anxious to receive
feedback regardless of whether they have succeeded or failed.
Power motivated individuals see almost every situation as an opportunity to seize control or
dominate others. They love to influence others. They like to change situations whether or not it
is needed. They are willing to assert themselves when a decision needs to be made.
High-need for power people possesses the following characteristics:
1. A desire to influence and direct somebody else.
2. A desire to exercise control over others.
3. A concern for maintaining leader-follower relations.
Affiliation motivated people are usually friendly and like to socialize with others. This may
distract them from their performance requirements. They will usually respond to an appeal
for cooperation.
High-need for affiliation people possesses the following characteristics:
1. They have a strong desire for approval and reassurance from others.
2. They have a tendency to conform to the wishes and norms of others when they are
pressured by people whose friendships they value.
3. They have a sincere interest in the feelings of others.
IV. Herzberg's Two-Factor Theory describes needs in terms of satisfaction and
dissatisfaction. Frederick Herzberg examined motivation in the light of job content and
context. Motivating employees is a two-step process. First provide hygienes and then
motivators. One continuum ranges from no satisfaction to satisfaction. The other continuum
ranges from dissatisfaction to no dissatisfaction.
Satisfaction comes from motivators that are intrinsic or job content, such as:
 achievement
 recognition
 advancement
 responsibility
 the work itself
 growth possibilities
Herzberg uses the term motivators for job satisfiers since they involve job content and the
satisfaction that results from them. Motivators are considered job turn-ons. They are necessary for
substantial improvements in work performance and move the employee beyond satisfaction to
superior performance. Motivators correspond to Maslow's higher-level needs of esteem and self-
actualization.
Dissatisfaction occurs when the following hygiene factors, extrinsic or job context,
maintenance factors are not present on the job and include:
 pay
 status
 job security
 working conditions
 company policy
 peer relations
 supervision
Herzberg uses the term hygiene for these factors because they are preventive in nature. They will
not produce motivation, but they can prevent motivation from occurring if they are absent.
Hygiene factors can be considered job stay-ons because they encourage an employee to stay on a job.
Once these factors are provided, they do not necessarily promote motivation; but their absence can
create employee dissatisfaction. Hygiene factors correspond to Maslow's physiological, safety, and
social needs in that they are extrinsic, or peripheral, to the job. They are present in the work
environment or job context.
Dissatisfaction Job Normal
context/Hygie condition/no
ne factors motivation
Absence Presence
Normal condition/ No Motivation

dissatisfaction Job content
factors
Motivation comes from the employee's feelings of accomplishment or job content rather than from
the environmental factors or job context. Motivators encourage an employee to strive to do his or
her best. Job enrichment can be used to meet higher-level needs. To enrich a job, a supervisor can
introduce new or more difficult tasks, assign individuals specialized tasks that enable them to
become experts, or grant additional authority to employees.
V. “Theory X and Theory Y” of Douglas McGregor :
McGregor, in his book “The Human side of Enterprise” states that people inside the organization
can be managed in two ways. The first is basically negative, which falls under the category X and
the other is basically positive, which falls under the category Y. After viewing the way in which the
manager dealt with employees, McGregor concluded that a manager’s view of the nature of human
beings is based on a certain grouping of assumptions and that he or she tends to mold his or her
behavior towards subordinates according to these assumptions.
Under the assumptions of theory X :
 Employees inherently do not like work and whenever possible, will attempt to avoid it.
 Because employees dislike work, they have to be forced, coerced or threatened with
punishment to achieve goals.
 Employees avoid responsibilities and do not work till formal directions are issued.
 Most workers place a greater importance on security over all other factors and display little
ambition.
In contrast under the assumptions of theory Y:
 Physical and mental effort at work is as natural as rest or play.

 People do exercise self-control and self-direction and if they are committed to those goals.
 Average human beings are willing to take responsibility and exercise imagination, ingenuity
and creativity in solving the problems of the organization.
 That the way the things are organized, the average human being’s brainpower is only partly
used.
On analysis of the assumptions it can be detected that theory X assumes that lower-order needs
dominate individuals and theory Y assumes that higher-order needs dominate individuals. An
organization that is run on Theory X lines tends to be authoritarian in nature, the word
“authoritarian” suggests such ideas as the “power to enforce obedience” and the “right to
command.” In contrast Theory Y organizations can be described as “participative”, where the aims
of the organization and of the individuals in it are integrated; individuals can achieve their own
goals best by directing their efforts towards the success of the organization.
However, this theory has been criticized widely for generalization of work and human behavior.
Theory Z
It is build on McGregor’s Theory Y. William Ouchi did not call his theory “Z” as a follow on to
McGregor’s “X” and “Y,” but as a polar opposite to the typical American firm (Theory A theory).
Theory Z companies have the following characteristics:
 Career paths wander around the firm across functions and hierarchies. People in Theory Z
firms possess great understanding of the total firm.
 Decisions include a component of “suitability” and “corporate fit.” This can only occur
because of the cross-function training gained by the wandering career paths.
 Organizational life is a life of interdependence. Each person relies on others in the firm.
 Decisions result from a participative process.
 Extensive energy is expended to develop the interpersonal skills necessary for effective
group decision making.
 People deal with people in the organization rather than one position to another. Dealing
with positions de-humanizes the people. This is in contrast to the bureaucratic view of the
position as most important.
 People in Theory Z firms operate as clans. Individual performance is not as important as
group and team performance.
 Long-term employment and job security
 Collective responsibility
 Implicit, informal control with explicit, formalized measures
 Collective decision-making
 Slow evaluation and promotion
 Moderately specialized careers
 Concern for a total person, including their family
Theory Z firms understand the innate desire of people for variation in life.
Work assignments create variety by allowing people to work in different departments and perform
different tasks.
Theory Z firms understand the paradox of gaining more by not working for profit alone. Rather,
they work to see employees share in the wealth. The result is higher returns for longer periods of
time.
2. Process Theories
The process approach emphasizes how and why people choose certain behaviors in order to meet
their personal goals. Process theories focus on external influences or behaviors that people choose
to meet their needs.
I. Vroom's Expectancy Model
The theory argues that the strength of a tendency to act in a specific way depends on the strength of
an expectation that the act will be followed by a given outcome and on the attractiveness of that
outcome to the individual. Expectancy theory says that an employee can be motivated to perform
better when there is a belief that the better performance will lead to good performance appraisal
and that this shall result into realization of personal goal in form of some reward.
Vroom’s Expectancy Theory states that behavior is a result of: (1) the importance of a reward, (2)
the extent that the behavior will result in the reward, and (3) the likelihood that the reward will
materialize. Vroom uses the terms valence, instrumentality and expectancy to describe his theory.
Many people refer to his theory as the VIE Theory.
Motivation = Valence x Expectancy.
The theory focuses on three things:
 Efforts and performance relationship (expectancy).

 Performance and reward relationship (instrumentality).
 Rewards and personal goal relationship (valence).
Expectancy is the belief that efforts are linked to performance.

A person’s level of expectancy determines whether he or she believes that a high level of effort
will result in a high level of performance. Expectancy is the probability that a particular action
will lead to the outcome. Expectancy is different from instrumentality in that it relates efforts to
the first-level outcomes whereas instrumentality relates first and second level-outcomes to each
other. Thus expectancy is the probability that a particular action will lead to a particular first-
level outcome. The strength of motivation to perform a certain act will depend on the sum of
the products of the values for the outcomes times the expectancies.
Instrumentality is a person’s perception about the extent to which performance at a certain

level will result in the attainment of outcomes. There should be firm conviction within the
employee that high performance will lead to desirable outcomes. Instrumentality is, in short,
the belief that performance is related to first rewards.
Valence is the importance placed upon the reward. It refers to how desirable each of the out
comes available from a job or organization is to a person. This is because according to the theory
people may differ in the preferences for outcomes. Valence refers to the attractiveness of a
reward - how important the reward is to someone. It also refers to the level of satisfaction that
an individual expects from a reward rather than the actual value derived. It means the strength
of an individual’s preference to a particular outcome. In order for the valence to be positive for
individual, he must prefer attaining the outcome to not attaining it; a valence of zero occurs
when the individual is indifferent towards the outcome; and the valence is negative when the
individual prefers not attaining the outcome than attaining it.
Instrumenta
Expectancy lities
2nd level
Motivation outcomes
First level outcomes
Outcome1a
Outcome 1 Outcome1b
Outcome2a
Outcome 2
Outcome
2b
II. Fishbein’s Theory of Reasoned Action

Fishbein modified Vroom’s model to allow for the expectations of others as one factor influencing
individual motivation. The model uses an evaluation similar to Vroom's Expectancy Theory
whereby the individual will determine if the behavior will lead to worthwhile, or desired, outcomes
and the value of the outcomes. The model allows for a quantification of this by summing the beliefs
times the value of each outcome. This first quantitative result represents the individuals weighted
difference toward the behavior.
The model then includes an evaluation by the individual as to what various referent people, or
groups of people, feel toward the individual performing the behavior. Role expectations, role
conflicts and role ambiguity play a significant part in this model. Each individual has a sense of his
or her intent to comply with what the referents desire. This may range from an absolute intent to
comply with an absolute intent to rebel and not perform the behavior regardless of the outcome
(hence the old adage of "cutting off your nose to spite your face").
The second quantitative value is derived by summing all of the referent values times the motivation
to comply. The summed value yields a measure of the pressure to perform the behavior, or what
we call peer pressure.
The third quantitative measure is a product of multiplying the first two. The value derived is a
relative weighted value of the importance of the behavior to the individual and the impact of
referent pressure to comply.
The concern with the model is that no two people will weight a behavior the same or allocate a
similar value to the beliefs of the referent group. This results in each individual having to self-
report their quantitative scores.
Another concern exists in that many people have a difficult time seeing a quantitative value to a
qualitative process –intent to perform a behavior.
The intent of the model is to show a tendency or leaning of the individual to perform a behavior.
III. Porter-Lawler’s theory of motivation
Lyman Porter and Edward Lawler developed a model of motivation which ties in Vroom’s
Expectancy Theory, roles and traits, intrinsic and extrinsic rewards as well as satisfaction.
Porter and Lawler suggest that employee effort is jointly determined by two key factors: the value
placed on certain outcomes by the individual, and the degree to which the person believes that his
effort will lead to the attainment of these rewards.
However, the person’s ability and role clarity may prevent performance; thus, managers must
assign people to tasks where ability fits the requirements.
Porter and Lawler use satisfaction in their model. Satisfaction raises several interesting thoughts
regarding managers’ motivation of employees. We define “satisfaction” as needs being met. Think
about it, if needs are met, what is the purpose of behavior? The same holds true for “happy.”
Managers (and I am one of them) want to believe that happy, satisfied employees are the most
productive. There is no reputable research which confirms this.
I recall many times that employees, reporting to me, were in states of great happiness or satisfaction
(rarely caused by me, unfortunately) and they did not work during these states of euphoria. Rather,
they shared thoughts, expressions and engaged in bonding-type behavior.
You can see this every year during the traditional “Christmas-time office party” day. Now, I have
nothing against the Yuletide office celebrations (contrary to opinion), but rather, pose this as a
thought-provoking idea for you. What does “satisfaction” cause? What does “happy” cause? Since
dissatisfaction causes behavior to achieve equilibrium, the issue is what type of dissatisfaction do
you want to create in your employees and to what degree? Too much dissatisfaction causes
employees to give up and quit.
Transformational leaders establish dissatisfaction with the status quo of the firm. Transformational
leaders describe an institutional-state to which employees should aspire. Thus, employee
performance behavior focuses on reaching the new organizational goal.
IV. Equity Theory

Equity is the perception of fairness involved in rewards given. A fair or equitable situation is one in
which people with similar inputs experience similar outcomes. Employees will compare their
rewards with the rewards received by others for their efforts. If employees perceive that an inequity
exists, they are likely to withhold some of their contributions, either consciously or unconsciously,
to bring a situation into better balance.
For example, if someone thinks he or she is not getting enough pay (output) for his or her work
(input), he or she will try to get that pay increased or reduce the amount of work he or she is doing.
On the other hand, when a worker thinks he or she is being paid too much for the work he or she is
doing, he or she tends to increase the amount of work. Not only do workers compare their own
inputs and outputs; they compare their input/output ratio with the input/output ratio of other
workers. If one work team believes they are doing more work than a similar team for the same pay,
their sense of fairness will be violated and they will tend to reduce the amount of work they are
doing. It is a normal human inclination to want things to be fair.
While equity theory was originally concerned with differences in pay, it may be applied to other
forms of tangible and intangible rewards in the workplace. That is, if any input is not balanced with
some fair output, the motivation process will be difficult. Supervisors must manage the perception
of fairness in the mind of each employee. If subordinates think they are not being treated fairly, it is
difficult to motivate them.
V. Reinforcement Theory
The reinforcement theory, based on E. L. Thorndike’s law of effect, simply looks at the
relationship between behavior and its consequences. This theory focuses on modifying an
employee’s on-the-job behavior through the appropriate use of one of the following four
techniques:
 Positive reinforcement rewards desirable behavior. Positive reinforcement, such as a
pay raise or promotion, is provided as a reward for positive behavior with the
intention of increasing the probability that the desired behavior will be repeated.
 Negative reinforcement occurs when a person engages in behavior to avoid unpleasant
consequences or to escape from existing unpleasant consequences.
 Punishment is an attempt to discourage a target behavior by the application of
negative outcomes whenever it is possible. Punishment (threats, docking pay,
suspension) is an attempt to decrease the likelihood of a behavior recurring by
applying negative consequences.
The reinforcement theory has the following implications for management:
1. Learning what is acceptable to the organization influences motivated behavior.
2. Managers who are trying to motivate their employees should be sure to tell
individuals what they are doing wrong and be careful not to reward all
individuals at the same time.
3. Managers must tell individuals what they can do to receive positive
reinforcement.
4. Managers must be sure to administer the reinforcement as closely as possible to
the occurrence of the behavior.
5. Managers must recognize that failure to reward can also modify behavior.
Employees who believe that they deserve a reward and do not receive it will
often become disenchanted with both their manager and company.
VI. Hackman’s Job Design Theory
Hackman created this model to explain the job characteristics of work motivation.
Five core job dimensions create three critical psychological states that, in turn, lead to a number
of beneficial personal and work outcomes.
 The five job dimensions are:
 Skill variety: the degree to which a job requires a variety of different activities that involve
the use of a number of different skills and talents.
 Task identity: the degree to which the job requires completion of a whole and identifiable
piece of work -that is, doing a job from beginning to end with a visible outcome.
 Task significance: the degree to which the job has a substantial impact on the lives or work
of other people, whether in the immediate organization or in the external environment.
 Autonomy: the degree to which the job provides substantial freedom, independence, and
discretion to the individual in scheduling the work and in determining the procedures to be
used in carrying it out.
 Feedback: the knowledge of how well the results match the expectation. Information
necessary for correction should also occur in feedback.
 The psychological states as shown in the model are:
 Experienced meaningfulness: The person must experience the work as generally important,
valuable, and worthwhile.
 Experienced responsibility: The individual must feel personally responsible and accountable
for the results of the work he performs.
 Knowledge of results: The individual must have an understanding, on a fairly regular basis,
of how effectively he is performing the job.
Hackman implies in his theory that the greatest gain comes when all three states are at their
highest, but if any one state is at a low (zero-state) all the benefit from the other two is lost.
Thus, the theory is said to be multiplicative rather than additive.
The value of this theory to managers lies in the understanding of how jobs must be changed to
increase the value of each of the three states. Work redesign directly affects work behavior. Work
redesign, in the long term, can result in organizations that re-humanize rather than dehumanize the
people who work in them.
When changing jobs, consider:
 Combining tasks to increase the breadth and totality of the job.
 Opening, or broadening, channels for feedback of work quality and acceptability to others
inside and outside of the firm.
 Establishing client relationships.
 Giving more control of the work to the employee.
Before changing the work environment, study the environment and seek input from employees to
better understand their beliefs about the work itself.
When changing the job environment, keep the focus on the work itself – do not let emotions and
entitlement enter into the design. Prepare ahead for unexpected problems -- think through several
“what-if” scenarios. Finally, evaluate continuously to monitor results.
Core job Critical Personal and

dimensions psychological work
states outcomes
Skill variety
Task identity
Task significance Experienced meaningfulness of the work high internal work motivation
VII. Jeremy Bentham’s “The Carrot and the Stick Approach” :
Possibly the essence of the traditional view of people at work can be best appreciated by a brief look
at the work of this English philosopher, whose ideas were also developed in the early years of the
Industrial Revolution, around 1800. Bentham’s view was that all people are self-interested and are
motivated by the desire to avoid pain and find pleasure. Any worker will work only if the reward is
big enough, or the punishment sufficiently unpleasant. This view - the ‘carrot and stick’ approach -
was built into the philosophies of the age and is still to be found, especially in the older, more
traditional sectors of industry.
The various leading theories of motivation and motivators seldom make reference to the carrot and
the stick. This metaphor relates, of course, to the use of rewards and penalties in order to induce
desired behavior. It comes from the old story that to make a donkey move, one must put a carrot in
front of him or dab him with a stick from behind. Despite all the research on the theories of
motivation, reward and punishment are still considered strong motivators. For centuries, however,
they were too often thought of as the only forces that could motivate people.
At the same time, in all theories of motivation, the inducements of some kind of ‘carrot’ are
recognized. Often this is money in the form of pay or bonuses. Even though money is not the only
motivating force, it has been and will continue to be an important one. The trouble with the money
‘carrot’ approach is that too often everyone gets a carrot, regardless of performance through such
practices as salary increase and promotion by seniority, automatic ‘merit’ increases, and executive
bonuses not based on individual manager performance. It is as simple as this : If a person put a
donkey in a pen full of carrots and then stood outside with a carrot, would the donkey be
encouraged to come out of the pen ?
The ‘stick’, in the form of fear–fear of loss of job, loss of income, reduction of bonus, demotion, or
some other penalty–has been and continues to be a strong motivator. Yet it is admittedly not the
best kind. It often gives rise to defensive or retaliatory behavior, such as union organization, poor-
quality work, executive indifference, failure of a manager to take any risks in decision making or
even dishonesty. But fear of penalty cannot be overlooked. Whether managers are first-level
supervisors or chief executives, the power of their position to give or with hold rewards or impose
penalties of various kinds gives them an ability to control, to a very great extent, the economic and
social well-being of their subordinates.
1.7. Management Systems

Concept
Every practicing manager knows from experience that whatever actions and decisions he takes, in
any particular area of activity, have results which extend well beyond that specific activity. The
impact of decisions in some cases affects the whole organization and even external environment. A
simple decision to throw out an inefficient, lazy worker can trigger off union activity which can, in
extreme situations, even result in strike. The situation may become so hot that the union forces the
neighboring units also to join the strike. Thus when a manager takes a decision he never views its
impact in isolation but tries to understand and anticipate its repercussions on the entire
organization and the environment. The manager understands that his organization is a totality of
many, inter-related, inter-dependent parts, and put together for achieving the organizational
objectives. This in a nutshell is the very essence of the systems concept.
A system is defined as a sum total of individuals but inter-related parts (sub-systems) and is put
together according to a specific scheme or plan, to achieve the pre-stated objectives.
A system is an organized or complex whole. It is an entity; conceptual or physical, which consists of
interdependent parts or components. It is this interdependency which consists of interdependent
parts or components.
A system is an assembly of procedures, processes, methods, routines techniques etc. united by
some form of regulated interaction to form an organized whole. In fact no system, unless it is a
totally closed system, can exist in isolation.
A system has the following components:
1. A number of parts or sub-systems which when put together in a specific manner form a
whole system.
2. Boundaries within which it exists
3. A specific goal or goals. This goal is expressed in terms of an output which is achieved by
receiving input and processing it to form the output.
4. Close inter-relationship and inter-dependency amongst the various sub-systems. The inter-
relationship of the sub-systems can be defined in terms of:
a) The flows which exist among them, such as flow of information, money, materials,
etc. The most important of these is the information flow.
b) The structure within which they relate to each other. This structure may be physical,
geographic or organizational.
c) The procedures by which the sub-systems relate to one another. By procedures we
mean those planned activities which affect the performance of the entire system. In
the context of an organization, this refers to planning.
d) The feedback and the control process and mechanisms which exist to ensure that
the system is moving towards its desired objectives.
A system can be;
 Biological (human body), physical (machine) or social (commercial organizations, voluntary
bodies, etc.).
 Social systems are man-made systems and the relationship of the sub-systems is the most
critical element. Further, since social systems involve human beings, their beliefs, values,
attitudes and perceptions have an important bearing on the working of the system.
A system can also be closed or open;
 A closed system is self-sufficient and self-regulatory and has no interaction with the
environment in which it exists. The feedback from the output triggers off a control
mechanism which then regulates the input to bring back the output to the desired level.
Fig. A closed system
 An open system is one which interacts with the environment in which it exists. Figure
below illustrates an open system.
Figure: An Open Systems
All living, biological and social systems are examples of open systems. An organization is an open
system and its sub-systems are its various divisions and departments. But at the same time, it is a
sub-system of the environmental system within which it operates. The environment itself consists
of social, economic, political and legal sub-systems (see Figure below).
Fig III. A firm and its environment
The importance of the systems concept to the manager is that it helps him to identify the critical
sub-systems in his organization and their inter-relationships with each other and the environment.
A system is always seeking an equilibrium state, that is, where all the sub-systems are at the
optimum level, in turn with and at rest with each other, and the desired output is being achieved.
In an open system, this level of equilibrium is never static but is always dynamic. This is because
the environment is never static, it is always changing and since the open system is all the time
interacting with environment, what may have been an equilibrium level today will not be so
tomorrow. It is the concern of the manager to seek this equilibrium level.
One of the most important interactions between an organization and the environment is that of
information. A manager who has information about the impending government legislation which
will affect his organization can suitably modify his decision and avoid costly mistakes. Similarly, a
manager who is well informed about his employees' activities, expectations, opinions and
grievances can take corrective action much before a crisis develops.
1.8. Parkinson’s Law
 Parkinson has satirically (with exaggeration) dealt with problem of wasteful organizational
practices.
 He wrote “WORK EXPANDS SO AS TO FILL THE TIME AVAILABLE FOR ITS
COMPLETION”.
 Elaborating his statement, Parkinson suggests that this wasteful organizational practice occurs
due to two factors:
1. First, an official tends to increase the number of subordinates rather than rivals in the
organization. This is known as the law of “MULTIPLICATION OF
SUBORDINATES.”
2. Secondly, members of an organization make work for each other. This is called the
“LAW OF MULTIPLICATION OF WORK”.
 The importance of the Parkinson’s Law lies in the fact that it is a law of growth based upon an
analysis of the factors by which that growth is controlled.
 Parkinson called his law as the law of “the rising pyramid”.
The law of Multiplication of Subordinates
 A manager wants to increase the number of his subordinates because such increase gives him
power and prestige.
 Usually not one subordinate is to be assigned rather a minimum of two. Never be one because
the newly assigned subordinate may assume equal position with the manager. And if they
are two or more they can keep in orderly in fear of the other’s promotion. When a given
subordinate complains for being overworked, he will assign two assistants under the
requesting subordinating and consequently under the other one too so as to avert the internal
frictions. With such appointments the promotion of the manager is assured.
The law of multiplication of work
 Elaborating this law Parkinson observes that the newly assigned or appointed subordinates
and assistants to subordinates, discussed above, are now doing what one did before. Yet the
starting manager is not relieved.
Law of Committology
Law of triviality
The law of organizational paralysis
Parkinson’s Law at Glance

1. Administration creates work for each other by artificial means and swells the rank by more
than five percent every year irrespective of the volume of work to be done. This tendency
known as empire-building is used to maximize personal prestige and benefits.
2. Executives increase the number of subordinates to move one step upward in the
organization hierarchy. They refrain from increasing their rivals who may bar their further
promotion.
3. Executives select subordinates who are less competent so as to prevent their potential
rivals. As a result organization grows more stupid as it grows older.
4. Committees tend to grow in size until they lose their effectiveness. At this stage the
inbreeding of small committee takes place and they in turn grow and the process repeated.
5. As members comprehend small things more easily the petty matters are discussed at
lengthy in committee meetings. The time spent on topics varies in inverse proportion to
the sum involved.
6. Expenditures in an organization increase to cut up the available money, particularly in
budget based institutions.
7. When an organization starts decaying the grandeur of its buildings and physical facilities
reaches at climax. A perfect building is choked by its own perfection and cannot take roots
for lack of soil.
1.9. Peter’s Principle

 Peter and Hall have developed a principle that involves a cynical motion of errors in selecting
managerial candidates.
 According to this principle, managers tend to be promoted until they reach the level of their
incompetence.
 Once a manger is promoted to a position this very success may lead him to earn promotion to
a higher position irrespective of his personal skill and capacity.
 This principle was discovered with a public school system. Why do educational systems fail to
achieve stated objectives? This question triggered off a study of incompetence at every level
of the principals, supervisors and superintendents.
 A teacher named Dorothera D. Ditt was found to be a good teacher. She followed exactly the
text book, the curriculum guide and the bell schedule. She never broke a rule but could not
handle a problem situation.
 Once a manager or employee reaches his/her level of incompetence as a manager or employee
of a specific position or task, he/she remain in that position throughout the career.
 Peter’s principle works at all levels of a hierarchy.
 In a hierarchy each employee tends to use to rise to his level of incompetence.
 Every post tends to be occupied by an employee incompetent to execute its duties. Competent
teacher becomes incompetent principal.
 Frequently the very features that were responsible for the promotion were the source of
incompetence at the new level.
 Peter suggested ‘creative incompetence’ to avoid the ultimate promotion and thereby remain
at a level of competence.
 The employee may engage in some line of conduct, not detrimental to performance of his
duties that arouse a mild degree of distrust in his superiors and so unfits him for promotion.
 Eccentricities of dress, hairstyling and speech are typical examples of creative incompetence.
 The person concerned avoids final placement and remains competent healthy and happy at a
level suited to his abilities.
 Peter developed anew science of hierarchiology which reveals the true nature of man in his
perpetual production of hierarchical structures and his quest for means of maintaining them.
UNIT TWO
ORGANISATIONAL ANALYSIS
 This Unit is designed to help you form a clear idea of the various terms and concepts of mission,
objectives, strategy, policy, programs, procedures, organizational decision making,
management information system and change and change management which will help you
understand the management of organizations.
 In this Unit we will seek answers to questions such as: Why is an organization created? What is
its purpose? How best can it achieve that purpose? What methods and means will it employ to
achieve the purpose? That means organizational analysis deals with these questions.
2.1 MISSION
 The mission is the very reason and justification for the existence of a firm. Mission is always
defined in terms of the benefits the firm provides to its customers and not in terms of any
physical dimensions of the firm or its products.
 A firm exists and functions only in relation to the customer whose need(s) it satisfies. If there
were no customers there would be no firm. Thus the starting point for, defining the mission of
any business is its customer. Since the customer exists outside the business, the mission must
be defined from the outside.
 Further, mission is always concerned with the future. "What should our business be?" The
mission should be so described that it remains valid for at least some years to come.
 The concept of mission is dynamic and not static. It must change over time with changes
occurring in the environment. These may relate to changes in technology, social structure,
tastes, fashion, etc. A firm which wants to grow and ensure its future must keep pace with
these environmental changes and, if need be, accordingly change its definition of business.
 There can be many descriptions of the business mission and there is no one right or correct
answers. The firm has to make a choice as to how it wants to define what its business is.
Making a choice is never easy.
 It involves examining and evaluating the various alternatives available and finally choosing
that which is consistent with top management’s perception about the benefits they are
providing to the customers today and their aspirations for the future.
 Thus the mission has to seek a balance between the present and the future, and avoid being
defined too narrowly or too broadly.
 Too narrow a definition will prevent a firm from availing many new and profitable
opportunities that may come its way. Furthermore it should not be too broad to be
meaningfully able to concentrate on any workable opportunity.
 The scope of a firm's business flows from its definition of mission but is described in more
specific rather than generic terms. Scope refers to the choice of the specific products and
markets in which a firm wishes to operate. The definition of product/ market scope has a
direct bearing on the subsequent decisions regarding choice of objectives and strategy.
Components of Mission Statement
 Customer
 Products
 Market
 Technology
 Concern for survival, growth and profitability
 Philosophy
 Self concept
 Concern for public image
 Concern for employees
2.2 OBJECTIVES
 Once the mission and scope of a firm have been defined by the top management the next
logical step is to translate them into action. This can be done by breaking down the
business mission into smaller, workable objectives for managers down the line.
 Objectives are more precise as compared to mission and used to specify the end results
which an organization wants to achieve.
 Objectives are the intended end results that an organization desires to achieve over
varying periods of time. Because of time variation, objectives may be specified in different
ways in which long-term objectives are supported by short-term objectives.
 Objectives relate to the long-run and are described as open ended attributes (described in
terms of maximizing or optimizing or minimizing rather than in any specific quantitative
terms) which a firm seeks to fulfill in pursuance of its mission.
Features of Objectives
 Each organization, or group of individuals, has some objectives. In fact, organizations or
groups are created basically for certain objectives. Members in the organization or group
try to achieve these objectives.
 Objectives may be broad or they may be specifically mentioned. They may pertain to a
wide or narrow part of the organization. They may be set either for the long term or for
short term. Thus, general objectives may be translated into operative objectives to provide
definite action.
 Objectives reflect the `action' orientation of the mission which, in contrast, is expressed in
relatively abstract terms. Objectives form the basis for work and provide a yardstick for
measuring performance.
 Objectives may be clearly defined or these may not be clear and have to be interpreted by
the behavior of organizational members, particularly those at top level. However, clearly
defined objectives provide clear direction for managerial actions.
 A firm can have a number of objectives. Sometimes there may be a conflict between
objectives, such as between the objectives of profit and sales growth. To overcome this,
the firm has to set priorities. It must decide which objective is more important and first
seek to fulfill that before pursuing the second.
 Objectives may be set for different levels i.e., objectives are hierarchical: for the
corporate level, business level, divisional level and individual level. Obviously, objectives
set for one level will not be identical with those set for another level, but they must
certainly be compatible with each other and seek the fulfillment of the firm's mission. The
diagram below shows the hierarchical nature of organizational objectives.
 An organization might have multiple objectives.
 Organizational objectives can be changed. While setting objectives it is important to leave
room for the unexpected, the unforeseen, occurrence which can prevent achievement of
objectives. To the extent that it is not possible to plan for such events, objectives are at best
only statements of expected and not actual outcomes.
65 Tariku Jebena Andhra University

Pur
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Vision
Mission
Organizational objective
Objectives in Key areas
Departmental objectives
Sectional objectives
Individual level Objectives
Roles of Objectives
 Defining an Organization: Every organization works in an environment consisting of
several forces. These forces provide both opportunities and threats. In order to take the
best possible from the environment, it must define itself, that is, what kind of company
it is or what kind of business it is in. This relates the company with its environment.
 Directions for Decision making: Objectives provide the directions for the decision
making in various areas of the organization’s operations. The objectives set the limits
and prescribe the areas in which the managers can make decisions. From this point of
view a clearly defined objectives serve a number of purposes including: encouraging
unified planning, serving as a motivating force and bringing voluntary coordination.

 Performance Standards: Usually performance standards are derived from objectives.
Such standards facilitate the controlling activity.
 Basis for Decentralization: Objectives indicate the contribution to be made by each unit
(resulted from decentralization) towards the realization of common objectives.
 Integrating organization, group and Individual: Clearly sketched objectives
communicate the relationship between the organization and various groups and
individual. Therefore, the individuals and groups can better be integrated because they
have clear basis for dealing with the organization.
Criteria of Good objective setting
An objective is simply a statement of what is to done and should be stated in terms of results.
A mnemonic aid to write objectives is SMART (Specific, Measurable, Attainable, Result-

oriented, Time-bound/limited).
Specific: An objective must be specific with a single key result. If more than one result is to be
accomplished, more than one objective should be written. Just knowing what is to be
accomplished is a big step toward achieving it. What is important to you? Once you clarify
what you want to achieve, your attention will be focused on the objective that you deliberately
set. You will be doing something important to you.
Measurable: An objective must be measurable. Only an objective that affects behavior in a

measurable way can be optimally effective. If possible, state the objective as a quantity. Some
objectives are more difficult to measure than others are. However, difficulty does not mean that
they cannot be measured. For example, customer service could be measured by such indices as
the number of complaints received, by the number of customers lost, and by customer
interviews or responses to questionnaires. Avoid statements of objectives in generalities.
Infinitives to avoid include to know, to understand, to enjoy, and to believe. Action verbs are
observable and better communicate the intent of what is to be attempted. They include to write,
to apply, to recite, to revise, to contrast, to install, to select, to assemble, to compare, to
investigate, and to develop.
Attainable: An objective must be attainable with the resources that are available. It must be
realistic. Many objectives are realistic. Yet, the time it takes to achieve them may be unrealistic.
For example, it is realistic to want to lose ten dollar. However, it is unrealistic to want to lose ten
pounds in one week. What barriers stand between you and your objective? How will each
barrier be overcome and within what time frame?
Result-oriented: The objective should be central to the goals of the organization. The successful
completion of the objective should make a difference. How will this objective help the
organization move ahead? Is the objective aligned with the mission of the organization?
N.B. Some authors say ‘R’ represents realistic which is almost related to attainability. In such a
sense realistic is defined as an internal ability of the organization to realize the objective.
Whereas attainability is related to the general environment.

Time-Bound/limited: The objective should be traceable. Specific objectives enable time
priorities to be set and time to be used on objectives that really matter. Are the time lines you
have established realistic? Will other competing demands cause delay? Will you be able to
overcome those demands to accomplish the objective you've set in the time frame you've
established?
2.3 GOALS
 Goals are derived from the objectives and are intermediate time-bound targets which are
necessary for the achievement of objectives.
 Goals are expressed in very specific quantitative or qualitative terms.
 All goals have four components:
 derived from the objective which seeks to fulfill,
 an index or standard for measuring progress and performance,
 a target or hurdle to be achieved, and
 a time limit within which it has to be achieved.
 Thus goals are time-bound and work-oriented and they are important because they
provide a path for converting plans into individual tasks and action, and for motivating
people.
 Some samples of typical business goals are:
 Percentage market share (by product and/or market).
 Percentage increase in sale and/or an absolute sales figure.
 Minimum number of units to be produced (per worker/per hour/day/ week, per
machine, per factory).
Brief Comparison of Objectives and Goals
1. Time frame: Objectives are timeless, enduring and an ending: goals are temporal,
time phased and intended to be superseded by subsequent goals.
2. Specificity: Objectives are stated in broad and general terms, dealing with matters of
image, style and self perception. These are aspirations to be worked out in the future.
Goals are much more specific, stated in terms of a particular result that will be
accomplished by a specific date.
3. Focus: Objectives are usually stated in terms of some relevant environment which is
external to the organization; goals are more internally focused and carry important
implications about how resources of the organization are utilized or will be utilized
in future. Therefore, objectives are more generalized statements.
4. Measurement: Both objectives and goals can be stated in terms which are
quantitatively measured but the character of measurement is different. Generally
quantitative objectives are set in relative terms. Quantitative goals are expressed in
absolute terms.
2.4 STRATEGY
 Having set objectives the firm now has to work to achieve them. The specific path of
action chosen by the firm to achieve its objectives is referred to as its strategy. It is the
fundamental means a firm uses to try and achieve its objectives. Any strategy, thus,
defined has the following components:
1. A product/market scope: The specific products and markets in which a firm operates
and which define its limits of activity.

2. Growth vector: The changes the firm plans to make in its product/market scope for
ensuring its future growth.
3. Competitive advantage: Those specific properties of individual product/market that
give the firm its unique position vis-à-vis its competitors.
4. Distinctive competence: The specific organizational strengths of a firm which help in
achieving its objectives.
5. Synergy: The overall or joint effects that are sought from the firm's various
product/market scopes.
 Thus strategy seeks to achieve the firm's objectives in the context of a specific
product/market scope with a future orientation, based on its internal strengths and the
unique market position that it enjoys.
Process of Strategy Formulation
 Strategy formulation is concerned with choosing, from the various alternatives open to it,
that path which will best help the firm achieve its objectives. There are specific steps
involved in the process of strategy formulation. These are:
1. (Mission and Goals) statement- already discussed.
2. External-Internal Analysis: This analysis helps identify the really meaningful
opportunities and threats which can affect the firm in the light of its own
strengths and weaknesses.
3. Generate Strategy Alternatives: The next step is to generate all the possible
strategy alternatives which can fulfill the objectives. Strategy basically is
developed at three levels:
i. Corporate level
ii. Business unit level
iii. Functional level
 In Formulating corporate level strategy, top managers have two types of
decisions to make: developing master plan also known as grand strategy
and to develop a portfolio strategy. Developing grand strategy involves
considering the following alternatives:

GRAND STRATEGY
GROWTH STABILITY RETRENCHMENT
CONCENTRATION HARVEST TURNAROUND DIVESTURE BANKRUPTCY LIQUIDATION
VERTICAL OR
HORIZONTAL
INTEGRATION
DIVERSIFICATION
4. Evaluating the Strategy Alternatives: All the strategy alternatives identified

(in step III) may lead to achievement of objectives but not all may be realistic
or feasible. The firm has to evaluate them in the context of its own
aspirations, internal strengths and weaknesses, and the environmental
opportunities and threats, and short list all possible strategies for
consideration.
5. Choice of Strategy: The selection of one strategy that best satisfies the
objectives of the firm.
2.5. POLICIES
 So far we have discussed the concepts of mission, objectives and strategy in the context of a
firm. Now we shall turn our attention to policies, programmes and procedures.
 Before we get into a detailed discussion it would be helpful if we differentiate these two sets
of concepts on the basis of their distinguishing characteristics:
Mission, objectives and strategy are mainly the concern of top management while????
policies, programmes and procedures are concerned primarily with the middle and
operating management level.
While formulation of the mission is an exclusively top management function, the
formulation of secondary objectives and strategy may imply some involvement of the
middle management too.
The time horizon for mission, objectives and strategy is long-term and their formulations
have far-reaching consequences affecting the very survival and growth of the firm. On the
other hand, policies, programmes and procedures have a shorter time horizon, are easier to
change without much adverse impact and do not have a very critical bearing on the firm.
The formulation of mission, objectives, and strategy imply interaction with the environment
and their concern is with improving the effectiveness of the firm. On the other hand,
policies, programmes and procedures affect the internal structure and operational activities
of the firm. Their concern is with improving the efficiency of the firm.

 Once the firm has set its objectives and designed an appropriate strategy to meet these
objectives it has to gear up its internal operations to provide all the back-up support and
input in the most efficient manner.
 Setting objectives and framing strategies require decisions to be made only once in a while,
but many other operations involve frequent, often periodic decision-making. To facilitate
such recurrent decision making a firm may lay down guidelines. Such guidelines are
known, as policies.
 A policy is a statement and pre-determined guideline that provides direction for decision
making and action taking. Policies are usually general enough to give the manager
sufficient freedom to make judgments.
 Policies, being formal statements, serve as ready guides for answering numerous questions
and making many day to day routine decisions, especially about recurring problems.
 Policies may pertain to either the internal operations of a firm or to those decisions which
have to be taken internally but vitally affect the implementation of the strategy and
achievement of objective. For example policy for the write-off of damaged stocks affects
only the internal operations of the firm.
 To ensure that policies act as an aid and not an obstacle in the implementation of strategy, it
is important that they be derived from the design of the strategy itself.
2.5.1. Framing Policies
 While framing the policies the top management must take into account the following
considerations:
While objective setting and strategy design are outward directed (they involve active
interaction with the environment), policies, programmes and procedures are more
inward-directed. Their concern is how best to utilise the available resources in
achievement of the mission. While the former is concerned with finding the right
match between the environment and the firm's objectives, the latter's concern is to
provide the right infrastructural support to achieve the stared objectives;
Policies must evolve from past experiences, facts and participation of people who are
going to be affected by them;
Policies must change with change in the characteristics of the operations or decisions
which they are meant to govern and change in the environment;
Policies must be flexible enough to allow for the exceptional situation, which may
call for unconventional or exceptional solutions;
Policies are best implemented only when they are fully accepted by the people
responsible for their implementation. The best way of ensuring acceptance is to
involve the concerned people in the process of framing policies; and
Too many policies governing every aspect of decision making would only retard the
achievement of objectives. Instead of acting as an aid, policies may become an
obstacle.
2.5.2. Importance of Policies
 Policies are an important tool for management for ensuring the smooth running of the
firm's day-to-day activities.
 Policies are needed:
To ensure consistency of individual decisions taken by different branches and
departments. Amongst different departments or within the same department,
specific decisions are recurrent, but the situation in which the decision has to be

taken may be different in each case. Therefore, the need for policies which provide
for a set of common parameters and criteria for decision making in different
situations;
To ensure compatibility of individual decisions with the mission and strategy;
To ensure consistency of decisions over time;
To facilitate delegation of work and authority; and
To avoid ad hoc and arbitrary decisions.
2.5.3. TYPES OF POLICIES

 Policies are framed in accordance with the nature of the strategy being pursued. Detailed
policies may be framed for each functional area or depending on the relative importance of
the different areas. They may also be framed for only certain areas.
 Some sample policies in various functional areas are described below:
Marketing
1. Percentage mark-up allowed to retailers on manufacturer's price.
2. Parameters for selection and appointment of distributors and dealers.
3. Types of promotion to be undertaken by branch offices or subsidiaries.
Finance
1. Norms for expenditure limits on different activities.
2. Treatment of bad debts
Personnel
1. Minimum educational qualifications and experience required for recruitment at different
levels
2. Recruitment of women
Production and Purchase

1. Make-or-buy decisions for non-critical, low value components
2. Selection of vendors
3. Minimum quality standards of raw materials to be purchased
4. Mode and terms of payment to suppliers.
2.6. PROGRAMMES
 The concern of programmes is to organize and schedule repetitive activities which
constitute a complete set or work assignment in the most efficient manner.
 Programmes relate to activities rather than decisions. They may help in making strategic
decisions but are not concerned directly with operating decisions.
 The factor which characterizes a programme is that all the activities involved constitute a
complete work-set.
 A programme must be derived from the policy which it seeks to help.
2.7. PROCEDURES

 Programmes relate to scheduling of activities while procedures refer to the specific method
and sequence by which an activity has to be performed.
 The way of calculating depreciation by a firm is an accounting procedure. The manner in
which a company has to file information for its claim for compensation from the insurance
company for goods lost in transit constitutes a procedure. A. branch office of a public sector
company has to follow a certain procedure for requesting for extra salesmen during the
peak season.
 Procedures are meant to aid the implementation of a programme by ensuring that each
activity is fully completed and within the shortest possible time.
 The idea of following procedures is to avoid disorderly and arbitrary ways of doing those
tasks which are essential to the operations of the firm.
 To be useful, procedures should be laid down for only those activities which are critical to
the overall plan of strategy, policy and programmes.
 Having too many procedures can hamper the working style of individuals while their total
absence would lead to chaos.
 Generally government organizations, public sector companies and bureaucratic set-ups
have more procedures in every area of activity than private sector companies.
 Procedures are what we usually refer to as red-tapeism in government.
 To be useful, procedures must:
evolve from knowledge of past experiences and facts
be as precise as possible
have the concurrence of the people who have to use them
be laid down in critical activity areas
serve a specific purpose
facilitate achievement of the programme or output toward which it is geared
follow a certain logical process
be balanced in terms of being too many or too few.
MBO
Evolution of MBO
 The term MBO was coined by Peter Drucker more than 25 years ago.
 Peter Drucker used the term in a very broad sense to connote not just a specific tool, but
rather an approach or philosophy of management.
 Later contributors to the subject have focused on MBO in terms of improving performance
of either an individual in the context of a superior-subordinate relationship or the entire ,
organisation.
 In the United States, the name most associated with MBO is that of George Odiorne and he
stresses the superior-subordinate relationship and propounds MBO as a "guide for
operating the unit and assessing the contribution of each of its members".
 John Humble of U.K. visualizes MBO as a "system which integrates the company 's need to
achieve its goals with the managers need to contribute and develop himself" and
consequently places greater emphasis on corporate planning.
Definitions and Concepts

 MBO is defined as an approach which uses objectives as a focal point to improve
managerial performance and managerial effectiveness, both at the individual and at the
organizational level.
 MBO is a process in which the manager and subordinates of every unit of the organization
together agree upon a set of targets which are used as the criteria for judging the
performance of the subordinates. It is also known as “management by Results”, goals
management, management by participation etc.
 These objectives serve to guide, direct, review and measure performance. However, MBO
should not be thought of as merely a tool for performance appraisal. It is a far more
comprehensive mechanism and provides a framework for organizational and managerial
decisions.
 MBO is a comprehensive managerial system that integrates many key managerial activities
in a systematic manner, consciously directed towards the effective and efficient
achievement of organizational objectives.
 MBO is a result-centered, non-specialist, operational managerial process for the effective
utilization of material, physical, and human resources of the organization by integrating
the individual with the organization and organization with the environment.
 MBO may be defined as an approach to management planning and evaluation in which
specific targets for a year or some other length of time are established for each manager,
on the basis of the results which each must achieve if the overall objectives of the
company are to be realized.
Key Concepts in MBO
 The key concepts in MBO are emphasis on results than activities, objectives for specific
managerial positions, participatory or joint objective setting, and identification of key
result areas and establishment of periodic review system.
Emphasis on results rather than activities
 The basic feature of every MBO is the emphasis on results rather than activities. Activities,
per se, are never important. Their importance lies in the fact that they lead to results. If an
activity produces no results, it may just as well be dropped, for obviously it is only
consuming time and resources with no output.
Objectives for specific managerial positions
 In the context of MBO, objectives are defined as expected results.
 Objective must be specified for every managerial position at each level of the managerial
hierarchy.
 Objectives are set for specific managerial positions and not for the individuals who occupy
these positions.
 It is important to specify objectives according to managerial positions to ensure the
continuity of effort in the achievement of organizational objectives.
 The only exception to this is in the case of top management. When a company changes
hands or a new managing director is appointed it is likely that he may like to modify or
even totally change some of the existing corporate objectives and provide a totally new
direction to the organisation. In such a situation, objectives for all the managers may have
to be modified or changed.
 To be truly workable, objectives must be measurable in specific terms such as quantity,
time, cost and quality. An objective which simply states improve quality is not useful
because it does not specify up to what level and by what time, and at what cost. In case of
such vaguely stated objectives it is impossible to measure their attainment.

 To be achievable, objectives must be set realistically, taking into account all the strengths
and weaknesses of the existing situation. Objectives which are set at an unrealistically
high level will only serve to frustrate the people for whom they are set. Similarly,
objectives which are set too low are also not desirable.
Participatory or joint objective setting
 All operating objectives are derived from the corporate objectives by breaking them
down into smaller workable and specific functional area objectives.
 In an organisation practicing MBO these objectives are set by the concerned managers
themselves in consultation with their superiors.
 The emphasis is on participation of the concerned manager himself.
 The participation process allows the manager to exert his influence on those very
objectives and decisions against which his performance will be measured.
 This participation ensures that the objectives set are realistic since the manager is in
direct contact with the market, labour, production facilities, etc. and knows the true
situation.
 Since the objectives are realistic and set in agreement with the concerned manager their
chance of being attained is also higher.
Identification of key result areas
 Every managerial position has associated with certain results or outputs.
 However, it is the achievement of only a few result areas that is critical to the
organization’s success and these are known as key result areas.
 Depending on the nature of his organisation and industry, the concerned manager will
identify his key result areas.
 In an industry, where the raw material and machinery are the major cost contributors, the
manager's key result areas may be raw material cost, wastage and machinery utilization.
 On the other hand, in an industry like television set manufacturing, where assembly is the
major operation, labour costs, critical component costs, and quantity may be the key
result areas.
 Just as key result areas (KRAs) can be identified for different functional areas, these can
also be identified at the organizational level.
 There are KRAs which are common to all business organizations and all managerial
positions irrespective of the functional area or industry.
 Peter Drucker has identified eight such KRAs common to all firms. These are:
1. profitability,
2. market standing,
3. innovation,
4. productivity,
5. worker performance,
6. financial and physical resources,
7. managers' performance and development, and
8. Public responsibility.
 Identification of key result areas helps the manager and the organisation focus its scarce
resources on those activities which contribute to the critical results.
 Focusing is important because, in most cases, all managerial activities do not equally
contribute to results.
 Key result area can be identified by asking the simple question: what is the unique
contribution of my job or the organisation? The answer to this question will provide the
clue to identifying the key result areas.

 Once identified, these KRAs may remain unchanged for a number of years. These may
change when the scope of the managerial position or organisation is changed or if a
subordinate has been developed to take over an existing KRA so that it is no longer in the
purview of the manager's responsibility.
 As is the case with objectives, so also the KRAs at the corporate level are more durable
than those at the middle and operating management levels.
Establishment of Periodic Review System
 An important feature of every MBO is the periodic review system.
 The review may be held at intervals of every three, six or twelve months.
 The purpose is to review the performance against the objectives.
 Also, the validity of continuing with the pre-established objectives may be reviewed.
 The review system provides a mechanism for both measuring and controlling.
Fig. MBO process
Organizational purpose and Planning premises

objectives
Key Result Areas
Superior’s Objectives
Superior’s Subordinate’s statement of

Recommendation for his objectives
subordinate’s objectives
Matching resources Subordinate’s agreed

objectives
Subordinate’s performance
Performance review and appraisal

THE MBO PROCESS (refer to Prasad pp 229)
1. Setting of organizational
purpose and objectives
2. key result areas
3. setting subordinates’ objectives
4. matching resources with objectives
5. appraisal
6. recycling
 There are three steps involved in the MBO process.

 These are setting objectives in each key result area, action planning, and performance
review.
Setting Objectives
 Key result areas are usually more durable than objectives.
 While KRAs delineate the broad areas within which the organisation must focus its
attention, the objectives represent the specific results expected to be achieved within these
KRAs.
 Thus the first step is to identify the KRAs and pin responsibility for results with specific
managerial positions.
 Making people responsible for KRAs is a very critical step for translating MBO theory into
practice.
 KRAs and the persons responsible for them must be identified at the level of the entire
organisation as well as each functional area.
 Having identified KRAs, the next step is to set objectives within them.
 At the organisational level, these will be the corporate objectives. Corporate objectives
define the purpose and mission of the organisation and can be described by seeking to
answer the question what is our business.
 Following out of the corporate objectives are the long and short-term strategic objectives.
Five to ten years is the usual time horizon for long range plans while anything between
three to five years describes the short-range. Strategic objectives spell out those objectives
related to choice of product, market and technology. Derived from these are the unit level
objectives in the case where an organisation consists of several different business units.
Action Planning
 Planning enables the objectives to be turned into reality.
 If objectives describe the what, plans describe the how or the way in which the objectives
are to be achieved.
 The objectives can be achieved only if the manager converts them into specific action plans
spelling out the various steps or activities to be performed and the specific time within
which these must be performed.
 There are four broad steps involved in every action plan:
1. Choosing strategies which are appropriate to the objectives
2. Assigning responsibility for achieving the objectives
3. Allocating resources for achieving the objectives
4. Scheduling specific activities to achieve maximum utilization of resources.
 Activities form the basis of every plan. Activity refers to the thing or series of acts which
have to be done in order to achieve the objective. Further, these activities have to be
arranged sequentially in the most logical manner and a time frame has to be specified for
the completion of each activity. This is known as scheduling. It is only when this has been
done that the plans get converted into action plans.
Performance Review
 Regular performance review is one of the main features of MBO.
 In the absence of a review system the MBO system cannot function.
 In the MBO process, the focus of the performance review is on: performance,
improvement, future corrective action, frequency of reviews and self-appraisal.

 It is on the basis of these five elements that the performance review system of M BO is
distinguished from other kinds of appraisal system.
 In MBO the purpose of evaluating performance is to provide corrective feedback to the
concerned person. In an appraisal system, the appraisal may be done for the purpose of
assessing the individual's potential and his compensation, for career planning and
identification of training and development needs and also includes appraisal of
personality traits and not merely performance.
BENEFITS OF MBO
 The benefits accruing from MBO can be discussed in terms of the specific benefits to the
subordinate, the superior and the organisation:
 Benefits to subordinates include greater role clarity, measurement of performance and
increased job satisfaction.
 When specific objectives have been agreed upon, the subordinate knows exactly what he
has to achieve and can plan his various activities towards this end.
 Role and goal clarity ensure that there is no wastage of scarce organizational resources, on
the one hand and single minded dedication to achievement of objectives on the other.
 MBO implies regular feedback and measurement of performance against objectives.
 This serves as a great motivating factor for people to put in their best effort to achieve the
objectives.
 It also helps to weed out the non-performer and identify the real contributors.
 Clear, specific objectives and unbiased feedback about performance contribute to increased
job satisfaction as compared to a situation where a person does not know what is expected
of him and how, if at all, his performance will be judged. Job satisfaction emanates from the
feelings of having done a job well to the best of your capability as well as public recognition
and approval for it. The former is possible only when there are specific objectives while the
latter can occur only if there is a system of review and reward. A worker or manager who
derives satisfaction from his job will work harder in order to improve his performance
while a dissatisfied, discontented manager will make a negative contribution.
 Benefits to Superiors: The benefits accruing to the subordinate will, of course, also
accrue to the superiors. But besides these, the other specific benefits for superiors are that
MBO motivates subordinates, strengthens superior-subordinate relationship, and provides
an objective appraisal method.
 MBO is based on the concept of participation and this leads to greater motivation.
 Setting objectives implies that both the superior and the subordinate have to sit across the
table and openly discuss their respective roles, work, obstacles and competencies.
 Such candid discussion always leads to increased mutual trust and confidence in each other
and provides an enduring bond to the relationship.
 One of the biggest advantages of MBO is that it provides an objective basis for reviewing
performance on the basis of achievements rather than personality traits. Reviewing a
person on the basis of his personality not only puts him on the defensive but serves no
purpose from the organisations point of view. The only thing that matters is results. People
are retained by organisations to produce results and not because they are sociable, soft
spoken, introverted or possess any other such personality characteristic which has no
bearing on their competence or capability.
 Benefits to the organisation: MBO focuses on managerial effectiveness as a central
value in the entire organisation. And this emphasis permeates down to the lowest level,
influencing each manager and worker. This shows up in all the decisions which each
manager makes and the overall performance of the organisation is improved.

 Secondly, MBO with its focus on objectives improves concentration and co-ordination of
managerial effort. There is maximum utilization of resources and conflicting pulls in
opposite directions are avoided.
 Thirdly, the periodic review in MBO helps identify advancement potential of workers and
managers. It also helps in identifying workers-who are under-utilized or not making the
full contribution.
 Lastly, MBO creates many centers of accountability as against one centralised
accountability point. It is not only the managing director or proprietor who is accountable
for producing the desired results but each manager is responsible for achieving the
agreed-upon objectives. Thus MBO leads to greater decentralisation in terms of setting
and achieving objectives.
Some limitations:
 Problems in joint objective setting among unequals. MBO implies a process of point or
consultative objective setting between the superior and the subordinate. But this very
relationship, based upon status, may prove to be a hindrance in free, frank and open
communication between the two, and stall the process of setting goals in an objective
manner;
 Problems of MBO being effective at the lowest level. Theoretically, MBO is supposed to
percolate throughout the organisation right down to the lowest level since the manager as
well as the worker at each level have set their own agreed upon objectives. However, in
reality, the workers or managers at the lower levels often do not have the full freedom to
set their own objectives. This is because MBO operates from top to down, starting with
the corporate objectives. Thus, the process of objective setting implies that the objectives
at the lower level have already been locked in and managers down the line have to match
their own objectives with those of the level above them only. If the process of objective
setting is reversed to overcome this limitation, and objectives are first set at the lowest
level, it would mean that the entire organisation is being guided by people who have less
experience, less education, less knowledge and awareness; and it is difficult to implement
in a situation of change. MBO assumes a stable environment in which the objectives once
set will hold good till they are achieved. In reality, however, many unforeseen changes
may occur which may render the objective impossible to achieve, or irrelevant, or invalid.
In a situation where sudden changes occur frequently MBO is difficult to implement.
2.8. Measuring Organizational Performance

 This activity includes comparing actual results to expected results, investigating deviations
from plans, evaluating individual performance, and examining progress being made
toward meeting stated objectives.
 Both long-term and annual objectives are commonly used in this process.
 Criteria for evaluating strategies should be measurable and easily verifiable.
 Quantitative criteria commonly used to evaluate strategies are financial ratios, which
strategies use to make three critical comparisons:
Comparing the firms performance over different time periods
Comparing the firm’s performance to competitors
Comparing the firm’s performance to industry averages.

Comparing the firm’s performance against its plans
 Some key financial ratios that are particularly useful as criteria for strategy evaluation are
as follows:
1. Return on Investment
2. Return on Equity
3. Profit Margin
4. Market Share
5. Debt to Equity
6. Earnings per share
7. Sales growth
8. Asset growth.
Employees Performance Appraisal

 The evaluation of the performance of employees serves as a basis for judging the
contributions and weaknesses of employees so that continuous efforts can be made to build
a stronger and more effective workforce.
 Appraisal is a systematic evaluation of personnel by superiors or other familiar with
performance.
 Performance appraisal is a merit rating in which one individual is ranked as better or worse
in comparison to others.
Purposes of Performance Appraisal
1. It can serve as a basis for job change or promotion. By establishing whether the worker
can contribute sill more a different or a higher job, it helps in his suitable promotion and
placement.
2. By identifying the strengths and weaknesses of employees, it serves as a guide for
formulating a suitable training and development program to improve his quality of
performance in his present work.
3. It serves as a feedback to the employees. By letting the employee know how well he is
doing or where he stands with his superiors it tells him what he can do to improve his
present performance and go up in the management hierarchy.
4. It serves as an important incentive to all the employees who are by the existence of an
appraisal system assured of the management’s continued interest in them and of their
continuous possibility to develop. The employees realize that not only are they being
continuously observed but that they have not been forgotten.
5. The existence of a regular appraisal system tends to make the supervisors and executives
more observant of their subordinates because they will be expected periodically to fill out
rating form and would be called upon to justify their estimates. This knowledge results in
improved supervision.
6. It often provides the rational foundation for the payment of piece work, wage, bonus, etc.
The estimates of the relative contribution of employees or of their characteristics help to
determine the rewards and privileges.
7. It serves as a means for evaluating the effectiveness of the device for the selection and
classification of workers. Alternatively, knowledge of the characteristic of superior and
inferior workers can be helpful in selection and placement of workers.
8. Permanent performance appraisal records of employees help the management to give up
sole reliance upon personal knowledge of supervisors who may be shifted.
Methods of Performance Appraisal
 There are various methods of performance appraisal. At present, however, various methods
of performance appraisal which are used in practice are based on traits or results achieved

or a combination of both.
I. Appraisal Based on Traits
 Appraisal based on traits and behavioral patterns shown in job performance emphasis
various traits which the appraisee possesses and the behaviors he adopts in performing his
job.
 It does not take into account the outcomes of those behaviors, that is, performance achieved.
 There are various methods of performance appraisal based on traits.
Ranking Method
 Is the oldest and simplest method of appraisal in which a person is ranked against others on
the basis of certain traits and characteristics.
 This is just like preparing ranks of various examinees in an examination.
 Various persons are given ranks on the basis of their traits.
 Is very simple when the number of persons to be ranked is small.
 Since the differences in ranks do not indicate absolute or equal differences of ability between
individuals, the method has limited value for performance appraisal.
Paired Comparison
 Is a slight variation of ranking system designed to increase its value for use in the large
groups.
 Each person is compared with other person taking only one at a time.
 Usually only one trait, overall suitability to perform job, is considered.
 The rater is provided with a bunch of slips each containing a pair of names.
 The rater puts a tick mark against the person whom he considers the better of the two, and
finally ranking is determined by the number of times that person is judged better than
others.
Grading
 Certain categories of abilities or performances are defined well in advance and persons are
put in particular category depending on their traits and characteristics.
 Such categories may be definitional like outstanding, good, average, poor, very poor, or
may be in terms of letters like A,B,C, D etc. with A indicating the best and D indicating the
worst.
 The actual performance of the employee is measured against these grades.
 This method is generally useful for promotion based on performance.
 This method however, suffers from one basic limitation that the rater may rate most of the
employees at higher grades.
Forced Distribution Method
 In order to check the tendency of rating most of the appraisee around high point in a rating
scale, force distribution method has been adopted.
 The appraiser is forced to appraise the appraisee according to the pattern of a normal curve.
 The basic assumption in this method is that employees’ performance level conforms to a
normal statistical distribution.
 This method is useful to rate job performance and promotability.
 The basic advantage of this method is that it overcomes the problems of adopting a central
tendency of rating most of the employees to a point, particularly high or near high to
appease them.
Forced Choice Method
 The forced choice method contains a series of group of statements and the rater checks how
effectively the statement describes each individual being evaluated.

 There may be some variations in the methods and statements used, but the most common
method of forced-choice contains two statements both of which may be positive or
negative. Though both of them describe the characteristics of an employee, the rater is
forced to tick only one which appears to be more descriptive of the employee. Out of these
two statements, only one statement is considered for final analysis of rating. This is done to
avoid subjectivity in rating.
Checklist Method
 In the check-list method of appraisal, the rater provides appraisal report by answering a
series of questions related to the appraisee.
 These questions are prepared by personnel department and are related to the behavior of
the appraisee concerned.
 Each question has two alternatives; yes or no.
 The questions might have equal weightage or may not.
Critical Incidents Methods
 Only critical incidents and behaviors associated with these incidents are taken for
evaluation.
 The basic idea behind this rating is to appraise the people who can do well in critical
situations because in normal situations most employees work alike.
 Involves three steps:
A test of noteworthy on-the-job behavior (good or bad) is prepared.
A group of experts then assigns scale values to them depending on the degree
of desirability for the job
A check-list of incidents which define good and bad employees is prepared.
The rater is then given check-list for rating.
 There are certain positive features of this method. It measures behaviors which are critical to
the effective performance of the job. If the proper maintenance of the record of critical
incidents is effected, it provides real clue for judging the fit between the employee and his
job.
 However, this method has serious limitations, both psychologically and operationally that
include:
Negative incidents are, generally, more noticeable than positive ones.
The recording of incidents is a core to the superior and may put off and easily
forgotten.
Overly close supervision may result.
The managers may unload a series of complaints about the incidents during
annual performance review session. The feedback may be too much at one time
and, thus, appear as a punishment to the ratee. More appropriately, the
management should use incidents of poor performance as opportunities for
immediate training and counseling.
Graphic Method
 Also known as linear rating scale.
 Is the most commonly used method of performance appraisal.
 A printed appraisal form is used for each appraisee.
 The form contains various employee characteristics and his job performance.
 Various characteristics, depending on the level of the employee, include;

 initiative,
 leadership,
 dependability,
 cooperativeness,
 enthusiasm,
 creative ability,
 analytical ability,
 decisiveness,
 emotional maturity etc
 Job performance includes;
 Quantity and quality of work performance,
 Responsibility assumed
 Specific targets achieved
 Regularity of attendance etc.
 The rating is done on the basis of scale which is in continuum.
 The central idea behind this scaling is to provide the rater with a continuum
representing varying degrees of a particular quality.
 The degree of quality is measured on a scale which can vary from three points to
several points. However, the most common practice is to have five point scales.
 Graphic scale method is good one in measuring various job behaviors of an employee.
However, it is not free from rater’s biases. Problems may emerge in defining various
traits and judging these.
Behaviorally Anchored Rating Scale (BARS)
 In this method the rating process is highly job oriented than trait oriented.
 Is more quantifiable method.
 The requirements for effective performance and the requirements for ineffective
performance are identified on the basis of judgment by specialist and these
requirements are anchored at each end of a vertical bar.
 The bar consists of a series of vertical scales, each scale identifying each important
dimension of job performance.
 Each bar is scaled, generally from 1 to 9, where 1 is the lowest rating and 9 is the
highest rating for most effective performance.
 The rating is on a continuous basis and identifies specific examples of job behaviors.
 The rater then scores the performance of each behavior on the appraisal form.
 This method is designed to reduce the risk and impact of errors that are caused by
subjective judgments and personal prejudices.
Essay Method
 The rater assesses the employees on certain parameters in his own words.
 Is useful in providing useful information about an employee on the basis of which he
can be appraised.
 Each rater may use own style and perception in describing a person which produces
difficulty in analysis.
Field Review Method
 An employee is not appraised by his direct superior but by another person, usually,
from personnel department.
 The basic idea is that such a person may take more objective view in appraisal as he is
not under pressure as the superior of the employee may be.
 The rater appraises the employee based on his records of output and other
quantitative information such as absenteeism, late coming etc.
 The rater also conducts interviews of employee and his superior to ascertain
qualitative aspect of job performance.
 Is more suitable for promotion purpose.
 Provides information to make comparison of employees from different locations and
units.
Assessment of Appraisal based on Traits
 The approach is more prone to biases.
 The identification of traits which should be evaluated is difficult.
 Resistances from employees as they feel that their organization is concerned about
their job rather than themselves or their behavior.
II. Appraisal by Results or Objectives
 One of the most promising tools of appraisal of employees, particularly at
managerial level is the system of evaluation of managerial performance against the
setting and accomplishing of verifiable objectives.
 The basic idea behind this appraisal is that the organization is concerned with
achievement of objectives through the contributions of individual managers rather
than on the basis of their traits.
 It draws its root from management by objective (MBO) and involves various
elements.
 The various steps involved in appraisal by results are:
1. Appraisal by result is a joint process between superior and his
subordinates.
2. The subordinate prepares his plan for specific period usually for one year
in the light of the overall plan provided by his superior. The final plan is
prepared through mutual consultation.
3. Through mutual consultation, both of them decide the evaluation criteria,
that is, what factors will be taken up for evaluation of subordinate’s
performance. The supporting role of superior is also finalized so that the
subordinate is clear about the various supports he will get.
4. At the end of the specified period, normally one year, the superior makes
a performance evaluation of subordinate on the basis of mutually agreed
criteria.
5. Superior discusses the results of his evaluation with the subordinate;
corrective actions, if necessary, are suggested; and mutually agreed
targets for the next period are set.
2.9. Management Information System

 Management Information System (MIS) refers to that system by which information is
collected, processed and presented to management to help it in making better
decisions.
 The MIS is defined as an integrated system of man and machine for providing the
information to support the operations, the management, and the decision-making
function in the organization.
 An MIS deals with information that is systematically and routinely collected in
accordance with a well-defined set of rules. In other words, data collection is a
planned activity for which resources are allocated and rules are defined.
 The systems concept implies an input, a process, and an output. In case of MIS, data is
the input which is processed to provide output in the form of information reports,
summaries, etc. To be really useful the output must aid the manager's decision-
making process. If it does not do so, it is not a management information system, but
just an information system.
 There are many closely related definitions in use. The terms MIS is synonymously
used with terms the Information System (IS), the Information and Decision System
and the Computer based Information System.
 The information provided by an MIS assists managers in planning, organizing,
staffing, coordinating, directing and controlling the operations of an organization.
 An MIS must have the following features:
1. It must be capable of handling voluminous data. The data as well as transactions
must be validated.
2. It must be able to perform operations on the data irrespective of the complexity of
the operations. Often time multi-dimensional analysis is required.
3. An MIS should facilitate quick search and retrieval of information. An MIS must
support mass storage of data and information.
4. The information must be communicated to the recipient in time.
5. Moreover, the communicated information must be relevant.
 An MIS performs the following functions:
1. Assembling: it implies finding and collecting data.
2. Processing: it means classifying, analyzing, summarizing and editing the data.
3. Storage and Retrieval: It refers to indexing, coding, filling and location of
information whenever necessary.
4. Evaluation: it implies determining the usefulness of processed data in terms of
accuracy and relevance.
5. Dissemination: it means supplying the required information at the right time
and right place.
Historical Background of MIS

 Since 1950s, computers have been used to perform common business applications in
the developed countries.
 The very first application of computers in business was to create a transaction
processing system (TPS). A TPS is an organized collection of people, procedures,
software, databases and devices used to record business transactions.
 The initial TPS were used for automating payroll systems. The input to the payroll
transaction processing system is the hourly pay rate and number of hours worked.
 These systems also calculated income tax for each employee and generated reports for
tax collecting body. The benefits provided by an effective transaction processing
system are tangible and can be quantified. They speed up the processing of business
activities and reduce clerical costs. The scope of TPS widened in due course of time to
include all aspect of accounting and financial transactions.
 The TPS provided no help to the managers and decision makers. The Management
Information System (MIS) were then built to provide routine information to managers
and decision makers.
 In 1980s, the personal computers made computing facilities within reach of small
organizations as well. People at each level started using personal computers to do a
variety of tasks. Decision makers started using the information held by computers.
 The decision making process was further supported by decision support systems
(DSS). A decision support system is an organized collection of people, procedures,
software, databases and devices to support problem – specific decision-making. An
MIS helps an organization “do things right”, a DSS helps a manager “do the right
thing”.
 Information systems have been evolving ever since. Workflow Systems, Enterprise
Resource Planning systems, and expert systems have been built to assist managers in
the process of decision-making. One thing is very clear that none of these systems
were a substitute for the manager they only assisted the manager.
Role of MIS
a) Facilitates Planning: A sound MIS helps to improve the quality of plans by
providing relevant information for sound decision making. Due to increase in the
size and complexity of organizations, managers have lost personal contact with the
scene of operations. MIS keeps them aware of changes in the environment of
business. It quantifies relationship among variables which can be projected to
forecast future trends. Needs for MIS has increased with the growing turbulence in
the environment.
b) Reduces information overload: A sound MIS converts the vast amount of data
into summarized form and thereby avoids the confusion which may arise when
managers are flooded with detailed facts.
c) Improves decentralization: Decentralization of authority can be successful when
there is a system for monitoring operations at lower levels. MIS can be effectively
used for measuring performance and making necessary changes in the
organizational plans and procedures. It identifies and meets separate needs of all
units in a decentralized setup without duplication of efforts.
d) Assists Coordination: MIS is an integrated approach to planning and control. It
facilitates integration of specialized activities by keeping each department aware of
the problems and requirements of other departments. It links all decision centers in
the organization.
e) Simplifies control: MIS serves as a linking pin between managerial planning and
control. It enhances the ability of management to evaluate and improve
performance. Widespread use of computers has increased the data processing and
storage capabilities and reduced the cost. It has made information handling easier.
Status of MIS in Organizations

 Information systems are used in all functional areas and operating divisions of
business.
 In finance and accounting, information systems are used to forecast revenue and
business activity, determine the best sources and uses of funds.
 Information systems have been used for managing cash and other financial
resources, and analyzing investment. Financial health of an organization is also
checked using IS.
 In sales and marketing, information systems are used to develop new goods and
services (product analysis), determining the best location for production and
distribution facilities (site analysis), determine the best advertising and sales
approaches (promotion analysis) and set product prices to get the highest total
revenues (price analysis).
 In manufacturing, information systems are used to process customer orders, develop
production schedules; control inventory levels and monitor product quality.
 Service industries such as airline industry and railways use information systems to
serve their customers better.
 Banks and other investment firms’ use IS to make good investments and sanction
sound loans.
 Publishing houses, healthcare organizations, and retail companies all make use of
information systems to serve their customers better and maximize their profit.
Information Needs of Management
Information required by managers may be classified into three broad categories:

1. Strategic planning information
2. Management control information
3. Operational information
 Strategic Planning is the process of deciding objectives of the organization,
determining the possible shift in objectives, deciding on the resources used to attain
these objectives and the policies that govern the acquisition, use and disposition of
there resources.
 Strategic planning information refers to the information required for strategic
decisions by top management.
 It relates usually to external environment of the organization.
 When combined with the internal data, it enables management to make estimates of
the expected results.
 The specifics of these information are usually unique and tailor-made to particular
strategic problems.
 Management Control is the process by which managers assure that resources are
obtained and used effectively and efficiently to attain the objectives of the
organization.
 Management control information is generally interdepartmental as data are gathered
from various organizational groups cutting across established functional boundaries.
 It ties together various sub-activities in a coherent ways so that managers can gauge
resources utilization and compare expected with actual results.
 It is used for tactical decisions by middle level managers to put into effect the plans of
top management.
 It sheds light on goal congruence and helps managers in taking the actions which are
in the best interests of the organizations.
 It enables the managers to ensure that resources are being used efficiently and
effectively in attaining the organizational goals.
 Operational Control is the process of assuming that specific tasks are carried out
effectively and efficiently.
 Operational information pertains to the day to day activities of the organization and
helps to ensure that specific tasks are performed effectively and efficiently.
 It is used at the operating levels of management for making tactical and operating
decisions.
 It also comprises routine information concerning finance, accounting, payroll,
personnel records, inventories, equipments, and logistics.
 Operating information such as producing a payroll generally originates in one
department.
 The table below gives instances of planning and control activities in different
functional areas.
Table: Planning and Control Activities in Different Functional Areas
Strategic planning Mgt control Operational control

Production Location of a new Determine the Scheduling specific
factory product mix for jobs on specific
monthly production machine in a shift
program
Marketing Entering the export Media planning for Planning sales
market advertising contacts to be made
expenditure by a salesman in the
next week
Finance Raising capital by Determining Determining what
issuing new shares maximum action
levels of credit for to take against
to nonpayment by a
customers specific customer
Personnel Deciding on Determining who Determining which
changes to be made will be promoted to workers will be on
in the organization fill a vacated post at each shift.
structure. middle and lower
levels, in the
organization.
 The characteristics of information needed to support the three types of planning and
control process is different. The Table below depicts these characteristics and
highlights the substantial differences in information required for strategic planning,
management control, and operational
Table : Differences in Information required for three types of Planning and Control
Processes
Information Strategic planning Management Operational

characteristics control control
Volume Low Intermediate High
Level of Aggregation High Intermediate Low
Frequency of use of a Low Intermediate High
particular type of data
Currency requirement Low Intermediate High
Accuracy Low intermediate High
Scope Wide intermediate Narrow
Source Significant amount Mostly internal Entirely internal
from external
Predictability with Low Fairly high Very high
user
Variability with user High Intermediate Low
Distance of user(in Fair Fairly close Close
organizational
terms)from sources
within organization
Role of MIS at Various Management Levels

 Management can be seen as structured into three hierarchical levels namely, top
level, middle level and bottom level or strategic, tactical and operational levels,
respectively.
 Top management establishes the policies, plans and objectives of the company as
well as a budget framework under which the various departments will operate.
 These factors are promulgated and passed down to middle management. They are
translated into cost or profit centre concept. These are reviewed, analyzed and
modified in accordance with the overall plans and policies until agreement is
reached.
 Middle management then issues the specific schedules and measurement yardsticks
to the operational management.
 The operational levels has the responsibility of producing goods and services to meet
the revenue, profit and other goals, which in turn will enable the organization
achieves its overall and objectives.
 The hierarchical view of management is important for two reasons: information
needs tend to be different at different levels of management and the amount of time
devoted to any given function varies considerably with the level.
 In the context of MIS, management can perhaps be best defined as a process of (i)
selection of objectives, (ii) judicious allocation of resources (iii) determining
operational plans and schedules, (iv) keeping control of progress, and (v) evaluation
through feedback. Each of these areas requires certain decisions to be made.
 Thus we take strategic decisions at the top level, tactical decisions at the middle and
operational decisions at the junior level.
 The type of problems and decisions at the junior level are quite deterministic and
structured, so we can have programmed decisions.
Table : Job Content of Management Levels
Character Top mgt Middle mgt Operating mgt
1 Focus on Planning Heavy Moderate Minimum
2 Focus on Control Moderate Heavy Heavy
3 Time Frame 1-5 years Up to 1 year Day to Day
4 Scope of Activity Broad Entire functional Single sub-

area function
5 Nature of Activity Relatively Moderately Highly
6 Level of Very complex, many Less complex, Straight forward

Complexity variable better defined
variables
7 Job Measurement Difficult Less Difficult Relatively Easy
8 Result of activity Plan, policies and Implementation, End products

strategies schedules,
performance
yardsticks
9 Type of External Internal, reasonable Internal, historic
information utilized accuracy level accuracy
10. Mental Creative innovative Responsible, Efficient, effective
attribute persuasive,
administrative
11. Number of Few Moderate number Many
people involved
12.Departement/ Intra division Intra-division inter Intra department
divisional dependent
interaction
 But as we move to higher level, situations become fuzzy, ambiguous, and

unstructured, and thus we are faced with non-programmed decisions.
 We find that with the introduction of computers, we have gone about routine EDP
type of an activity for the essentially programmed decisions that take place at the
operating level.
2.10. Managing Change

1. Introduction
 You are perhaps aware of the axiom that the only certainty in the world is that
there will be change.
 In this process of change, the Darwinian principles of adaptation and natural
selection are as true for the corporate world as they are for the animate. `Survival of
the fittest' is the unwritten but the radical rule of this game.
 The environment which engulfs an organization provides the resources and
opportunities for the organization’s existence. At the same time, the environment
itself imposes sanctions determining what an organization can or cannot do. If an
organization is to survive, grow and remain prosperous, it must adapt to the
demands of the environment. Since these demands are constantly changing,
organizations must also change.
 Some of the changes which affected almost all organizations in the past few decades
include:
 Technological innovations have multiplied; products and know-how are fast
becoming obsolete.
 Basic resources have progressively become more expensive.
 Competition has sharply increased.
 Communication and computers have reduced the time needed to make
decisions.
 Environmental and consumer interest-groups have become highly influential.
 The drive for social equity has gained momentum.
 The economic inter-dependence among countries has become more apparent.
 As a response to the change in the environment, the attributes of the organizations are
changing. Examine some such continua of attributes towards which more dynamic
organizations are shifting:
Direction of Change
From To
Formal Informal
Structured Less structured
Definite Ambiguous
Deterministic Probabilistic
Conservative Opportunistic
 What happens when organizations fail to adapt? The answer is unequivocal: They
become extinct. But much before such a catastrophe, you can diagnose the syndromes
of organizational maladjustment.
 Here is a list of some such syndromes whose half-serious names are trying to
conceal the malady of maladjustment:
Some Syndromes of Organizational Maladjustment
1.Amoeba: Lack of strong direction from top executives. Not enough structure, order or
guidance leading to activity trap, i.e. doing things without knowing where one is
heading to.
2.Anarchy: A situational upheaval where leadership, responsibilities, functions and
resources are in dispute.
3.Buggywhip: Clinging to obsolete products, services and practices which no longer have
potential for sustaining livelihood.
4.Deadlock: Stand off condition between management and leader of workforce leading to
toxic antagonistic relations between the factions (small groups).
5.Mom & Pop: Small company managers can not/will not help the company grow past
the awkward stage.
6.Myopia: No future orientation. Little thought to strategy, sense of direction and advance
planning. Live day to day, week to week.
7.Rat-race: Toxic climate coming from oppressive, primitive, slave-driving policy.
8.Remote Control: Too much administrative or executive control from the parent body.
Decision making autonomy is seriously impaired.
9.Rigor Mortis: Conditions of inertia and constricted activity prevail. Primary
organization value is structure and order.
2. Nature of Change
 Organizations introduce changes through people. Unless the people are willing to
accept the need and responsibility for organizational change, intended changes can
never be translated into reality.
 In addition, individuals have to learn to adapt their attitudes and behavioral patterns
to constantly changing environments.
 There three frequently raised issues on the nature of change.
 Change can happen in an organization by beginning to change at the individual
level only.
 Organizational change takes place through a slow unfolding process or through
cataclysmic events overturning status quo arrangements.
 We always have to comply with environmental changes, or can we also initiate
change.
Individual Change and Organizational Change
 It may be useful to note the difference between individual change and
organizational change, although the two are interwoven.
Individual change
 Is behavioral-determined by individual characteristics of members such as
knowledge, attitudes, beliefs, needs, expectations etc.
 It is possible to bring about a total change in an organization by changing behaviors
of individual members through participative-educative strategy.
 The degree of difficulty involved in the change and the time taken to change will be
primarily dependent upon what exactly is your target of change.
 If your target of change is a person's knowledge, it would not be a very difficult and
time-consuming endeavor.
 Changing attitudes is usually considered more difficult and time taking when
compared to changing knowledge.
 Changing behavior is a still more time-taking and difficult task. We often assume
that having enough knowledge and a positive attitude towards something will
naturally result in changing behaviour or modification towards that direction, but it
does not necessarily happen. For example, we know that honesty is the best policy.
We might have favorable attitudes towards people who are honest and dislike those
who are dishonest, but in certain situations we still may act in a less honest manner.
The linkage between attitude and behaviour is not so straight-forward and for this
reason changing behaviour is more difficult than changing knowledge or attitudes.
Figure: Time and Difficulty involved in Change
 Hence, it is possible, although difficult and prolonged, to bring about total

behavioral change in an organization starting with its individual members.
 However, this is not the only route. It is equally possible to influence and change the
total organization without focusing at the level of individual's change of knowledge,
attitude and behavior.
 Total organizational change can be brought about by modifying the organization's
structures, policies, procedures, techniques etc. These types of change alter
prescribed relationships and roles assigned to members and eventually modify the
individual member's behaviour and attitudes.
 As these two kinds of changes are interdependent, the complexity of managing
change makes it necessary to understand both the behavioral and non-behavioral
approaches to change.
Evolutionary Change and Revolutionary Change
 Look at the following exhibit on the stages of organization's change and
development. You will find that in each stage there are some critical concerns and
key issues which must be addressed to and satisfactorily solved. The exhibit also
shows the consequences if the concerns are not met with satisfaction.
 In order to meet the critical concerns of each stage, organizations go through some
rapid, visible, shake-ups of their structure, policies, procedures, techniques,
personnel, etc.
 These changes in calmer moments of steady growth may be viewed as
revolutionary changes.
 You will be able to appreciate the difference between the two degrees of change
through yet another model of organization’s growth given below.
 It postulates that as an organization grows from young to mature stage, tiny sized to
giant size, it passes through five phases of evolution each of which ends with a
period of crisis and revolution.
 Evolutionary periods are characterized by the dominant management styles used to
achieve growth, while revolutionary periods are characterized by the dominant
problems that must be solved before growth continues.
 The first phase of a newly-born organization is characterized by
 Creating a viable product in a promising market.
 The founders, who are usually technically brilliant and entrepreneurially
oriented, manage their endeavors themselves in an ad hoc manner with little
respect to any formal system of communication and control.
 Their physical and mental energies are entirely absorbed in making and selling.
 But as the organization starts growing from its tiny embryonic stage, many
managerial problems crop up, forcing the founders to wonder as to who is
going to lead the organization out of confusion.
 By the end of the first phase, the crisis of leadership has emerged. The solution
usually lies in locating and installing a strong business ; manager who is
acceptable to the founders and who can pull the organization together.
 When leadership crisis forces the founders to relinquish some of their power to a
professional manager, organizational growth is achieved by direction through
systematisation of operating procedures. The manager is usually given a free hand
and zealously accepts most of the responsibility for initiating direction. But the lower
level supervisors are treated merely as functional specialists devoid of any decision-
making authority. In course of growth for the organization, the lower level managers
demand more autonomy in decision-making and the stage is set for the crisis of
autonomy to come to the fore. The second phase of the organization's growth is
capped by this turmoil for autonomy.
 The crisis of autonomy is resolved through the delegation of authority which helps in
gaining expansion through heightened motivation at lower rangs. But one serious
problem that eventually evolves is the loss of top management control over highly
diversified field of operations. The crisis of control emerges at the conclusion of phase
three where field managers run their own shows without aligning plans, money,
technology, or manpower with the rest of the organization.
 In order to achieve more efficient allocation of organization's limited resources, an
elaborate network of coordinating mechanisms is usually introduced at phase IV of
'the organization's growth.
 The organization becomes typically much more formalized; rules, regulations
and rigidities increase almost exponentially. For some time, the new systems
prove useful for achieving growth through coordinated efforts. But soon
procedure takes precedence over problem-solving, the chronic conflict between
line and staff becomes acute. The organization becomes too large and complex to
be managed through formal programmes and rigid systems. Thus begins the
crisis of reshape.
 The fifth phase of an organization's growth is characterized by strong inter-personal
collaboration in order to overcome the crisis of red tape and the widespread conflicts
between several subsystems. Developing the team becomes the theme, social contra and
self-discipline take over from formal control, more flexible and behavioral approaches
are adopted to attack the problems of managing a large organization.
 What crisis do you anticipate at this phase of organization's growth? Nobody
seems to know the exact nature of this future shock, as no organization has
traversed so far. Some authors feels that some problems may emerge centering
around the psychological saturation of employees who grow emotionally and
physically exhausted by the intensity of teamwork and the heavy pressure for
innovative solution.
Reactive and Proactive Changes
 Forces for change arise out of an organization's interaction with elements in its
external or internal environment.
 The action of competitors, suppliers, government units, or public groups may have
substantial impacts on change. Social and cultural factors such as life styles, values or
beliefs also lead to important changes.
 Forces of change may also arise from within an organization depending upon
different phases of growth or demands made by different interest groups.
 Reactive changes occur when these forces make it necessary for a change to be
implemented. It is passive compliance to the demands.
 Proactive change takes place when some forces to change lead an organization to
conclude that a particular change is desirable and goes about in initiating the change
in a planned manner.
 The difference between reactive and proactive changes corresponds, by way of
analogy, to that between reflexive behavior and purposive behavior. An individual
responds reflexively to a sudden intense light by eye-blinking or pupillary
contraction. This is an immediate, automatic response without any thought. A
purposive response to the same stimulus would mean devising a plan to shield the
eyes or removing the light. It would require coordination of central nervous system
and psychomotor capacities.
 Reactive change, like reflexive behaviour, involves a limited part of the system
whereas proactive change and purposive behaviour coordinate the parts of the
system as a whole. Also, reflexive behaviour and reactive changes share the
characterstics of responding to immediate symptoms, while purposive behaviour and
proactive change respond to underlying forces producing the symptoms.
3. Antecedents of Organizational Change
 You can well imagine that there must be many reasons for which organizations
change.
 Some major antecedent conditions which serve as stimuli for changes to be
undertaken in an organization are discussed as bellow.
Growth and Decay
 Organization’s growth presents many problems and opportunities for change. Decay
too poses change problems. It leads to defensive, restorative changes aimed at
survival and the essential resumption of growth.
 When growth occurs through internal vigor of product lines, services or market
penetration, change is gradual.
 Change is more extensive when growth occurs from mergers, acquisitions or
exceptionally rapid success of organizational activities.
 Mergers and acquisitions are undertaken for many reasons such as consolidating or
increasing capital, pooling management talent using facilities more efficiently,
increasing production and marketing capacity and achieving vertical integration.
 Changes due to merger and acquisition lead to substantial impacts on people. There is
high potential for generating feelings of anxiety, fear of insecurity among all
organizational members from top echelons to rank-and-file workers. Sometimes,
these anxieties, if not properly handled, turn into hostility towards the organization.
New Personnel
 Some change is inevitable because of internal factors such as death, retirement,
transfer, promotion, discharge, or resignation and constantly changing elements in the
external environment.
 One of the most frequent reasons for major changes in company structure is a change
of executives at the top. They usually begin by examining the structure below them to
see if it corresponds to their ideas of what will be needed to do their job effectively.
Upon taking over a position at the top, a new manager may make sweeping changes.
Change Agents
 Change Agent is the technical term for an organizational member whose role involves
the strategies and procedures for bringing about change. Any individual can be a change
agent at one time or another, but many people have positions, tasks, or formal roles in
which their main assignments involve dealing with change.
 A change agent's formal role is primarily to plan and initiate changes rather than to
implement them. Change agents serve as catalysts, interpreters, and synthesists. They
often work quietly behind the scenes to promote change.
 An interesting kind of change agent is often referred to as "The Young Turk". Young
Turks are new, usually young employees, eager and ambitious, full of ideas for
improvement, and willing to be a bit pushy, and obnoxious, or at least persistent, in
trying their ideas.
 Organizations sensing the need for change often deliberately appoint Young Turks to
challenge the status quo. They are not always popular with colleagues or even their
bosses.
 The best of the Young Turks are those who have real talent combined with a measure
of tact and patience.
Declining Effectiveness
 Decline in effectiveness is one of the reasons for change for organizations.
 Organizations have a number of ways of "taking their pulse" by looking at indicators
from their own information systems.
 A business firm monitors data on sales, absenteeism, turnover, scrap rates,
manufacturing costs and numerous ratios of financial measures.
 Some firms also conduct regular opinion surveys of their work force.
 Others have systematic methods of obtaining feedback from customers.
 In response to the information obtained through the above methods, the
organizations make the required changes in organization to maintain the desired level
of efficiency.
Change in Corporate Strategy
 An organization may undertake comprehensive changes even when no indicators
would suggest immediate problems in its performance.
 Forecasts of long run trend may prompt a decision to enter new markets, to pursue a
strategy of growth, to become less dependent on government, to switch from a
centralized to a decentralized structure, or to adopt new technologies.
 All these strategic decisions have implications for changing the behaviour of people in
their organization.
Crises
 Not infrequently, the occasion for organizational change is an unforeseen crisis
which makes continuation of the status quo unthinkable.
 The sudden death of a Chief Executive Officer, the resignation of key members of a
top management team, a strike by a critically important group of specialised
workers, loss of major client or suppliers on whom the company has been
dependent, a drastic cutback in budget, even spontaneous civil disturbances
directed against an organization force a reorientation of the corporate posture and
initiate a total revamping of policy, practice and behaviour.
Personal Goals
 Leaders, interest groups and coalitions have their own goals: to see the company
become more aggressive, to shape the organization around some distinctive theme,
to cast a particular corporate image, to further some ideology or philosophy.
 Seldom are these goals stated in precisely those forms, at least for the record or for
public consumption. More frequently, they are clothed in rationalizations about
their presumed effect on profit and service.
The Domino Effect
 The last main source of change is change itself. There is often a domino effect in
which one change touches off a sequence of related and supporting changes, e.g.,
creating a new department may cause the creation of a new managerial or non-
managerial positions or change in assignments within other departments, budgeting
reallocations and office space. Other departments may need to realign their
missions, structure, tasks and staffing.
 It is quite common for people to fail to consider the domino effect. Such an oversight
leads to problems of coordination and control, and necessitates effective planning
processes that limit the tendency of individual units to change only in accordance
with their own needs. Before any significant change is made, its possible
consequences must be examined to see whether an undesired chain reaction will
occur.
4. Elements of Change
 In an organizational change, four factors are involved: task, people, technology and
structure.
 These factors are interrelated and interdependent; a change in one produces
alterations in one or more of the other work environment factors.
 Task refers to the job, which can vary in several ways or dimensions such as
variety, autonomy, task identity, feedback, and significance.
 People include individuals who perform or fill various jobs within the
organization. Individuals vary in their attitudes, motivations and values which
influence their perception and evaluation of change. This can complicate the
implementation of change.
 Technology includes those methods, techniques, and processes that collectively
convert inputs of the organization into its outputs.
 Structure embraces the job responsibilities and relationships of organizational
members. Structure is reflected in the number of hierarchical levels, span of
control (number of persons supervised), and the way in which parts are
organized and related to one another. Communication, decision, and power
systems are significantly influenced by such structural arrangements.
 Organizational changes can be introduced through the alteration of any one of these
four variables or a combination of these factors.
4. The Process of Organizational Change
 Change process was best described by Kurt Lewin as follows:
 Unfreezing
 Moving
 Refreezing
 Feedback
Figure IV: Change Process
Unfreezing Moving Refreezing
Identifying need individual Reinforcing the
for change component newly learned
Increasing the group component behavior
driving forces to task component Finding ‘fits’
change structure between the
Reducing the component organizational
resisting force to Technology components
change component Maintaining fit
between
organizational
components
Feedback
1. Unfreezing
 As a practical matter, change does not occur in a vacuum of no prior perspective. To
the extent the new is different from the old and the old-had value to the individuals,
the old patterns of perspective implies a questioning and doubting of existing
assumptions and feelings. For most change which is significant, the unfreezing
requires a loosening of emotional as well as intellectual forces.
 Unfreezing involves the following steps:
A) Recognizing the Driving Forces
 Recognizing major changes in the environment and problems within the
organization is the first step toward organizational change.
 In many organizations, however, the need for change may go unnoticed until a
major problem strikes.
B) Increasing the Driving Forces
 Once the need for change is identified, it has to be communicated to people who are
involved in the changing process. Because if members know why the change is
needed, they are more likely to adopt it.
 The following strategies can be adopted to increase the - acceptance of a change.
 Express the need for change
People who will be affected by the change have to know the change is needed. If
they do not, they will hesitate to cooperate in the change process.
 Communicate the potential benefit
People have a tendency to ask, "what's in it for me?" Unless they feel that the
change will benefit them or that failure to change will hurt them substantially, they
are less likely to cooperate. If no benefits can be identified, the costs of not
changing must at least be understood.
 Protect the interest of concerned people
People fear change because it may cause them to lose their jobs, income or status.
Assurances of job security, income protection and maintenance of status can
increase the acceptance of change.
 Get people involved in the process
Participation can help people accept change. Some individuals have a positive
outlook on change and when they participate, the progress of change is facilitated.
 Communicate the progress of change
In order to minimize fear of the unknown, the content and progress of change
must be communicated to employees. It is often difficult to know all the potential
consequences and influences of a given change, but, by keeping employees
informed of its progress, management can at least maintain a climate of trust.
 Use a respected change agent
The credibility and power of the change agent can facilitate the process of change.
The change agent must be familiar with the technical and behavioral aspects of a
given change and must be someone with an influence on organizational
functioning.
 Reinforce earlier changes
When an organization undertakes a large scale change involving a series of
continual modification, it is important for people to see that earlier changes have
been successful.
C) Managing the Resisting Forces
 Most of the strategies designed to increase the driving forces are equally applicable
for reducing resisting forces to change.
 People resist change because they perceive that it can be harmful to them; thus, it is
essential that they be made aware of its need and benefit.
 Understanding the reason why people resist change can help you formulate a plan
to reduce the resistance.
2. Moving
 In the moving or changing phase the individual is ready for new behavior and a
change in perspective.
 It is a time of trial and error learning, characterized by ambiguity and tentativeness.
 The phase is typically one of careful guidance by an authority, of learning the pieces
of a new pattern of behavior before the whole can be conceived.
 Moving or change involves changing the organizational components.
Traditionally, organizational change was thought to mean modifying only one
subsystem of an organization. For example if there was a change in technology,
modifying a task was thought to be sufficient. In recent years, however, more
attention has been paid to larger-scale organizational changes involving several
organizational components. This approach is based on the view that an
organization is composed of four major components-task, structure, technology and
people and that a change in any one of them requires changing the others
3. Refreezing
 This phase involves the establishment of a new perspective compatible with and
leading to the new desirable behavior.
 In effect, the new part of one's total perspective is now established and integrated
so that it fits the whole. This makes it possible for the new behavior to be
accomplished as a matter of course. This is the period in which the individual or
group begins to enjoy the rewards for the new behavior, either extrinsically in the
form of social approval, monetary reward and the like or intrinsically in the form of
ego satisfaction, sense of mastery and self-fulfillment.
 In order to continuously reinforce the newly acquired behavior, the organization
needs to maintain the organizational fit among various components that are
supportive of such behavior. Without such organizational compatibility, the
organization will encounter instability. Since the new found behavior cannot be
adequately reinforced in an unstable organizational climate, it may soon be
discontinued.
4. Feedback
 Management of change requires feedback and follow-up actions that change
programme is progressing in right direction without producing any dysfunctional
effect.
5. Coping Strategies for Change
 There are three ways in which organizations can manage their external dependence:
 Adaptation.
 Avoidance.
 Control.
Adapting to External Changes
 The adaptive strategy takes the marketing approach to environmental demands.
 It starts with an assessment of the needs of the market place and then produces
goods and services to meet these.
 This strategy involves the following sequence of activities in the adaptive-coping
cycle:
I. Sensing a change in the internal or external environment.
II. Importing the relevant information about the change into those parts of the
organization that can act on it.
III. Changing activities inside the organization according to the information
obtained
IV. Stabilizing internal changes while reducing or managing undesired by-products
V. Exploring new products, services, or methods that are more in line with the
originally perceived changes in the environment; and
VI. Obtaining feedback on the success of the change through further sensing of the
state of the external environment and the degree of integration of the internal
environment.
 These stages of the cycle indicate four conditions for successful coping, conditions
that are very similar to the ultimate criteria of organizational health
 ability to take in and communicate information reliably and validly;
 internal flexibility and creativity to make the changes that are demanded
by the information obtained;
 integration and commitment to the goals of the organization, from which
comes the willingness to change; and
 an internal climate of support and freedom from threat.
Avoiding External Dependence
 An organization can reduce external dependence in a number of ways:
I. Finding an environmental niche
This can be done by selecting specific environmental domains with little or no
competition, no restrictive regulations, but plenty of suppliers and customers
II. Reducing dependence through diversification
To the extent that an organization depends on a limited number of outsiders for its needed
resources and outputs, the degree of its dependence on them increases. An organization
can reduce these dependences through diversification. The organizations may cultivate
alternate sources of suppliers or acquire new sources of supply and distribution or expand
its product lines for this purpose.
III. Developing mutual dependence
When people or organizations depend on each other for survival or for positive exchange
relationships, one party may not take an arbitrary action against the other because of fears
of repercussions. However when one party is more dependent on the other, an imbalance
in their exchange relationship is created. The stronger party can take an action against the
dependent one without being challenged. In order to avoid such one-sided dependence,
the dependent party may have to diversify its dependence or increase the other party's
dependence on it. Such a necessity for mutual dependence is vividly demonstrated in
international power politics.
Controlling Environmental Forces
Organizations can reduce their external dependence by controlling the forces in the
environment that, in turn, control their behaviors. These forces may include competitors,
suppliers, customers, legislative bodies and unions.
Many tactics can be employed, of which some are:
 Create an organizational structure with a large number of boundary spanners, who
interact with the environmental forces. Creating a public relations department or
project group is an example.
 Appoint individuals from external elements who can establish personal linkages to
those who control the environment; for example companies that rely on defense
contracts may appoint ex-service officers to provide such personal linkages.
 Create or participate in trade associations. They reduce competition among their
members and allow them to control their environments jointly. Many professional
organizations protect their members' interests through such organized effort.
 Lobby the legislative and regulatory agencies to create favorable environments for
an industry or organization.
 Other devices can be used to control the environment as well. These include such
tactics as price fixing, forcing out competitors, false advertising and bribes.
However, these methods are mostly illegal or against contemporary social norms
and values. For this reason, not many respectable organizations use such tactics
explicitly or extensively.
6. Resistance to Change
 From its inception, the study of organizational change has noted the fact that many
participants respond with dogged resistance to altering the status quo.
 Such behavior may be either overt or covert. Overt resistance may take the form of
employees deliberately failing to do the things necessary for successful change or
simply being unenthusiastic about the change. The absence of overt resistance does
not mean that resistance is not present, as resistance may be hidden from direct
observation. Covert resistance can be more detrimental to change than open
resistance because it is harder to identify and eliminate.
 There are at least two sets of factors which explain the process of resistance:
 Personality Related
 Factors related to the social system.
I. Personality Related Factors
1. Homoeostasis or the tendency of the organization to maintain equilibrium. Because of
this tendency all change related phenomena are resisted.
2. Habit: Since change entails a conflict with established habits, it tends to be resisted.
3. Primacy: The way in which a situation is first encountered and the difficulties are
overcome tends to be firmly established. This becomes an established behavior
tendency.
4. Selective perception and retention: Human beings have a tendency to perceive and
retain those aspects of their environment which are cognitively consonant. An
individual does not like to read or hear views which contradict his own opinions.
Many good ideas are rejected as a theory which would not work in the practical
situation.
5. Dependence: Since childhood an individual learns to be dependent on adults or on
others for comfort and security. This tendency does not allow him to take the initiative
and accept innovation and change.
6. Super ego: This represents individual moral codes of ethics that decide the 'dos' and
dont's of society. It provides an internalized code of control which may induce a high
sense of conformity.
7. Self-distrust : Due to the various super ego pressures a sense of self-distrust may
sometimes be developed. The puritanical views may ultimately create a sense of self-
distrust and to be 'good' is to accept the status quo ante.
8. Insecurity and regression: It is almost a universal human tendency to seek refuge in
the past when the going gets rough. The frustration-regression sequence hampers the
acceptance of change when the change is needed most.
Factors Related to social system
1. Conformity to norms: The norms in a social system are similar to habits in the
individual. They indicate the expected ways of behaving. These include time
schedules, modes of dress, forms of address to colleagues and indications of company
loyalty etc.
2. Systemic and cultural coherence: Generally a social system is made up of several
component elements. When the system needs to be changed, relationships between
elements have to be altered. Since changes in a diode or triode may unleash a series of
changes elsewhere in two systems. The resistance may come about from the other
elements.
3. Vested interests: In the social system, it is not uncommon to observe the resistance
emanating from individuals whose economic or prestige interests are at stake.
4. The sacrosanct: Certain beliefs and ideals are held sacred by the members of an
organization or a social system. Changes relating to these ideals are resisted the most.
Cultural taboos represent a special class of events which are prescribed for members
and serve the same function as "super ego".
5. Rejection of "Outsiders": It is customary to suspect and show hostility to outsiders or
"the others". In scientific researches also it has been observed that certain projects are
not acceptable if they are perceived as sponsored by outside agencies and not evolved
from within.
7. Strategies of Implementing change
1. The Tops-down Strategy

The advocates of this strategy believe that, in general, people resist changes and require
direction and structure for their well being as well as to work efficiently and effectively.
The basic psychological contract between employees and management, it is assumed, is
one in which the employee provides work, effort and commitment and expects in return
pay, benefits, and a clear definition of what is expected to be done. It follows that it is the
management's responsibility to design the changes it deems appropriate and to implement
these thoroughly but quickly by directives from the top.
2. The Bottoms-up Strategy
The advocates of this approach profess a more enlightened view of human nature. They
argue that people welcome change and the opportunity to contribute to their own
productivity, especially if the change gives, them more variety in their work and more
autonomy. These managers assume people have a psychological contract which includes
an expectation that they be involved in designing change as well as in implementing it.
Commitment to change, they say, follows from involvement in the total change process
and is essential to successful implementation.
3. Contingency Approach
According to the contingency school, the choice of an appropriate strategy and the
implementation diagnosis consists of assessing eight independent variables or factors in
the organizations. Based on the diagnosis which evolves, the basic implementation
strategy will consist of selecting values along the continua for the three dependent
variables as shown at the bottom of Table below.
Once the values of these variables have been located, and if the answers to the diagnostic
for the independent variables fall towards the left of the continuum, then the
implementation strategy would also be leftwards. On the other hand, if the values of
variables tend towards the right side of continuum then the implementation strategy
would also be rightwards. Thus, for example, if there is very little time available, the crisis
or need for change is clear to all, it is a small organization, and so on, the appropriate
change strategy is tops-down, directive, and fast.
S.n Factor Degree

o
1 Time available Short Long
2 Clarity of crisis or need for change Clear to all Clear to few
3 Size of organisation small Large
4 Effects of existing controls and incentives Encourage initiative Encourage focus
5 Organizational concentration of relevant Concentrated at top Concentrated at
knowledge bottom
6 Expectations of people regarding None Extensive
involvement in implementation
7 Potential resistance Small Great
8 Total power base of change agent Great Small
Implementation strategy
1 Pace Fast Slow
2 Use of power Tops-down Bottom-up
3 Management style Directive Participative
CHAPTER THREE
1. Explain different techniques of forecasting based on quantifiable variables(2009).
2. Describe the uses of decision theory and simulation models in management.(2009)
3. Critically evaluate the usefulness of PERT and CPM. (2007)
4. Explain the various techniques of forecasting. (200 Unknown)
5. Write short notes:
a. Sensitivity analysis(200 Unknown)
b. Simulation(200 Unknown)
6. Examine cost benefit analysis and sensitivity analysis as techniques of forecasting.
(1996)
QUANTITATIVE TECHNIQUES IN MANAGEMENT
History
Mathematical methods have long played an important role in management and economics
but have become increasingly important in the last few decades. Business mathematics,"
such as the computation of compound interest, appeared in ancient Mesopotamia but
became prevalent in the mercantile economy of the Renaissance. Mathematics later
contributed to the engineering advances that made the Industrial Revolution possible.
Mathematics crept into economics during the 18th and 19th centuries and became firmly
established in the 20th.
It is only in the last few decades that management per se has received the sort of rigorous
study that permits the application of mathematics. In the early part of 20th century
“scientific management," called “Taylorism" after its founder F. Taylor, was fashionable.
Shortly before the Second World War a team of scientists solved the operational problems
of coordinating Britain's radar stations and thereby created “operational research," called
“operations research" in the U.S. During the war this practice of putting scientists and
mathematicians to work on operational problems was surprisingly successful in both the
British and American military, partly because members of the professional class who had
not previously dirtied their hands had their first opportunity to apply their training to
operational problems. Their success attracted attention, and operations research spread to
industry during the fifties.
After the war, G. Dantzig and others developed linear programming at about the same
time that computer became available to solve linear programming models. Linear
programming proved a remarkably useful tool for the efficient allocation of resources, and
this gave a great boost to operations research. In the early postwar years J. von Neumann
and O. Morgenstern invented game theory, and H. W. Kuhn and A. W. Tucker broke
ground in nonlinear programming. W. E. Deming and others developed statistical
techniques for quality control, and the statistical methods first designed for psychometrics
in the early 20th century became the mathematical basis for econometrics. Meanwhile
business schools began teaching many of these techniques along with microeconomics and
other quantitative fields. As a result of all this, mathematical modeling has played an
increasingly important role in management and economics.
Definition:
 In general terms we can regard OR as being the application of scientific methods/
thinking to decision making.
 Underlying OR is the philosophy that:
 Decisions have to be made; and
 Using a quantitative approach will lead to better decisions than using non-
quantitative approaches.
Mathematical Modeling in Business
The applications of mathematical methods in management and economics today are so
manifold that it is difficult to find a single person who is aware of their full scope. The
following list can only be incomplete.
 Economists use linear and nonlinear programming, the theory of variational
inequalities, optimal control theory, dynamic programming, game theory, probability
choice models, utility theory, regression and factor analysis and other techniques to
study equilibrium, optimal investment, competition, consumer behavior, and a host of
other phenomena.
 People in operations management use statistical sampling and estimation theory,
linear and integer programming, network programming, dynamic programming and
optimal control theory, queuing theory, simulation, artificial intelligence techniques,
and combinatorial optimization methods to solve problems in quality control,
allocation of resources, logistics, project scheduling, labor and machine scheduling, job
shop scheduling and assembly line balancing, and facility layout and location. The
introduction of flexible manufacturing systems, robots and other automated devices
has posed a whole new array of unsolved mathematical problems.
 People in finance use linear, nonlinear and integer programming, optimal control
theory and dynamic programming, Markov decision theory, regression and time series
to determine optimal resource allocation, multiperiod investments, capital budgeting,
and investment and loan portfolio design, and to try to forecast market behavior.
 People in marketing use regression and factor analysis, time series, game theory,
Markov decision theory, location theory, mathematical programming, probability
choice models and utility theory to study consumer preferences, determine optimal
location in product space, allocate advertising resources, design distribution systems,
forecast market behavior, and study competitive strategy.
 People in information systems and decision support systems use artificial intelligence
techniques, propositional and quantified logic, Bayesian methods, probabilistic logic,
data structures and other computer science techniques, mathematical programming,
and statistical decision theory to design expert and other knowledge-based systems,
develop efficient inference and retrieval methods, and evaluate the economic and
organizational effects of information systems.
The methodology of OR
When OR is used to solve a problem of an organization, the following seven step

procedure should be followed:
Step1. Formulate the Problem
OR analyst first defines the organization's problem. Defining the problem includes
specifying the organization's objectives and the parts of the organization (or system) that
must be studied before the problem can be solved.
Step2. Observe the System
Next, the analyst collects data to estimate the values of parameters that affect the
organization's problem. These estimates are used to develop (in Step 3) and evaluate (in
Step 4) a mathematical model of the organization's problem.
Step3. Formulate a Mathematical Model of the Problem
The analyst, then, develops a mathematical model (in other words an idealized
representation) of the problem. In this step, we describe many mathematical techniques
that can be used to model systems.
Step4. Verify the Model and Use the Model for Prediction
The analyst now tries to determine if the mathematical model developed in Step 3 is an
accurate representation of reality. To determine how well the model fits reality, one
determines how valid the model is for the current situation.
Step5. Select a Suitable Alternative
Given a model and a set of alternatives, the analyst chooses the alternative (if there is one)
that best meets the organization's objectives.
Sometimes the set of alternatives is subject to certain restrictions and constraints. In many
situations, the best alternative may be impossible or too costly to determine.
Step6. Present the Results and Conclusions of the Study
In this step, the analyst presents the model and the recommendations from Step 5 to the
decision making individual or group. In some situations, one might present several
alternatives and let the organization choose the decision maker(s) choose the one that best
meets her/his/their needs.
After presenting the results of the OR study to the decision maker(s), the analyst may find
that s/he does not (or they do not) approve of the recommendations. This may result from
incorrect definition of the problem on hand or from failure to involve decision maker(s)
from the start of the project. In this case, the analyst should return to Step 1, 2, or 3.
Step7. Implement and Evaluate Recommendation
If the decision maker(s) has accepted the study, the analyst aids in implementing the
recommendations. The system must be constantly monitored (and updated dynamically
as the environment changes) to ensure that the recommendations are enabling decision
maker(s) to meet her/his/their objectives.
Advantages of Operation Research Techniques

 In building and analysis OR models, close attention is paid to details and to
follow logical, systematic procedures. This improves the likelihood of a good
decision. Errors creep in more easily when decisions are made on the basis
of subjective judgment, past experience or rule of thumb rather than on the
basis of a systematic approach.
 OR technique makes it possible to break down a complex large-scale
problem into smaller parts that can be easily diagnosed and manipulated.
 OR techniques permit experimentation to take place without interfering
with actual operations.
Limitations of Operations Research Techniques
 OR projects are costly.
 OR techniques can not be effectively applied in many situations where the
underlying variables cannot be quantified, e.g., involving human qualities
and interpersonal relationships.
 OR analysis cannot be more sound than the information it is based on. If
the records and statistics themselves are far from exact, the analysis based
on them may turn out to be faulty.
Common Models in OR
I. Linear Programming
 Was formulated by a Russian mathematician Shri L.V. Kantorovich.

 Was developed later by George B. Dantzig who developed simplex method in 1947.
 Is a mathematical problem that has the form:
 all variables continuous (i.e. can take fractional values)
 a single objective (maximize or minimize)
 the objective and constraints are linear i.e. any term is either a constant or a
constant multiplied by an unknown (e.g. 24, 4x, 6y are linear terms but xy is a non-
linear term)
 Whenever we take a real-world situation and construct an equivalent mathematical
representation - such a representation is often called a mathematical model of the real-
world situation (and the process by which the model is obtained is called formulating
the model).
 An algorithm (for a particular model) is a set of instructions which, when followed in
a step-by-step fashion, will produce a numerical solution to that model.
 LP's are important - this is because:
 Many practical problems can be formulated as LP's
 There exists an algorithm (called the simplex algorithm) which enables us
to solve LP's numerically relatively easily.
Some of the major application areas to which LP are:
 Production planning
 Product mix& production process smoothing
 Capital budgeting
 Financial planning
 Blending(e.g. Oil refinery management)
 Farm planning
 Distribution (transportation) problems
 Multi-period decision problems
 Inventory model
 Financial models
 Work scheduling
 The common objectives for LP's are to maximize profit/minimize cost.
There are four basic assumptions in LP:
Proportionality
The contribution to the objective function from each decision variable is proportional to
the value of the decision variable. The contribution of each decision variable to the LHS
of each constraint is proportional to the value of the decision variable.
Additivity
 The contribution to the objective function for any decision variable is independent of
the values of the other decision variables.
 The contribution of a decision variable to LHS of each constraint is independent of
the values of other decision variables.
 This implies that the value of objective function is the sum of the contributions from
each decision variables and LHS of each constraint is the sum of the contributions
from each decision variables.
Divisibility
 Each decision variable is allowed to assume fractional values. If we actually can not
produce a fractional number of decision variables, we use Integer Programming (It is
acceptable to produce 1.69 trains)
Certainty
 Each parameter is known with certainty.
 When an LP is solved, one of the following four cases will occur:

1. The LP has a unique optimal solution.
2. The LP has alternative (multiple) optimal solutions. It has more than one
(actually an infinite number of) optimal solutions
3. The LP is infeasible. It has no feasible solutions (The feasible region contains no
points).
4. The LP is unbounded. In the feasible region there are points with arbitrarily large
(in a max problem) objective function values.
Advantages of Linear Programming
1. Analytical Tool: LP facilitates logical organization and study of data. It provides

a better insight into the problem.
2. Alternative solution: LP enables a manager to consider all possible solutions to
the problem.
3. Optimum Solution. With the help of LP, a manager can evaluate the costs and
benefits of different alternatives. He can select the best solution to optimize his
objective.
4. Re-evaluation. LP is helpful in making adjustments in the plan so as to meet
changing conditions. When the plan is partly carried out, adjustments can be
incorporated to achieve best results under changed conditions.
Limitations of Linear Programming
LP is a powerful tool but it is not a panacea for all management problems. It suffers from
the following drawbacks
1. Linear programming can not be applied to all business problems. It is applicable
to only those situations where the objective function and the constraint set is
linear in nature. Many problems do not satisfy the condition of the linearity i.e.,
returns to scale are not constant. In such cases non-linearity programming is
required.
2. Linear programming assumes that the values of the coefficients are known with
certainty. Therefore it can not be applied to those problems where values of
variables are uncertain and unknown.
3. LP does not always give integer value solutions. In many cases, fractional value
answers do not make much sense in reality.
4. In some business situations the number of variables and their relationship are so
large that it becomes almost impossible to handle them with the help of lp. The
reliability of lp is also dependent on the reliability of values assigned to the
variables.
5. LP cannot give a solution where management has multiple goals which are
incompatible and cannot be satisfied simultaneously within the constraints of
available resources. In such cases goal programming has to be used.
Sensitivity Analysis for Linear Programming
Finding the optimal solution to a linear programming model is important, but it is not
the only information available. There is a tremendous amount of sensitivity information,
or information about what happens when data values are changed.
Recall that in order to formulate a problem as a linear program, we had to invoke a
certainty assumption: we had to know what value the data took on, and we made
decisions based on that data. Often this assumption is somewhat dubious: the data
might be unknown, or guessed at, or otherwise inaccurate. How can we determine the
effect on the optimal decisions if the values change? Clearly some numbers in the data
are more important than others. Can we find the important numbers? Can we determine
the effect of misestimation?
Linear programming offers extensive capability for addressing these questions. We
begin by showing how data changes show up in the optimal table. We then give two
examples of how to interpret Solver's extensive output.
1. Tableau Sensitivity Analysis

Suppose we solve a linear program by hand" ending up with an optimal table (or
tableau to use the technical term). We know what an optimal tableau looks like: it has all
non{negative values in Row 0 (which we will often refer to as the cost row), all
non{negative right{hand{side values, and a basis (identity matrix) embedded. To
determine the effect of a change in the data, we will try to determine how that change
effected the final tableau, and try to reform the final tableau accordingly.
1.1 Cost Changes
The first change we will consider is changing a cost value by change in the original
problem. We are given the original problem and an optimal tableau. If we had done
exactly the same calculations beginning with the modified problem, we would have had
the same final tableau except that the corresponding cost entry would be lower (this is
because we never do anything except add or subtract scalar multiples of Rows 1 through
m to other rows; we never add or subtract Row 0 to other rows).
1.2 Right Hand Side Changes
For these types of changes, we concentrate on maximization problems with all
constraints. Other cases are handled similarly.
1.3 New Variable
The shadow prices can be used to determine the effect of a new variable (like a new
product in a production linear program). Suppose that, in formulation a new variable w
has coefficient 4 in the first constraint and 3 in the second. What objective coefficient
must it have to be considered for adding to the basis?
If we look at making w positive, then this is equivalent to decreasing the right hand side
of the first constraint by 4w and the right hand side of the second constraint by 3w in the
original formulation. We obtain the same effect by making s1 = 4w and s2 = 3w. The
overall effect of this is to decrease the objective by __1(4w)+ __2(3w) = 1(4w)+2(3w) =
10w. The objective value must be sufficient to offset this, so the objective coefficient must
be more than 10 (exactly 10 would lead to an alternative optimal solution with no
change in objective).
II. Simulation
This method imitates the real system and provides a laboratory for analysis of
decision problems, which may be too complex to solve by other means. If the
imitation is sufficiently realistic, the manager can infer the behavior of the system
from the observation of behavior of the simulation model. He can easily alter
conditions in the model and infer what the impact of those changes would be on the
system. In this way, he may ask a series of what if questions about the system. For
example, he may ask what should be the size of the orders, and when to reorder, if
the number of units demanded per day, and the lead time is so many days.
Simulation is a method of solving decision making problems by designing,
constructing and manipulating a model of the real system. It involves performing
experiments on a model of a given system. It is a procedure of making decisions
under uncertainty particularly where mathematical formulation of the problem is
not possible. It is designed to tackle business problems where all values of variables
are not known or only partially known in advance and there is no easy way to find
such values.
Simulation may be defined as a quantitative technique that uses a computerized
symbolic model in order to represent actual decision making under uncertainty for
evaluating alternative courses of action based upon facts and assumptions.
Process of simulation
A simulation process consists of the following phases:
1. Define the problem. First of all the decision making problem is clearly defined.
Its elements and interrelationships among them are identified.
2. Construct an appropriate model. A model is a replica of basic data and
interrelationships. It represents a real life problem and describes the system’s
operation.
3. Experimenting with the model. Simple experiments are performed on the model.
The experiments are carried out on the model because experiments on real
system may disrupt the system, may be too expensive or may not at all be
possible. Therefore, simulation is a technique of testing model which represents a
real life situation. It is mathematical experimentation.
4. Evaluate the results. The results of experiments are evaluated and an
appropriate solution is found to the problem.
Elements of simulation
 A simulation model may be considered to be consisting of two basic elements,
namely, data generation and book keeping.
 Data generation involves the simple observations of variables and can be carried out
with the help of the following methods.
1. using the random number tables
2. restoring mechanical devices.
3. using electronic computers
 The book keeping phase of simulation model deals with updating the system when
new events occur, monitoring and recording the system states as they change and
keeping track of quantities of interest, such as idle time and waiting time to compute
the measures of effectiveness.
Advantages of simulation
Simulation is probably the most important technique used in analyzing several complex
problems where analytical methods become inadequate. Many real life systems are so
complicated that it is impossible to transcribe them in mathematical equations or to
solve them even if they could be so formulated. It is possible to simulate in such cases.
The main advantages of simulation technique are as follows:
 Simulation is flexible and straight forward technique. It is easier to apply than
pure analytical methods.
 It can be used to analyse large and complex real world systems that can not be
solved by conventional qualitative techniques.
 It is useful in solving problems where all values of the variables are not known
or partially known in advance and there is no easy way to find these values.
 Simulation may be the only method available when it is difficult to observe the
actual reality.
 It does not interfere with the real world system as experiments are done on the
model and not on the system itself. The effect of using model can be observed
without actually using it in the real system.
 Once the model has been constructed it may be used over and over again to
analyze different situations.
 It can be used to foresee unknown bottlenecks in problems where it is difficult to
predict or identify bottlenecks.
 It can be used to study the interactive effect of individual components or
variables in order to determine which ones are important.
 It is a valuable method of breaking down a complicated system into sub-systems
and then study each of these sub-systems individually or jointly with others.
 Usually data for further analysis can be generated from simulation method.
Limitations of simulation
 Simulation does not generate optimal solutions to problems as do other

quantitative techniques. It is a trial and error approach that may produce
different solutions in repeated runs.
 It does not produce answers by itself. It is ‘run’ rather than solved.
 In very large and complex problems the large number of variables and the
interrelationship between them makes the problem very unwidely and hard to
program.
 It is often a long and very complicated process to develop a model. It is a time
consuming and expensive process because a number of simulation runs are
required to solve a problem.
 Each simulation model is unique and its solutions and inferences are usually
transferable to other problems.
Practical Applications of Simulation

Some of the applications of simulation in real world are given below:
1. Aircraft Scheduling
2. Assembly line scheduling
3. Bank teller scheduling
4. Bus scheduling
5. Telrphone traffic routing
6. Brand selection
7. advertising allocation
8. Locating warehouses
9. Job shop scheduling
10. Library operations design
11. Maintenance scheduling
12. Parking facility design
13. Railroad design
14. Traffic light timing
15. Water resource development
16. Ambulance and fire fighting
17. Testing inventory order policies
18. Manpower hiring decisions
19. Development and evaluation of military systems
20. Design and operation of hospital facilities.
Monte Carlo Technique
 Is the most popular method of simulation.
 Uses random numbers.
 Is employed to solve problems requiring decision making under uncertainty and
where mathematical solution is not possible.
 Follows the following general procedure:
1. Define the problem: this involves defining clearly the objectives of
the system and identifying the variables (constraints) which have maximum effect
on the problem objective.
2. Construct an appropriate model: The model should represent the
real situation.
3. Specify the value of variables to be tested. Supply values for
inputs parameters and measures the output values.
4. Collect the information required and determine the functional
relationships and the types of probability distribution which one to apply.
5. Define a coding system that will correlate the factors identified in
step 1 with the random numbers that will be generated for the simulation.
6. Select a random number generator and the random numbers to be
used in the simulation.
7. Correlate the general Random numbers with the factors
identified in step 1 and 5.
8. Summarize and examine the results in appropriate table.
9. Evaluate the results of the simulation and select best course of
action.
10. Formulate proposals for advice to management on the course of
action to be adopted and modify , if necessary.
III. Network Analysis

 Is one of the most popular techniques used for planning, scheduling, monitoring, and
coordinating large and complex projects comprising a number of activities.
 Involves the development of a network to indicate logical sequences of work content
elements of a complex situation.
 Is concerned with minimizing some measure of performance of the system such as total
completion time for the project, overall cost and so on.
 Involves three basic steps:
1. Defining the job to be done
2. Integrating the elements of the job in a logical time sequence.
3. Controlling the progress of the project.
 by preparing a network of the system, a decision maker can identify:
1. The physical relationship (properties) of the system.
2. The inter-relationships of the system components.
 Is specially suited to project which are not routine or repetitive and which will be
conducted only once or a few times.
 It is the organized application of systematic reasoning for planning, scheduling and
monitoring large and complex projects.
 Network models can be used as an aid in the scheduling of large complex projects that
consist of many activities.
 If the duration of each activity is known with certainty, the Critical Path Method (CPM)
can be used to determine the length of time required to complete a project.
 CPM can also be used to determine how long each activity in the project can be
delayed without delaying the completion of the project.
 It was developed in the late 1950s by researchers at DuPont and Sperry Rand in
USA.
 It is used for optimizing resources allocation and minimizing overall cost for a given
project.
 It uses two time and cost estimates for each activity (one for the normal situation
and other for the crash situation).
 If the duration of activities is not known with certainty, the Program Evaluation and Review
Technique (PERT) can be used to estimate the probability that the project will be completed
by a given deadline.
 PERT was developed in the late 1950s by consultants working on the development
of the Polaris missile in USA.
 Three time estimates are made for each activity-optimistic time, pessimistic time
and normal time.
Optimistic time is the best time that could be expected if everything went
exceptionally well.
Pessimistic time is the worst time that could be expected if every thing
went wrong.
Normal time.
Managerial Application of Network Analysis
 Net work analysis can be applied to a very wide range of situations involving the use of
time, labour, and physical resources.
 Some of the more common applications of network analysis in project scheduling are as
follows:
1. Assembly line scheduling
2. Scheduling construction projects such as buildings, highways, and airports...
3. Long range planning and developing staffing plans.
4. Installation of complex new equipments like computer systems, large machineries…
5. Research and Development
6. Designing and marketing new products
7. Completing corporate mergers
8. Inventory planning and control
9. Building ships
10. Shifting manufacturing plant from one site to another
11. Developing countdown and hold procedure for the launching of space crafts
12. Organization of international conferences
Objectives of Network analysis
Network analysis can be used to serve the following objectives:

1. Minimization of total time: Net work analysis is useful in completing a project
in the minimum possible time.
2. Minimization of total cost: Where the cost of the delay in the completion of a
project exceeds cost of extra effort, it is desirable to complete the project in time so as
to minimize total cost.
3. Minimization of time for a given cost: When a fixed sum is available to cover
costs, it may be preferable to arrange the existing resources so as to reduce the total
time for the project instead of reducing total cost.
4. Minimization of costs for a given total time: When no particular benefit will be
gained from completing the project early, it may be desirable to arrange resources in
such away to give the minimum cost for the project in the set time.
5. Minimization of idle resources: the schedule should be devised to minimize
large fluctuations in the use of limited resources. The cost of having men/machine idle
should be compared with the cost of hiring resources on a temporary basis.
6. Network analysis can also be employed to minimize production delays,
interruptions and conflicts.
Advantages of Network analysis
1. Network analysis is simple and easy to apply even by people without advanced
knowledge of mathematics.
2. It is a powerful tool of planning, scheduling and control. In the planning stage, it
helps to identify the tasks to be performed and the resources required. During
scheduling, by network analysis time and resources needed at each stage of activity
can be calculated. In the monitoring phase, it is useful for measuring the actual
against the planned performance.
3. Network analysis shows in a simple way the interrelationship of the various
activities constituting a project or a program. This helps in bringing out clearly the
technological interdependence of various activities and so in integrating the project
plan.
4. It helps the management to think systematically through the project ensuring that
the sequence requirements are adequate and necessary. It also forces the
management to prepare time estimates for individual portions of the total project.
This inturn helps to identify the possible improvements in these portions or in their
relationship to the whole project.
5. It reveals the critical path or the series of activities that require longest time. When it
is necessary to reduce the project completion time, the network method can identify
those activities for which extra effort would not be beneficial. Extra time can be taken
for some of these without lengthening the total project time.
6. It develops a discipline and systematic approach in planning and scheduling which
is not accomplished to this extent by older and traditional method.
7. It identifies the earliest possible starting date and latest allowable completion date
for each activity.
8. It provides a comprehensive view of the project and brings about better
communication and coordination between the concerned departments.
9. It facilitates control by exception whereby management need act only when the
situation is out of control.
10. It focuses attention on the critical elements of the project and suggests areas for
increasing efficiency and reducing costs.
11. It provides uptodate information on the progress of the project through frequent
reporting and accurate analysis.
12. It lends itself easily to computers. Several computer manufacturers provide standard
packages of network analysis routines to their requirements.
13. Useful at several stages of project management
14. Straightforward in concept, not mathematically complex
15. Uses graphical displays employing networks to help user perceive relationships
among project activities
16. Critical path and slack time analyses help pinpoint activities that need to be closely
watched
17. Networks generated provide valuable project documentation and graphically point
out who is responsible for various project activities
18. Applicable to a wide variety of projects and industries
19. Useful in monitoring not only schedules, but costs as well
Limitations of Network Analysis
1. It is very often difficult, if not impossible, to construct an accurate network for complex
projects. In real world projects interrelationships between activities and events are not
clearcut and precise.
2. It is based on the assumption that all the resources required to perform any number of
activities simultaneously available. In reality, resources are very often limited and less
than those needed for the network.
3. What may appear to be a non critical path in the network of a project may actually be a
semi-critical path. In such cases it is quite easy for delays to occur causing the path to
become truly critical even though network does not show it critical.
4. Several complexities are involved in calculating the project duration in the form of
alternative critical paths, compression and relaxation occurring simultaneously and
critical activities changing to non-critical ones.
5. Project networks involve a large number of activities and it is very difficult to calculate
valid time estimates for them. This problem applies especially to PERT analysis where
three time estimates are required for each and every activity.
6. When the network has hundreds of activities use of computer becomes necessary.
Network analysis becomes an expensive exercise.
7. Project activities must be clearly defined, independent, and stable in their relationships.
8. Precedence relationships must be specified and networked together.
9. Time activities in PERT are assumed to follow the beta probability distribution -- must
be verified
10. Time estimates tend to be subjective, and are subject to fudging by managers.
11. There is inherent danger in too much emphasis being placed on the critical path
Six Steps Common to CPM/PERT
1. Define the project and all significant activities.

2. Develop relationships among the activities. Identify precedence
relationships.
3. Draw the network.
4. Assign time and/or cost estimates to each activity.
5. Compute the longest time path (critical path) through the network.
6. Use the network to help plan, schedule, monitor, and control the project.
Questions Addressed by CPM/PERT
When will the project be completed?

What are the critical activities or tasks in the project?
Which are the non-critical activities?
What is the probability that the project will be completed by a
specific date?
Is the project on schedule, ahead of schedule, or behind
schedule?
Is the project over or under the budgeted amount?
Are there enough resources available to finish the project on
time?
If the project must be finished in less than the scheduled amount
of time, what is the best way to accomplish this at least cost?
Utilization of CPM/PERT
To apply CPM or PERT, we need a list of activities that make up the project.
The project is considered to be completed when all activities have been completed.
For each activity there is a set of activities (called the predecessors of the activity) that must be
completed before the activity begins.
A project network (project diagram) is used to represent the precedence relationships between
activities .AOA representation of a project
Given a list of activities and predecessors, an AOA representation of a project can be

constructed by using the following rules.
• Node 1 represents the start of the project. An arc should lead from node 1 to represent each
activity that has no predecessors.
• A node (called the finish node) representing the completion of the project should be included
in the network.
• Number the nodes in the network so that the node representing the completion time of an
activity always has a larger number than the node representing the beginning of an activity.
• An activity should not be represented by more than one arc in the network
• Two nodes can be connected by at most one arc.

To avoid violating last two rules, it can be sometimes necessary to utilize a dummy activity that
takes zero time.
Advantages of CPM
1. It highlights the critical activities on which management should focus attention to
reduce project completion time.
2. It helps management in diverting resources from non-critical to critical activities. In
other words, it facilitates optimum utilization of resources.
3. It provides a technique of planning and scheduling project. Scheduling helps to
determine completion date and to evaluate progress towards the completion of the
project.
4. It gives complete information about the significance, size, duration and performance of
an activity.
5. It helps to identify potential bottlenecks and to avoid unnecessary pressure on the paths
that will not result in earlier completion of the project.
6. It helps to identify the sequence of jobs that determine the earlier completion date for the
project.
Limitations of CPM
1. It operates on the assumption that there is a precise known time that each activity in the
project will take. But this may not be true in real situations.
2. CPM does not incorporate statistical analysis in determining time estimates.
3. Each time changes are introduced into network the entire evaluation of the project has to
be repeated and a new critical path has to be determined.
4. It is not suitable for situation which does not have definite start and definite finish.
5. It tends to produce exceptionally good results on the CPM Planned jobs which is not
possible to reproduce on later jobs.
6. It is not a panacea for all ills. It can not by itself solve a problem. It only facilitates a
thorough examination of the problem and alternative solutions for it.
Advantages of PERT
1. It focuses managers to plan carefully and study how the various parts fit into the
whole project. It forces planning all down the line because each subordinate
manager plans the event. It enables management to predict time and cost of a project
in advance.
2. It focuses attention on critical or bottle neck elements of the project so that a manger
may either allocate resources to them or keep a careful watch on them as the project
progress. It permits control by exception and better management of resources.
3. It provides a forward looking type of control or a feed forward control.
4. It provides an uptodate information on the progress of the project so that the
necessary steps may be taken.
5. It helps in coordinating different parts of the project so as to achieve completion of
the project in time.
Limitations of PERT
1. It is based on time estimates rather than known time for each activity. There may
be errors in time estimates due to human bias.
2. It emphasis on time not costs.
3. It is not practicable for routine planning of recurring activities. It is useful in
complex projects consisting of numerous activities which are independent of
each other and whose completion times are uncertain.
4. Time estimates to perform activities constitute a major limitation of PERT.
5. Probabilities are calculated on the assumption that a large number of
independent activities operate on critical path and as such the distribution of
total time is normal. This assumption may not be true in real life situations.
Distinction between CPM and PERT

1. CPM is used for repetitive jobs like planning the construction of house. On
the other hand, PERT is used for non-repetitive jobs like planning the
assembly of the space platform.
2. PERT is a probabilistic model with uncertainty in activity duration. Multiple
time estimates are made to calculate the probability of completing the project
within scheduled time. On the contrary, CPM is deterministic model with
well known activity times based upon past experience. It, therefore does not
deal with uncertainty in project duration.
3. PERT analysis does not usually consider costs in a direct manner. But CPM
directly deals with cost of project schedules and their minimization. The
concept of crashing is applied to CPM models. Thus, CPM is more explicit
about cost-time relationship. In CPM network cost is assigned to each
activity.
4. PERT incorporates statistical analysis and thereby enables the determination
of probabilities concerning the time by which each activity and the entire
project would be completed. On the other hand, CPM does not incorporate
statistical analysis in determining time estimates because time is precise and
known.
IV. Forecasting
Forecasting is a technique of anticipating future problems and events. It involves making a
detailed analysis of the past and present to get an idea about probable events in the future.
Forecasting includes both assessing the future and making provision for it.
Forecasting is the process of estimating the relevant events in future, based on the analysis of
the past and present behaviour.
Business forecasting refers to the statistical analysis of the past and current movement in the
given time series so as to obtain clues about the future pattern of those movements.
Features of Forecasting:
1. It relates to future events. This is needed for planning process because it devises future
course of action.
2. It defines the probability of happening of future events. Therefore, happening of future
events can be precise only to a certain extent.
3. It is made by analyzing the past and present relevant events that is taking those factors
which are relevant for the functioning of an organization.
4. The analysis of various factors may require the use of various statistical tools and
techniques. However, personal observations can also help in the process.
Difference between planning and Forecasting
1. Planning commits individuals to certain goals. It also calls for some activity to achieve
the planned goals. Forecasting does not commit individuals to any goals nor does it
stimulate any activity among them (except when the forecast is pessimistic).
2. Planning is done with the help of forecasting which provides assumptions about the
future environment of a plan. Forecasts made about the kind of markets, quantity of
sales, prices, products, technical development, costs, wage rates, tax rates, political and
social environment and similar other matters, become premises for the future.
Forecasting is thus only a tool of planning.
3. Planning is done by every manager. It is all pervading. Forecasting is not done by every
manager. It is almost undertaken by staff people.
Importance of Forecasting
The need and importance of forecasting is apparent from the key role it plays in management
process, particularly in planning process. Infact, every decision in the organization is based on
some sort of forecasting. It helps the management in the following ways:
1. Makes planning possible. Forecasting is the very basis of planning and without it,
planning is an impossibility. The most important use of forecast is as premise for
planning. Short and long-range planning within the enterprise requires estimation of
prospective changes in economic conditions and in the general environment in which
the business operates. Forecasting awakens the management against business cycles,
minimizes risks and reveals management’s weaknesses, if any, to face the future.
2. Ensures Coordination. As forecasting involves a joint effort of all departments in the
concern, it creates team sprit, unit and coordination in the efforts of the subordinates. By
focusing attention on the future, it assists in bringing a singleness of purpose of
planning.
3. Facilitates Control. Forecasting helps in exercising control. The key executives, by
mutually developing the forecast, automatically assume co-responsibility and individual
accountability for such later deviation of the actual from the estimated result as may
occur. Not only this, a good forecast becomes the basis for good budget- a widely used
device for managerial control.
Limitations of Forecasting
1. Based on Assumption. Forecasting is based on some assumptions. It merely suggests
that if an event has happened this way in the past, it will happen that way in the future.
The basic assumption behind this is that events do not change haphazardly and speedily
but change on a regular pattern. This assumption may not hold good. In fact there are
various factors which go into determining the occurrence of an event.
2. Not Absolute Truth. Forecasts are not always true, they merely indicate the trend of
future happenings. This is so because the factors which are taken into account for
making forecast are affectd by human factor which is highly unpredictable. More is the
period of the forecast, higher is the degree of going mistaken. Therefore, the only thing
you can be sure about any forecast is that it will contain some error.
3. Time and Cost Factor. Time and cost factor is also an important aspect of forecasting.
Time and cost factor suggests the degree to which an organization will go for formal
forecasting. For making forecast of any event, certain information and data are required.
Some of these may be in highly disorganized form; some may be in qualitative form. The
collection of these information and converting into quantitative data requires a lot of
time and money.
Steps in Forecasting
1. Developing Groundwork for Forecasting
2. Estimating Future Business
3. Comparing actual and Projected Results
4. Refining the forecasting process
Forecasting Techniques
There are basically two broad categories of forecasting techniques. These are:
1. Qualitative Forecasting Techniques
 These are primarily based upon judgment and intuition about the environment.
 They are used especially when sufficient quantitative information and data is not available
so that complex quantitative techniques cannot be used.
 Under certain situations, qualitative judgment about the future is more reliable than
quantitative conclusions because the qualitative methods are based on the analysis of the
past data and its trends which may or may not remain the same. Secondly, quantitative
techniques follow a certain pattern and do not provide for accommodating any unexpected
occurrences.
 Some of the widely used qualitative approaches to forecasting are:
a) Jury of Executive Opinion: this is the method by which the relevant opinions of
experts are taken, combined and averaged.
b) Opinions of sales persons/sales force composite: this approach involves the opinions
of the sales force and these opinions are primarily taken into consideration for
forecasting future sales.
c) Consumer expectations: this method involves a survey of the customers as to their
future needs. This method is especially useful where the industry serves a limited
market.
d) The Delphi method: This method originally developed by Rand Corporation in 1969
to forecast military events, has become a useful tool for other areas also. It is basically a
more formal version of jury of executive opinion method. A panel of experts are given
a situation and asked to make initial predictions about it. On the basis of the
prescribed questionnaire, these experts develop a written opinion. These responses are
analyzed and summarized by a central coordinator and submitted back to the panel
for further consideration, evaluation and refinement. This process is repeated until
consensus is obtained. This method is very useful where either the past patterns are
not available or where the past data is not indicative of future events and the issues are
general in nature.
2. Quantitative Forecasting Techniques
 Involve mathematical and statistical analysis of data banks, which is primarily the
information related to past activities.
 Are fairly sophisticated and require experts in the field to use them.
 The major disadvantage of using quantitative techniques is that the conclusions derived
from quantitative methods are only as good as the assumptions and judgments made
about the variables that are out into the model. Faulty assumptions will yield inaccurate
results.
Decision Theory
Decision making can be defined as the process of choosing between alternatives to achieve a
goal.
Decision making is a conscious human process involving both individual and social phenomenon
based upon factual and value premises which concludes with a choice of one behavioral activity
from among one or more alternatives with the intention of moving toward some desired state of
affairs.
Decision making process
1. Identification of Alternatives
Three means for generating alternatives are particularly well-known. These are brainstorming,
synectics, and nominal grouping.
2. Evaluation of Alternatives
OR techniques like pay-off matrix, decision trees, queuing theory, linear programming,
simulation, etc. will help you in your task of evaluation of alternatives.
3. Selection of an Alternative
Organizational objectives, Resource constraints and political considerations are examples of
confounding factors which must be carefully weighed. At this point, sound judgment and
experience play important roles.
4. Implementation of Decision
PROGRAMMED AND NON PROGRAMMED DECISIONS
 The difference between Programmed (routine, repetitive) decisions and Non-programmed

(unique, one-shot) decisions is:
 While programmed decisions are typically handled through structured or bureaucratic
techniques (standard operating procedures), non-programmed decisions must be made by
managers using available information and their own judgment. As is often the case with
managers, however, decisions are made under the pressure of time.
 An important principle of organization design that relates to managerial decision making is
Gresham's Law of Planning. This law states that there is a general tendency for
programmed activities to overshadow non-programmed activities.
 Hence, if you have a series of decisions to make, those that are more routine and
repetitive will tend to be made before the ones that are unique and require considerable
thought. This happens presumably because you attempt to clear your desk so that you can
get down to the really serious decisions. Unfortunately, the desks very often never get
cleared.
DECISION MAKING CONDITIONS (UNDER DIFFERENT STATES OF NATURE)

 A decision-maker may not have complete knowledge about decision alternatives (i.e.,
High Problem, Complexity) or about the outcome of a chosen, alternative (i.e., High Outcome
Uncertainty).
 These conditions of knowledge are often referred to as states of nature and have been
labelled:
 Decisions under Certainty.
 Decisions Under Risk
 Decisions under Uncertainty
Figure Depicts these three conditions on a continuum showing the relationship between
knowledge and predictability of decision states.
Figure IV Decision Making Conditions Continuum

Certainty Risk uncertainty
Decision making under certainty:

 A decision is made under conditions of certainty when a manager knows the precise
outcome associated with each possible alternative or course of action.
 In such situations, there is perfect knowledge about alternatives and their consequences.
 Exact results are known in advance with complete (100 per cent) certainty. The probability
of specific outcomes is assumed to be equal to one.
 A manager is simply faced with identifying the consequences of available alternatives and
selecting the outcome with the highest benefit or payoff.
 In practice, managers rarely operate under conditions of certainty. The future is only
barely known.
Decision making under risk:

 A decision is made under conditions of risk when a single action may result in more than
one potential outcome, but the relative probability of each outcome is known.
 Decisions under conditions of risk are perhaps the most common.
 In such situations, alternatives are recognized, but their resulting consequences are
probabilistic and doubtful.
 While the alternatives are clear, the consequence is probabilistic and doubtful. Thus, a
condition of risk may be said to exist.
 In practice, managers assess the likelihood of various outcomes occurring based on past
experience, research, and other information.
 A quality control inspector, for example, might determine the probability of number of
`rejects' per production run.
Decision making under uncertainty:

 A decision is made under conditions of uncertainty when a single action may result in
more than one potential outcome, but the relative probability of each outcome is
unknown.
 Decisions under conditions of uncertainty are unquestionably the most difficult.
 In such situations a manager has no knowledge whatsoever on which to estimate the
likely occurrence of various alternatives.
 Decisions under uncertainty generally occur in cases where no historical data are available
from which to infer probabilities or in instances which are so novel and complex that it is
impossible to make comparative judgments.
 Selection of a new advertising program from among several alternatives might be one
such example.
 Under such conditions, a number of different decision criteria have been proposed as
possible bases for decision making. These are as follows:
1. Maximizing the maximum possible payoffs-the maximax criterion(optimistic)
2. Maximizing the minimum possible payoff-the maximin criterion(pessimistic)
3. Minimising the maximum possible regret to the decision maker-minmax
criterion(regret)
4. Assuming equally likely probabilities for the occurrence of each possible state
of nature-the insufficient criteria(insufficient reasoning).
 Maximaxi Criterion. This decision criterion is applied by the most optimist decision
maker when he thinks optimistically about the occurrence of events influencing a decision.
If this philosophy is followed, the manager will select that alternative under which it is
possible to receive the most favorable payoff. However, it is dangerous to employ this
criterion because it ignores possible losses and chances of making or not making a profit.
 Maximin criteria. As against maximaxi criterion, maximin criterion is adopted by the most
pessimistic decision maker. The manager believes that worst possible may occur. The
pessimism results in the selection of that alternative which maximizes the least favorable
payoff.
 Minmax Criterion. This criterion leads to the minimization of regret. The managerial
regret is defined as the payoff for each alternative under every state of nature of
competitive action subtracted from the most favorable payoff that is possible with the
occurrence of the particular event.
Models of Decision Making Process

 There are three suggested models of the decision making process which is about how
decisions are made and should be made.
 Each model differs on the assumptions it makes about the person or persons making the
decision
 These three models are:
The econologic model, or the economic man,
The bounded rationality model or the administrative man; and
The implicit favorite model or the gameman.
I. Econologic Model or Economic Man Model

 The econologic model represents the earliest attempt to model decision process.
 Briefly, this model rests on two assumptions:
1. It assumes people are economically rational; and
2. That people attempt to maximize outcomes in an orderly and sequential
process.
 Economic rationality, a, basic concept in many models of decision making, exists when
people attempt to maximize objectively measured advantage, such as money or units of
goods produced.
 That is, it is assumed that people will select the decision or course of action that has the
greatest advantage or payoff from among the many alternatives.
 It is also assumed that they go about this search in a planned, orderly, and logical fashion.
 The economic man model represents a useful prescription of how decisions should be
made, but it does not adequately portray how decisions are actually made. But the human
mind is simply incapable of executing such transactions at the level and magnitude
required for complex decisions. To that extent, this model is unrealistic. However, due to
the advent of sophisticated data storage, retrieval and processing machines, it is now
possible to achieve economic rationality to some extent.
II. Bounded Rationality Model or Administrative Man Model
 The bounded rationality model, also known as the administrative man model.
 As the name implies, this model does not assume individual rationality in the decision
process. Instead, it assumes that people, while they may seek the best solution, usually
settle for much less because the decisions they confront typically demand greater
information processing capabilities than they possess. They seek a kind of bounded (for
limited) rationality in decisions.
 The concept of bounded rationality attempts to describe decision processes in terms of three
mechanisms:
Sequential attention to alternative solutions: People examine possible solutions to
a problem sequentially. Instead of identifying all possible solutions and selecting the
best (as suggested in the econologic model), the various alternatives are identified and
evaluated one at a time. If the first solution fails to work it is discarded and the next
solution is considered. When an acceptable (that is, `Good enough' and not
necessarily the best') solution is found, the search is discontinued.
Use of heuristics: A heuristic is a rule which guides the search for alternatives into
areas that have a high probability for yielding satisfactory solutions. For instance,
some companies continually select management graduates from certain institutions
because in the past such graduates have performed well for the company. According
to the bounded rationality model, decision makers use heuristics to reduce large
problems to manageable proportions so that decisions can be made rapidly. They look
for obvious solutions or previous solutions that worked in similar situations.
Satisfying: Whereas the econologic model focuses on the decision maker as an
optimiser, this model sees him or her as a satisficer. An alternative is optimal if: (1)
there exist a set of criteria that permits all alternatives to be compared; and (2) the
alternative in question is preferred, by these criteria, to all other alternatives. An
alternative is satisfactory if: (1) there exists a set of criteria that describes minimally
satisfactory alternatives; and (2) the alternative in question meets or exceeds all these
criteria.
 As can be seen, this decision process is quite different from the econologic model. In it we
do not seek the best solution; instead, we look for a solution that is acceptable. The search
behaviour is sequential in nature (evaluating one or two solutions at a time). Finally, in
contrast to the. prescriptive econologic model, it is claimed that the bounded rationality
model is descriptive; that is it describes how decision makers actually arrive at the
identification of solutions to organisational problems.
III. Implicit Favourite Model or Gamesman Model

 This model deals primarily with non-programmed decisions.
 Non-programmed decisions are decisions that are novel or unstructured. Programmed
decisions, in contrast, are more routine or repetitious in nature.
 The implicit favourite model developed by Soelberg (1967) emerged when he observed the
job choice process of graduating business students and noted that, in many cases, the
students identified implicit favourites very early in the recruiting and choice process.
However, they continued their search for additional alternatives and quickly selected the
best alternative candidate, known as the confirmation candidate. Next, the students
attempted to develop decision rules the demonstrated unequivocally that the implicit
favourite was superior to the alternative confirmation candidate. This was done through
perceptual distortion of information about the two alternatives and through weighing
systems designed to highlight the positive features of the implicit favourite. Finally, after a
decision rule was derived that clearly favoured the implicit favourite, the decision was
announced ironically.
CHAPTER 4
Business Environment
1. Environment Defined
 Business environment consists of all those factors that have a bearing on a business.
 Organizations are viewed as open and consequently, adaptive systems struggling to
perform and survive in a larger context. This view brings the importance of studying
environmental so as to manage the organization.
 The survival and success of a firm depends on the way of managing two sets of
environmental factors, viz., the internal factors ( the internal environment) and the external
factor( the external environment).
 The external environment has broadly two components, viz., business opportunities and
threats to business.
 Similarly the organizational environment (internal) has two components; strengths and
weaknesses of the organization.
 Business decisions are conditioned by the two broad sets of factors just mentioned.
2. Types of Organizational Environment

 On the basis of extent of intimacy with the firm the environmental factors may be classified
in to different types or levels.
 There are, broadly, two types of environment, the internal environment i.e., factors internal
to the firm and external environment, i.e., factors external to the firm which have relevant
to it.
2.1. External Environment
 Consists of a macro and micro environment.
 Are beyond the control of a company and hence generally regarded as uncontrollable
factors.
 Some of the external factors have a direct and intimate impact on the firm. These factors
are classified as micro environment, also known task environment and operating
environment.
 Other external factors which affect an industry very generally (such as industrial policy,
demographic factors etc) constitute macro environment also known as general
environment or remote environment.
2.1.1. GENERAL ENVIRONMENT /MACRO ENVIRONMENT/REMOTE ENVIRONMENT

 The general environment is that level of an organization’s external environment made up
of components that are normally broad in scope and have little immediate application on
managing an organization.
 A company and the forces in its micro environment operate in a large macro environment
of forces that shape opportunities and pose threats to the company.
 Are generally more uncontrollable than the micro forces.
 When the macro environment is uncontrollable, the success of a company depends on its
adaptability to the environment.
 Include
Economic environment
Political and legal environment
Social /cultural environment
Demographic environment
Technological environment
Natural environment
Global environment
2.1.1.1. Economic Environment

 The economic component of the general environment indicates how resources are
distributed and used within the environments.
 Business fortunes and strategies are influenced by the economic characteristics and
economic policy dimensions.
 The economic environment includes
a) The structure and nature of the economy
b) The stage of development of the economy
c) Economic resources
d) The level of income
e) The distribution of income and assets
f) Global economic linkages
g) Economic policies
a) Nature of the Economy
 The general level of development of the economy has lot of implications for business-it has
significant bearings on the nature and size of demand, government policies affecting
business etc
 Countries and even different regions within a country, show great differences in the level
and pattern of economic development.
 A widely used method of classification of the economies is based on the basis of the per
capita income (i.e., the average annual income per person).
 Accordingly, countries are broadly classified as low income, middle income and high
income economies.
I. Low income Countries
 Sometimes called 3rd world countries.
 Are countries with very low level per capita income.
 Less than $755 percapita Gross National Product
 63 low income countries exist.
II. The middle Income Economies
 Sometimes called 2nd world countries.
 Are subdivided into:
 Low middle income countries
 Countries having per capita gross national production between $756 to $2995.
 54 countries fall in this category.
 Upper middle income countries
 Countries with percapita gross national product of $ 2996 to $9265.
III. High income Countries
 Sometimes called 1st world.
 Are countries with very rich income percapita i.e., greater than $9226 per capita gross
national product.
 Can be recategorized as:
I. Industrial countries
II. Oil exporters
 Difference in the income levels between countries is not a true reflection of the the
purchasing power or living standard of people.
 According to the World bank Development Report 2002(for the year 2000 countries
comparison based on GNP is USA, Japan, Germany, UK and France occupy the first top
five consecutively.
 In general developed countries are conducive for business undertaking as they are
characterized by
 Wide spread use of modern and sophisticated technology
 Continuous innovation
 Fast diffusion of new ideas and technologies
 Low share of the primary sector mainly agriculture
 Dominance of the service sector seconded by manufacturing
 Market friendly economic policies
 Democratic rights
 Competition
 Consumer choice
 In developing economies the inequality in the income distribution is very high and as a
result a large proportion of the population lives in object poverty. They are characterized
by high birth and death rates and high population growth rates.
 In developing countries low income may be the reason for low demand for products.
 In countries where investment and income are steadily and rapidly rising, business
prospects are generally bright, and further investments are encouraged.
 In developed economies, replacement demand accounts for a considerable part of the total
demand for many consumer durables whereas the replacement demand is negligible in
the developing economies.
b) Structure of the Economy
 The structure of the economy- factors such as contribution of different sectors like
primary(mostly agriculture), secondary(industrial) and tertiary(service sector), large
medium and tiny sectors to the economy, and their linkages, integration with the world
economy etc-are important to business because these factors indicate the prospects for
different types of business, certain factors which affect the business etc.
 Normally, as an economy develops the share of the primary sector in the GDP and
employment declines and those of the other sectors increase. After certain stage the share
of the manufacturing sector may also decline.
 In most of the countries the service sector is the largest and fastest growing sector. The
service sector now contributes more than 60% of the world GDP.
 The nature of each sector has business implications.
 The tremendous growth of trade in service and more recently, of electronic commerce, is
part of a new trade pattern.
c) Economic Policies
 There are several economic policies which can have a great impact on business
 The important economic policies are:
 Industrial policy
 Trade policy
 Foreign exchange policy
 Monetary policy
 Fiscal policy
 Foreign investment policy
 Technology policy
 Some types or categories of business are favourably affected by government economic
policy, some adversely affected, while it is neutral for others.
Industrial Policy
 Defines the scope and role of different sectors like private, public, joint and cooperative or
large , medium, small, tiny.
 Influences the location of industrial undertakings, choice of technology, scale of operation,
product mix and so on.
Trade Policy
 Can significantly affect the fortunes of firms.
 Is always integrated with industrial policy.
 Examples include: restrictive import policy, liberalization of the import policy , policy for
protecting the domestic industries…
Foreign Exchange Policy
 Exchange rate policy and the policy in respect of cross boarder movement of capital are
important for business.
 The abolition/liberalization of exchange controls around the world since the late 1970s has
encouraged cross boarder movement of capital for example.
Foreign investment and Technology Policy
 Restrictions on foreign capital and technology constrain not only the foreign firms but also
the domestic firms because it may come in their way of acquiring the technology of their
choice from the best source.
 Restriction on foreign capital may affect the growth plans of firms, including
establishment of joint ventures.
 A liberal foreign investment and technology policy will increase domestic competition and
would put many domestic firms, which shielded from foreign competition, into
problems. At the same time it would benefit many more domestic firms permitting global
sourcing of capital and technology, by increasing the quantity and quality of domestic
supply of many goods and services.
Fiscal policy
 Government strategy in respect of public expenditure and revenue can have significant
impact on business.
 The pattern of public expenditure may affect the development of various regions, sectors
and industries differently.
 Such is the case in taxation policy.
Monetary Policy
 The central bank, by its policy towards the cost and availability of credit can significantly
influence the savings, investments and consumer spending in the economy.
 Depending on the conditions of the economy and general economic policy of the
government, the central bank may adopt an expansionary or contrictionary or neutral
monetary policy.
 Monetary policy may also be pressed into action to influence the exchange rate of the
currency.
d) Economic Conditions
 General economic condition affects business.
 Economy pass through periods of boom and recession.
 Boom is characterized by high level of output, employment and rising demand and prices.
 A recession has the opposite of these characteristics.
 A particular economic condition may be widespread- internationally or nationally-or may
be confined to a region.
 The current account and balance of payment position of a country can significantly
influences certain economic policies and business environment. For example a sustained
current account surplus may encourage the government to liberalize imports and capital
movement.
 Exports and imports of a country are generally affected by a number of domestic and
international economic condition.
2.1.1.2. Social Environment

 Business is an integral part of the social system and it is influenced by other elements of
society which inturn is affected by the business.
 Traditionally the term business commonly referred to commercial activities aimed at
making profit or to organizations formed to make a profit.
 The modern outlook, however, is different. For it profit is only secondary. There are,
moreover, many organizations, both private and public, which do not aim at profit from
their business.
 The social component of the general environment describes characteristics of the society in
which the organization exists.
 Literacy rates, educational levels, customs, beliefs, values, life-styles, age, geographic
distribution, and mobility of a population are part of the social component of the general
environment. Furthermore, it includes: expectations of the society from the business;
attitudes of the society towards business and its management; views towards
achievement of work; views towards authority structure, responsibility and
organizational positions; views towards customs, tradition and conventions; class
structure and labour mobility; and level of education.
 It is important for managers to remember that although change in the attributes of a
society may come either slowly or quickly, changes will inevitably come.
 Social variables are divided into three categories: (a) demographics, (b) lifestyle, and (c)
social values.
 Demographic and lifestyle changes affect the composition, location, and expectations of an
organization’s labor supply and customers.
 Social values underline all other social, political, technological, and economic changes and
determine all the choice people make in life.
Demographics:
 The demographics, or makeup, of the population is undergoing major changes since
World War II. For example ,in US although the population as a whole is growing slowly,
some segments of the population, such as Hispanics and Blacks, are growing much faster
than others. In fact, organizations are increasingly reflective of these demographics.
 From 1983 to 1993 the percentage of male, white professionals and managers in the
workforce declined from 55 percent to 47 percent, while for white women, the percentage
increased from 37 percent to 42 percent.
 According to the US Labor Department, through the year 2005 half of all labor force
entrants will be women and more than one-third will be Hispanics, African American,
and other races.
 By 2010 the average life expectancy for men will be 74.4 years, as opposed to just 53.6 years
in 1920.
 There have also been dramatic shifts in age structure-that is, the relative sizes of different
age groups.
 Why are these changes so important to managers?
 First, they affect the size of the labor supply. In recent years, for example, the relatively
small number of teenagers has forced fast-food restaurants and other traditional
employers of teenagers turn to retirees and women with families who want to reenter the
workforce to fill their part-time jobs.
 Second, changes in the makeup of the population create social issues that affect managers.
Today, for example, many employees are finding themselves - caught between the
demands of caring for their own children and the need to help their aging parents. As a
result. many major corporation, including IBM, Johnson & Johnson, and Mobil, have set
up special programs to help their employees deal with elder care. Third, demographics
shape the markets for many products.
Lifestyles
 Lifestyles are the outward manifestations of people’s attitudes and values.
 In recent decades, change rather than stability has characterized Americans’ lifestyles. For
example, “traditional” families account for a shrinking proportion of US households.
Fewer and fewer US families include married couples, and households consisting of
single adults and one-parent families are becoming more numerous.
Social Values
 In recent years, changing social values have affected our commitment to equality of
opportunity and the regulation of industry, altered our assessments of the costs and
benefits of new technology such as life-support systems for the seriously ill, and increased
the social and economic expectations of consumers, women, and minorities.
 More important for managers is the way in which values affect our attitudes toward
organizations and work itself. For example, employee participation in managerial
decision making was once seen as simply a means of improving worker morale and
productivity; now it is regarded by some observers as an ethical imperative.
 Naturally, social values vary from one country to another. In Japan, for example, where
many employees work for the same company all their lives, low-level-workers participate
in policy and decision making more freely than American workers do. French
organizations, which operate in a society where relationships are somewhat formal, tend
to be more rigidly structured than their American and Japanese counterparts. In
Germany, where worker and union rights are guaranteed by law, employees are known
as “social partners”. Strong unions are involved at all levels of business from the local
plants to the board rooms.
 In general these various elements of socio-cultural environment affect the working of the
organizations mainly in three ways:
a. Organizational objective setting
b. Organizational process
c. Products to be offered by the organization.
2.1.1.3. Political-legal environment
 Political-legal environment is an important element particularly in a mixed economy. This
performs two roles: promoting and restraining.
 The promoting role of political and legal environment includes the stimulation of business
through the provision of various facilities and incentives, protecting the market, taking
direct roles in the development of the business and purchasing from business
organizations
 The political legal environment, however, works as restraining force by limiting the scope
of business operations.
 Government plays a very active role in all economies of, including the market economies,
albeit, the extent and nature of government intervention vary widely between nations.
 The political-legal component of the general environment comprises those elements that
are related to governmental affairs. Examples include the type of government in
existence, governmental attitude toward various industries, lobbying efforts by interest
groups, progress toward the passage of laws, platforms of political parties, government
intervention in industry as an entrepreneur, government intervention in natural resource
management, Public interest groups.
 Political legal environment depends on:
1. Political stability, like impact of changes in the form and structure of governmental
administration, civil war, declaration of emergency, etc.
2. Political organizations like political parties and their ideology, degree and extent of the
bureaucratic delays, red tape etc.
3. Defense and military policy, like impact of defense policy on industrial development,
expenditure on defense etc
4. Legal rules of the game of the business-their formulation, implementation, efficiency
and effectiveness.
 Function of the government varies from basic minimum requirements to active
participation in several other sectors.
 The function of the government may be classified along the continuum, from activities
that will not be taken at all without state intervention to activities in which the state plays
an active role in coordinating markets or redistributing assets.
 The basic functions include the pure public goods such as the provision of property rights,
macroeconomic stability, control of infectious diseases, safe water, roads and protection
of the destitute.
 Going beyond these basic services are the intermediate functions such as:
 management of externalities
 regulations of monopolies
 Provision of social insurance (pensions, un-employment benefits).
 Some of the political-legal environment variables:
 Government regulations or deregulation
 Change in tax laws
 Special tariffs
 Political actions committees
 Voter participation rates
 Number of patents
 Environmetal protection laws
 Level of government subsides
 Antitrust legislation
Taxes Laws and
order
Voluntary
Programs Inspection and
licensing
Information G Money &credit
O B
B V Competition U
U Government E S
I Services R I
N M Growth N
E E E
S Contracts N Tariffs &quota S
S T S
Infrastructure
Political Information
Activity
Technology
Fig. The relationship between business and government

2.1.1.4. Technological Environment
 Technological environment is important for business as it affects the type of
conversion process that it may adopt for its purpose.
 The technological environment refers to the sum total of knowledge providing
ways to do things.
 The technological component of the general environment includes new approaches
to producing goods and services: new procedures as well as new equipment.
 It may include inventions and techniques which affect the ways of doing things,
that is designing, producing, and, distributing products.
 A given technology affects an organization in the way it is organized and faces
competition.
 The strategic implications of technological environment are as follows:
1. it can change relative competitive cost positions within a business.
2. it can create new markets and new business segments; and
3. it can collapse or merge previously independent businesses by
reducing or eliminating their segmental cost barriers.
 The level of technology in a society or a particular industry determines to a large

extent what products and services will be managed.
 By helping to finance basic research conducted in other countries, Japanese
companies gain access to technological breakthroughs outside their country, in
effect augmenting their research efforts while freeing their own resources for
perfecting products that have the best chance of dominating markets around the
world.

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Advanced Management Theory

ADVANCED MANAGEMENT THEORIES (Paper I)

1. Why Parkinson’s Law frequently quoted in management parlence (2009-I).

25. Discuss three important theories of motivation. (200 Unknown)

Meaning, Functions and Nature of Management

Effective and Goals

The Functions of Management

6. Reporting (R) and

Koontz and O'Donnell have suggested

Erneast Dale has in addition mentioned 'innovation' and 'representation' as a function of

1. Planning affects performance.

3. Planning anticipates problems and uncertainties.

4. Planning is necessary to facilitate control.

5. Planning helps in a process of decision making.

Standing plans Single use plans

Single use plans:

The steps generally involved in planning are as follows:

1. Establishing Verifiable Goals or Set of goals to be achieved

3. Deciding the planning Period

4. Finding Alternative Course of Action

5. Evaluating and selecting a Course of Action

6. Developing Derivative plans

7. Measuring and Controlling the progress

The process of organizing consists of the following steps:

c. Assigning the duties and activities to specific positions and people

d. Delegating authority to those positions and people;

e. Defining and fixing responsibility for performance; and

f. Establishing horizontal and vertical authority-responsibility relationship throughout the

Around specific products or product lines. Departmentalization by product assembles

Departmentalization by process groups jobs on the basis of product or customer flow.

 Centralization refers to the point or level where all decision-making authority is

Function of directing embraces the following activities:

a. Issuing orders and instructions.

c. Motivation, i.e. creating the willingness to work for certain objectives.

e. Leadership or influencing the behavior of employees.

The process of controlling involves the following steps:

a. establishing standards for measuring work performance;

d. taking corrective action for rectifying deviations so as to ensure attainment of objectives

Essential Features of the Process/functions of Management

1.3. Levels, Skills and Roles of Managers

The Managerial Skills

 In the monitor role, the manager receives and collects information.

 In the entrepreneur role, the manager initiates change.

 In the negotiator role, the manager negotiates on behalf of the organization.

1.4. Importance and Nature of Management

aspect of total knowledge. However, management since it is young science only

5. Management as Profession: Management has been regarded as a profession by many while

6. Universality of Management: Management is a universal phenomenon. However,

 Distinction between Management Fundamentals and Practices: Universality of

1.5. Development of Management Thought

thought to be the priests and other religious leaders.

Classical management Approach

A. Scientific Management Theory

I. Frederick W. Taylor (1856–1915)

F.W. Taylor’s Principles of Scientific Management

Principle 3: Intimate, friendly cooperation between management and labour

F.W. Taylor's Contribution

His framework for organization was: