Subject: Business studies Class: 12th commerce

Chapter: Principles of Management

Principles of management:
Management principles are statements of fundamental truths and realities which guide thinking
and action by the managers under different conditions. A managerial principle is a broad and
general guideline for decision-making and behavior. For example while deciding about
promotion of an employee one manager may considerseniority, whereas the other may follow
the principle of merit. These principles are not rigid and are integral part of management
theory. Principles of management differ from the scientific principles due to following reasons
which are:
Management principles are Flexible.
Management principles are applied as per situation as they influence the behavior of the
individual.
Management principles have to keep pace with changing environment and keep adapting them.
Distinction: Management Principles and techniques
Management principles Management techniques
These are broad guidelines for managerial These are procedures and methods following
decision certain order to complete a task
Management principles are flexible Management techniques are rigid

Management principles have wider scope Management techniques are part of principles

Management principles give outline of These are tools through which those decisions
understanding management decisions can be implemented

Two important historical events are quite significant in the evolution of principles of
management. First in 1776, Adam Smith’s wealth of nations which argued the economic
advantages that organization and society would gain from division of labor and job
specialization. Breaking down the work in simpler parts and assigning them to few
individuals to perform repeatedly creating specialization.
Second was industrial revolution in late 18th century, when machine power substituted
manpower, creating more economic methods of production and reducing the cost. These
large factories and enterprises needed someone to look after and guide their other peers
and employees, assign tasks; that someone being a manager. But these managers needed
some guiding and common principles and theories which would allow them to take
better and quick decisions. Thus, creating a prerequisite for some principles, guidelines
and theories to guide their decisions, creating a new era of research and experiments and
ushering into the era of principles of management.
Management principles has evolved over the past decades and new theories, principles
and studies made their way into the management principles. Following exhibit shows the
evolution of management approaches over the years.

Early Classical Neo classical Behavioral Modern

background Approach / quantitative approach approach

Marshallian Systems
Maslow’s
Scientific
law, Say’s approach
theory
management
law
Administrative Hawthorne Contingency
Adam
theory studies approach
Smith

Bureaucracy Organizational MBO,

Industrial
theory behavior Kaizen
revolution

Nature of Principles of Management:

Nature means qualities and characteristics of anything in this case principles propounded by
management scholars. Principles are general propositions, which are applicable when certain
conditions are present. These have been developed on the basis of observation and
experimentation as well as personal experiences of the managers and researchers. Application
may be regarded as an art. These principles lend credibility of a learnable and teachable
discipline to the practice of management. Qualities/ characteristics of management principles
are as:
1. Universally applicable:The principles of management are proposed to apply to all types
of organizations, business as well as non-business, small as well large, public sector as
well as private sector, manufacturing as well as the services sectors. However, the extent
 of their applicability would vary with the nature of the organization, business activity,
scale of operations and the like. For example, for greater productivity, work should be
divided into small tasks and each employee should be trained to perform his/her
specialized job.

2. General guidelines:These are guidelines to initiate action but do not provide readymade
solutions to all managerial problems. This is so because real business situations are very
complex, varied and dynamic and are a result of many factors and keep on changing
with the ever-changing business environment. However, the importance of principles
cannot be underestimated because even a small guideline helps to solve a given problem.

3. Flexible:The principles of management are not rigid prescriptions or rules, which have
to be followed absolutely. They are flexible and can be modified by the manager when
the situation demands.For example, the degree of concentration of authority
(centralization) or its dispersal (decentralization) will depend upon the situations and
circumstances of each enterprise and managerial understanding of the situation, similarly
the ways to motivate and benefits given vary from one organization to other.

4. Developed by practice and experimentation: These principles are formed due to the
experimentation and practice by various scientists, researchers, scholars like Henry
Fayol, F.W. Taylor, Max Webber, B. F.Skinner, Elton Mayo, Herzberg, Victor Vroom.
Based on the observations of many scholars their work is known to be principles like 14
principles of Fayol, Scientific management of Taylor etc.

5. Mainly behavioral: Management principles aim at influencing and modifyingbehavior

of individuals especially workers and employees of an organization. Therefore,
principles of management are mainly behavioural in nature. These principles enable a
manager to a better understanding of the relationship between human and material
resources in accomplishing organizational purposes. Thus, principles of management are
meant for regulating human behavior and deriving higher performance from them and
guide them how to respond in different situations.

6. Cause and effect relationship:Some management principles have cause and effect
relationship. The effect of one decision on other aspects due a certain principle can be
predicted for example division of labor leads to specialization and thus increasing
efficiency, motivational stimuli results in creating higher satisfaction and better results.

Significance of Principles of Management:

The principles of management derive their significance from their utility and in the
foundation, they provide for effective management. They provide useful insights to
managerial behaviour and influence managerial practices. Managers may apply these
principles to fulfil their tasks and responsibilities. Principles and theories guide managers in
taking and implementing effective decisions. It may be appreciated that everything
worthwhile is governed by an underlying principle.As by G.R.Terry “principles of
management are to a manager as a table of strength of materials to a civil engineer.”
Significance of the management principles arise due to following reasons:

1. Providing useful insights into reality:The principles of management provide the

managers with useful insights into real world situations due to real world complex
situations. Adherence to these principles will add to their knowledge, ability and
understanding of managerial situations and conditions. It will also enable managers to
learn from past mistakes and conserve time by solving recurring problems quickly. The
knowledge of management principles makes it easy for the manager to analyze the job
and define the scope of various duties and responsibilities and create best ways of
accomplishing these tasks and duties.

2. Optimum utilization of resources & effective administration: Resources of an

enterprise both human and material available are limited. They have to be put to
optimum use by human resource. By optimum use we mean that the resources should be
put to use in such a manner that they should give maximum benefit with minimum cost
and derive maximum revenue for the enterprise. Principles train the managers to foresee
the cause and effect relationships of their decisions and actions and try to eliminate the
wastages associated with a trial-and-error approach. For example principles of division
of labour and decentralization work on using human resource properly by dividing the
work and giving authority so as to save time and effort results in better results.

3. Scientific decisions: One of the key area of responsibilities of a manager is to take

decisions, thusDecisions must be based on facts, thoughtful and justifiable in terms of
the planned purposes. They must be timely, realistic and subject to measurement and
evaluation. Management principles help in rational and scientificdecision-making. They
emphasize logic rather than blind faith or gut feeling. Management decisions taken on
the basis of principles are situation based rather than intuition and are based on the
impartialand critical assessment of the situation.

4. Meeting changing environment requirements: every business operates in a dynamic

environment, changes in economy, social and political scenario to name a few.
Managers can apply these principles in suitably dealing with different situations.
 Although the principles are general guidelines but they are modified and as such help
managers to meet changing requirements of the environment.

5. Fulfilling social responsibility: The increased awareness of the public and customers in
society, forces businesses to fulfill their social and moral responsibilities. Management
theory and principles have also evolved in response to these demands. Moreover, the
interpretation of the principles also assumes newer and contemporary meanings with the
change in time. So, if we say ‘equity’ today, it does not apply to wages alone. Value to
the customer, care for the environment, and dealings with business associates and
intermediaries would all come under the domain of this principle. Thus management
principles help in developing efficient managers who will work for the social objectives
as well in turn achieving organizational objectives.

6. Management training, education and research: Principles of management are at the

core of management theory. As such they form the basis for training the managers and
employees, education and research to make them better decision makers.These
principles provide basic groundwork for the development of management as a discipline
and helps in understanding basic managerial functions. Imparting application oriented
knowledge of management principles, practices, thoughts and procedures are necessary
to train future managers like JIT, KANBAN, KAIZEN and MBO.

Taylors Scientific Management

F.W. Taylor was the first management thinker who initiated a race of scientists to take up
the mantle of creating better theories and insisted on the introduction of scientific
management techniques and methods in management and launched a new movement called
Scientific Management. He is regarded as father of scientific management and proved to be
a stepping stone one further studies for management principles.
The scientific management article was published in 1911duirng working as floor manager in
Bethlehem steel. Taylor saw various anomalies and problems in production process and
technique. So he came up with the scientific solution to remove these problems and increase
efficiency.
Scientific management implies the application of science to the management of an
industrial and business concerns. It aims at replacing traditional techniques by scientific
management. Scientific management is a thoughtful, organized and human approach to the
job of management in contrast with RULE OF THUMB. “It is the art of knowing exactly
what you want to do and then seeing that they do it the best and cheapest way.
As per P. Drucker, it is the organized study of work, analysis of work into its simplest
elements and the systematic improvements of the workers’ performance of each element.
Thus scientific management involves understand the work and breaking the work into parts,
creating a specialized work and assigning them to individuals so as to make them specialists
in it.
Principles of scientific Management:
These principles are to guide the actions and decisions of managers and provide a holistic
and detailed view of management practices.
1. Science, not rule of thumb: This principle requires development and application of
scientific methods and techniques. He argues rule of thumb should be avoided and
replaced with scientific management i) to determine standard time required for a job ii)
fair wages per day ii) best way of performing a task iv) select standard tools and
equipment to perform a job.

2. Harmony not discord/conflict: There should be harmony not discord between

management and employees. There needs to be sense of team and association among the
employees and the management and thus reducing the conflict. This requires change of
mental attitudes of the workers towards each other and management, referred to as
Mental revolution, and when this will take place all kinds of conflicts will be resolved
and create harmony in an organization.

3. Scientific selection and training of an employee: The procedure for selection of an

employee or any worker should be designed scientifically. The mistakes committed at
the time of selection which can be costly and threating should be minimized by scientific
techniques. Workers selected should be scientifically trained to avoid wrong methods of
work and creating highly skilled employee.

4. Equal division of responsibility between management and workers: There should be

almost equal division of responsibility between workers and management, management
should assume the responsibility for the work which it is better suited and employees are
to be responsible for the work assigned to them as per their suitability.

5. Cooperation, Not Individualism: There should be complete cooperation between the

workers and the management instead of individualism. This principle is an extension of
principle of ‘Harmony not discord’. Competition should be replaced by cooperation,
sense of interdependence, trust, importance and cooption should be created among the
employees for each other.
For this, management should not close its ears to any constructive suggestions made by
the employees. They should be rewarded fortheir suggestions which results in
 substantial reduction in costs. They should be part of management and, if any important
decisions are taken, workers should be taken into confidence.

Techniques of Scientific Management:

1. Time study or work measurement: It is a technique of observing and recording the
time required by a worker to complete and task and perform to best of their ability the
task assigned to them. Through time study precise time required will be calculated to
complete a job. Time taken for a particular set of job is recorded using stop watch and
minimum time taken is recorded. The minimum time recorded is analyzed repeatedly so
as to create exact time duration for any task. For example, time taken to paint a small
wooden table shall be recorded and minimum time will be set as time standard for the
painting.

2. Motion study: Is a technique which involves close observation of the movement of the
body parts with respect to the task performed. Taylor suggested to eliminate
theunwanted body motions which are not productive. On close examination of body
motions, for example, it is possible to find out:
(i) Motions which are productive and relevant to the job
(ii) Motions which are incidental
(iii) Motions which are unproductive. Thus, resulting in only those body motions which
required in performing the task. Taylor suggested unproductive body motions are to be
eliminated thus conserving energy and reducing effort.

3. Method study: It is used to know the best possible method of performing a task and
helps in reducing the distance travelled by raw material and brings improvement in other
aspects of an industrial unit. Time and motion study together will provide the standard
for the one best way of performing a task which will be standard and followed by
whosoever performs the task. It shall be the responsibility of all managers to create best
methods for any task for their subordinates to follow.

4. Standardization and simplification of work:Standardization of work refers to the

process of setting standards of every activity to maximize output and also breaking the
work into parts to make it simple. Standardization implies that one best method of
performing a task should be a standard and every employee performing that task shall
perform it using that one best method.

Simplification involves removing unwanted diversity of product sizes, varieties as

more varieties mean more inventory and high labor thus simplifying the activities will
reduce the costs and thus increase the efficiency and quality of the products. Work
study can be done through time/motion study and methods study.
5. Fatigue Study: A person is bound to feel tired physically and mentally if she/he does
not rest while working. Therest intervals provided during the work will help one to
regain stamina and work again with the same capacity resulting in increased
productivity.
Fatigue study seeks to determine the amount and frequency of rest intervals
in completing a task. There can be many causes for fatigue like long working hours,
doing unsuitable work, having uncordial relations with the boss or bad working
conditions etc. By providing rest pauses during work, employees will be rejuvenated and
refreshed and start working as before and productivity shall increase after brief rest
pauses.
6. Differential Piece Wage System: Taylor suggestedmanager must differentiate between
efficient and inefficient worker and linked incentives directly with production. Under
this plan a worker received low piece rate if the items produced are less than the
standard number of pieces and high rate if std. rate is surpassed then wages paid is high.
The standard time and other parameters should be determined on the basis of the work-
study discussed above. The workers can then be classified as efficient or inefficient on
the basis of the performance compared with the standards. He wanted to reward efficient
workers. So he introduced different rate of wage payment for high performing (output)
workers.

7. Functional foremanship vs general supervision: The foreman represents the

managerial figure with whom the workers are in contact on a daily basis. He is the pivot
around whom revolves the entire production planning and execution. The foreman
directs, guides and overlooks every activity performed by the worker.Taylor advocated
separation of planning and execution functions, he suggested division on these two
activities and allocating these activities to different individual’s namely planning in-
charge and production in-charge.
Under the factory manager there was a planning in-charge and a production in-charge.
Under planning in-charge four personnel namely instruction card clerk, route clerk, time
and cost clerk and a disciplinarian worked. These four personnel would draft instructions
for the workers, specify the route of production, prepare time and cost sheet and ensure
discipline in the production department respectively.
Under Production in-charge, personnel who would work were speed boss, gang boss,
repair boss, and inspector. These respectively were responsible for timely and accurate
completion of job, keeping machines and tools etc., ready for operation by workers,
ensure proper working condition of machines and tools and check the quality of work.

Factory Manager
 Planning supervisor Production supervisor

Instruction clerk Speed boss

Route clerk Gang boss

Time & cost clerk Repair boss

Disciplinarian Inspector

Fourteen principles of Fayol: General Administrative Theory

Also called as Administrative theory was propounded by Henry Fayol. He provided a broad
analytical framework of the administration process which mainly focusses on optimizing and
improving the administration process with managerial activities and functions. Fayol suggested
all the business activities can be divided into six categories: “Technical, commercial,
financial, accounting, security, and administrative or managerial”. Fayol proposed 14
principles as general guidelines to the management process and management practices.
Fourteen principles were based on Taylor’s scientific management but unlike the mechanistic
approach of Taylor, administrative theory started on realizing the humanistic side of the
employees.
1. Division of work: The principle implies that every employee should be assigned only
one type of work so as to bring specialization in every action. According to Fayol work
is divided into small tasks/ jobs thus allotting the specific job to an individual worker
creating specialization. In business, work can be performed more efficiently if it is
divided into specialized tasks where each task is performed by the trained employee.
Doctors and technicians are example of division of work in a hospital.

2. Authority and Responsibility:Authority is the right to give orders to the subordinates

and responsibility means the duty which a subordinate is expected to perform by virtue
of the position in an organization and following the orders issued by the supervisor. As
per Fayol authority and responsibility should bear a logical relation to each other.
Sufficient authority should be delegated to the subordinates so as to enable them to
discharge their duties. If authority is less, subordinates will not be able to perform his
duties well and time taken to take a decision shall be more.

3. Discipline:Discipline is the obedience to organisational rules & regulations,

employment agreement which are necessary for the working of the organisation.
According to Fayol, discipline is obedience, application, energy and outward mark of
 respect which requires good superiors at all levels, clear and fair agreements and
judicious application of penalties.Thus maintenance of good relation and discipline can
be best achieved by a) having good superior at all levels b) entering into agreement that
are clear and fair c) ensuring that penalties are judiciously imposed.

4. Unity of command:A subordinate should receive orders from one supervisor only “one
man one boss”. If he receives the orders from more than one supervisor, it will lead to
confusion and will not be able to carry out the orders in a proper manner. Fayol observed
that if this principle is violated then authority will be undermined. The principle of unity
of command states that each participant in a formal organisation should receive orders
from and be responsible to only one superior.

5. Unity of direction: By unity of direction Fayol meant “ONE UNIT ONE PLAN” for the
group of activities performed having same objective. In other words, all the activities of
a work unit or a group should be directed towards one direction with common objective.
All the units of an organisation should be moving towards the same objectives through
coordinatedand focused efforts. Each group of activities having the same objective must
have one head and one plan, this ensures unity of action and coordination.

6. Subordination of personal interests to general interests: The interests of an

organisation should take priority over the interests/ goals of any one individual
employee according to Fayol. Every worker has some individual interest for working in
an organization like high salary, bonus, promotions but he should give priority to the
objectives and goals of organisation. If the goals of organisation are achieved then the
personal interests will also be achieved with it creating a symbiotic relation between
organization and its employees.

7. Remuneration: As per Fayol the remuneration paid to the employees should be fair and
paid fully for their services and task performed. The method of employee remuneration
should be fair and just to everybody and according to the satisfaction of both, employees
and management as well. Simply the employees should be paid fair wages, which should
give them at least a reasonable standard of living. At the same time it should be within
the paying capacity of the company.

8. Centralization and Decentralization: The concentration of decision-making authority

in the hands of few individuals’ mostly top management is called centralization whereas
dispersal of decisions making authority among more than one person is known as
decentralization. According to Fayol, “There is a need to balance subordinate
involvement through decentralisation with managers’ retention of final authority
through centralisation.” The degree of centralisation will depend upon the
 circumstances in which the company is working. In general large organisations there is
more decentralisation than small organisations.

9. Scalar chain/ chain of command: scalar chain means the chain of superiors ranging
from lower level executives to the ultimate head of an organisation. The line of authority
is the route followed via every link in the chain of communication which starts from top
or goes to top. Fayol felt that following chain of command is necessary for the efficient
communication in the organisation thus eliminating any confusion and adhering to unity
of command. The main disadvantage of it was it was time consuming, so a provision
was created for the bypassing the chain called as GANG PLANK which would eliminate
all the middle points and directly communicates with the desired level.

E M

D N

Gang plank
C
O

According to Fayol, if A has to communicate with N, the information is to be passed on

from A->B->C->D->E->L->M->N to O and so on. But in case of any emergency or time
constraint C can by-pass al the chain and directly communicate to O but they should be on
same level.
10. Order:According to Fayol, “People and materials must be in suitable and proper places
at appropriate time for maximum efficiency due to which it will be easy and less time
consuming to locate the resources.” The principle of order states that if there is a fixed
place for everything and it is present there, then there will be no hindrance in the
 activities of business/ factory. This will lead to increased productivity and efficiency will
less time wasted in locating and placing equipment and tools.

11. Equity: Good sense and experience are needed to ensure fairness to all employees, who
should be treated as fairly and equally as possible,” according to Fayol. This principle
emphasises kindness and justice in the behaviour of managers towards workers. This
will ensure loyalty and devotion of employees towards the organisation. Fayol does not
rule out use of force sometimes, rather he says that lethargic personnel should be dealt
with sternly to send the message that everyone is equal in the eyes of the management.
By treatment should be equal for all the employees.

12. Stability of tenure: management should remove the sense of insecurity of job from the
minds of the personnel. If the job of a person is not secure he will be on lookout for
other job thus creating risk of losing an employee, which in turn will create unstable
organisation. Thus, management must ensure good working conditions and relation
among supervisors and employees so as to create than sense of belonging in an
employee and helping in creating a stable organization.

13. Initiative: As per Fayol, Workers should be encouraged to suggest, develop and carry
out their plans for improvements according. Initiative means taking the first step with
self-motivation; It is thinking out and executing the plan. It is one of the traits of an
intelligent person. Initiative should be encouraged in every organisation where in
employees are not hesitant in suggesting any improvement with regards to operations of
management. A good organisation should have an employee suggestion system whereby
initiative/suggestions which result in substantial cost/time reduction should be rewarded
by the organisation.

14. Esprit De Corps: Esprit de corps means team spirit, management should promote a
team spirit of unity and harmony among employees, according to Fayol. Management
should promote teamwork especially in large organisations because otherwise objectives
would be difficult to realize. A manager should replace ‘I’ with ‘We’ in all his
conversations with workers to foster team spirit. This will give rise to a spirit of mutual
trust and belongingness among team members. It will also minimize the need for using
penalties and negative motivation for the employees.

Bureaucracy: Max weber in 1910, studied different organisations and

distinguished 3 different types of administrations in them a) leader oriented,
traditional and bureaucratic. As per Weber bureaucratic administration is created
by delegation of authority according to person demonstrated ability to hold a
position. There is a systematic division of work, principle of hierarchy is
followed for control and supervision and people earn positions due to presumed
capability to hold a position and lastly there are administrative acts, rules and
policies which are recorded in writing.