MANAGEMENT BY OBJECTIVES

Concept By : Peter Drucker in 1954

Importance of Objectives :
1. Legitimacy of the orgn.
2. Direction
3. Coordination
4. Benchmarks for success
5. Motivation

8 Key areas needing objectives :

1. Market standing
2. Innovation
3. Productivity
4. Physical & financial resources
5. Managerial performance and development
6. Worker performance & attitudes
7. Profitability
8. Public & Social responsibility
 MBO (appraisal by result)

A process through which specific goals are set collaboratively for the orgn. , every unit
and individual within it, the goals are then used as a basis for planning, managing
Organisational activities and assessing and rewarding contributions.
Features :
• Empasises in joint goal setting
• Focuses on goals (what must be accomplised) & plans (methods as how to
accomplish it)
• Facilitates control through periodic development & evaluation
• It’s a systematic & rational technique that allows management to attain maximum
results.
 MBO PROCESS
STEPS

Goal – Setting
(Long term goals)
|
Establish Specific Performance Objectives
|
Develop Action Plans
|
Appraise Results
|
Take Corrective Action
 STRATEGIC PLANNING PROCESS

Strategic plans – Long range plans

Strategy vs. Policy
Strategies define overall character, mission & direction of an enterprise.
Policy is a guide to action and provides direction to subordinates inorder to achieve the
orgnl. Goals.
Strategic Management process
• Mission & Objectives
• External Analysis (environmental scanning)
- (SWOT Analysis)
• Internal Analysis
• Formulate strategies
• Strategy implementation
• Evaluation & control
 BCG Portfolio Matrix

A framework that categorises a firm’s business units, by the market share that they hold
and the growth rate of their respective markets. (Bruce anderson of Boston consulting
group)
2 Imp. Dimensions to be considered :
• Market Share
• Market Growth
Categories in portfolio of a company :
1. Stars : Strategic Business units that have High growth & High Market Share
2. Cash Cows : SBUs that hv Low growth & High market share (provide lot of cash
for the firm)
3. Question Marks : SBUs that hv Low growth & Low Marktet share (problem
child or wild cat)
4. Dogs : SBUs that hv a High growth & Low market share
 DECISION MAKING

DECISION : A choice from available alternatives

Characteristics of Decision-Making
1. Goal-oriented
2. Alternatives
3. Analytical-intellectual
4. Dynamic process
5. Pervasive function
6. Continuous activity
7. Commitment of time, effort & money
8. Human & social process
9. Integral part of planning
 Basic Steps of Decision-making Process

1. Awareness of Problem
2. Diagnose & state the problem
3. Develop the alternatives
4. Evaluate the alternatives
5. Select the Best Alternative
6. Implement & verify the Decision
Types of Decisions :
1. Basic & Routine decisions
2. Personal vs. Organisational decisions
3. Programmed & Unprogrammed decisions
 DECISION TREE
It is a model, graphic decision-making tool typically used to evaluate decisions,
containing a series of steps.

Types of Decision Trees :

• Classification Tree analysis
• Regression tree analysis
• CART analysis (Classification & Regression tree)

Group Decision Making

Groups such as committees, task force, teams, review panels are useful to take decisions.
These decisions are complex and wide knowledge, skills, experience and mutual support.
Methods for taking decisions by a group in organisations :
• Authority rule
• Majority rule (Voting)
• Minority rule
• Consensus
• Unanimity
 Outcome of Group Decision making done by individuals in the following ways :

• Conformity (forces are attitudes, beliefs, emotions, strengthen to form group

norms)

• Group think(an extreme form of consensus) The tendency of cohesive groups to

seek agreement about an issue at the expense of realistically appraising the
situation.
• Superiority
• Risky shift
Group Decision-making Techniques
1. Brainstorming : A technique that encourages group members to generate as many
ideas as possible, on a given topic without evaluating them.
2. Nominal group technique : (a paper group) The idea is to respect interpersonal
communication and to increase the deliberation and contribution of individual
members
3. The Delphi Technique : The formal procedure for obtaining the consensus of a
number of experts through the use of a series of questionnaires.
 CREATIVITY
The first step in innovation.
It is a function of knowledge, imagination and evaluation. It is the ability to visualise,
foresee, generate and implement new ideas. It is vital for decision making.
Creativity requires :
a) Convergent thinking : to solve problems by thinking logically
b) Divergent thinking : to solve problems by generating new ways of understanding
a problem and seeking alternatives
 ORGANISING
The process of prescribing formal relationships among people and resources, to achieve
goals.
It refers to the way work is arranged, allocated among members of the organisation, to
achieve goals.
According to Allen, it is the process of identifying & grouping the work to be
performed, defining & delegating responsibility and authority for establishing
relationships for enabling people to work effectively together in accomplishing
objectives.
Steps:
1. Identifying the work
2. Grouping the work
3. Establishing relationships
4. Delegating authority
5. Providing for coordination & control
Responsibility :
The obligation of a subordinate to perform the duty as required by the superior.

Authority :
The formal and legitimate right of a manager to make decisions, issue orders, and
allocate resources to achieve goals.

Delegation :
The process by which a manager assigns a portion of his total work load to others.
 Organisation Structure

The way in which an orgn.’s activities are

divided, organised and coordinated. 1

Types : 2

a) Classical – Pyramid shaped, tall orgn., 3

implies centralisation of authority at 4

top
5

b) Behavioural – Flat orgn. Structure, 6

implies decentralisation.
Elements of Orgn.Structure :
a. Job Design
b. Departmentalization
c. Vertical coordination
d. Horizontal coordination
 DEPARTMENTATION
The process of dividing large orgns. Into smaller, flexible administrative
units.
Major Patterns of Departmentation
(on basis of function, product/service, regions,
customers,process,time,numbers,marketing,knowledge & skill)
Four major patterns :
1. Functional structure
2. Divisional structure
3. Hybrid structure
4. Matrix structure
Basic criteria for choosing basis for deparmentation:
1. Work-flow interdependence 2. Process interaction
* Pooled (sharing of resources) 3. Economies of Scale
* Sequential 4. Social considerations
* Reciprocal
* Team
 FORMS OF AUTHORITY
1. Line Authority (Line or Military or scalar type)
2. Staff Authority
3. Team authority
AUTHORITY : “It is the right to give orders and the power to exact obedience.”
Sources from which authority originates :
• Formal authority
• Acceptance of authority by subordinates
• Competence theory of authority
RESPONSIBILITY : “It is the obligation on the part of a subordinate to perform the
duties assigned to him.” It originates from superior-subordinate relationship.
ACCOUNTABILITY : When a subordinate is assigned some duties to be performed, he
will be accountable to his superior for doing or not doing that work.
DELEGATION OF AUTHORITY :(dynamics of management)
Delegation refers to the process by which a superior gives a subordinate the authority to
do a particular task. It means assigning work to others and give them authority to do it.
 PROCESS OF DELEGATION(Elements)

THREE PILLARS OF
DELEGATION

RESPONSIBILITY AUTHORITY ACCOUNTABILITY

 Sources of Power

• Legitimate power
• Coercive power
• Reward power
• Expert power
• Referent power
• Information power
 Types of Organisation

1. Line Organisation (pure line, military, scalar)

2. Functional Organisation
3. Line & Staff Organisation
 Principles of Delegation
1. Principle of delegation by results expected
2. Principle of functional definition of authority & responsibility of task assigned
3. Scalar principle (vertical line)
4. Authority level principle (freedom to make judgements)
5. Principle of unity of command
6. Principle of parity of authority & responsibility
7. Principle of absoluteness of responsibility
Degrees of Delegation:
Over delegation, (High degree of delegation)
Under delegation, (Low degree of delegation)
Moderate degree of delegation
Steps in Delegation:
1. Preparation of establishing objectives of delegation
2. Planning
3. Reviewing the objectives of the task and plan
4. Monitoring the progress
5. Evaluation and appreciation of the subordinate’s efforts
 Centralisation Vs. Decentralisation

Centralisation : The process of systematically retaining power and authority in the

hands of top level managers. Decision making powers are concentrated at the top
levels.
Decentralisation : It refers to the degree to which authority and power of decision
making is delegated to the lower levels of an organisation.
Types of Decentralisation :
• Political Decentralisation
• Administrative Decentralisation
• Fiscal Decentralisation
• Economic/ Market Decentralisation
 Span of Management

Span of Management(Control/supervision/authority/responsibility)
It indicates the number of persons that a manager can manage effectively. It describes
the number of subordinates that report to each manager.
Different Concepts of Span of Management :
1. Tall structure – Narrow span on management
2. Flat structure – Broader span of management
3. Graicunas’ Theory of Span of Management (based on mathematical calculations)
Identified three superior-subordinate relationships :
a) Direct Single relationships
b) Direct Group relationships
c) Cross relationships
Formula prescribed : No. of relationships = n(2*n-1 + n-1)
‘n’ stands for no. of subordinates
 Factors determining suitable Span of Management
• Quality of leadership of superior
• Competence of subordinates
• Nature of work
• Delegation of authority
• Clarity of plans
• Degree of decentralization
• Methods of communication
• Use of staff assistance
 CONTROLLING

Control : It is the process of comparing actual performance with established

standards, for the purpose of taking action to correct deviations.
Controlling : It is the process of regulating orgnl. activities so that actual
performance conforms to expected orgnl. Standards and goals.
Features of Controlling :
1. Control is a positive force
2. It is a continuous process
3. It is forward looking
4. It is a universal process
5. It is a dynamic process
6. It is goal-oriented
7. Delegation is the key to control effectively
8. Control is based on planning
Importance of control
• Achievement of goals
• Execution and revision of plans
• Brings order and discipline
• Facilitates decentralisation of authority
• Promotes coordination
• Cope with uncertainity and change
Major purpose of Control in an organization :
1. Controls make plans effective
2. Controls ensure consistency of organizational activities
3. It makes orgns. Effective
4. It makes orgns. Efficient
5. It provides feedback on project status
6. It aids in decision making
 PROCESS OF CONTROL

STEP III STEP IV

STEP I STEP II Comparison of actual Corrrective Action
Establishment of Measurement of Performance Where
Standards Actual Performance With the required
Standards