Business Management Paper III – Management and Organisational Development (English Version)-munotes

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1 1
INTRODUCTION

Unit Structure
1.0 Objectives
1.1 Introduction
1.2 Management - Characteristics
1.3 Management – as Science, Art and Profession
1.4 Levels of Management and Management Skills
1.5 Development of Manageme nt thoughts
1.6 Evolution of Indian Management thoughts
1.7 Functions of Management in a typical business organization
1.8 Summary
1.9 Exercise
1.0 OBJECTIVES
After studying the unit the students will be able to :
1. Define the concept of Management.
2. Unde rstand the characteristics of management.
3. Explain the different dimensions of management.
4. Know the levels of management.
5. Explain the management skills and competence required in 21st
century.
6. Discuss the various management thoughts and approaches.
7. Analyse the evolution of Indian Management thoughts and their
relevance in the current era.
8. Elaborate the functions of Management in a typical business
organization.

1.1 INTRODUCTION
1.1.1 – MANAGEMENT – MEANING :
The term management is widely used in everyday l ife. Management is
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2 objective. It is required not only in business organizations but also in
other organizations like governments, hospitals, educational
institutions, charitable trust, et c. Management is the specific organ of the
modern institution.
1.1.2 – DEFINITION :
1. According to Mary Parker Follet , “Management is the art of getting
things done through people.”

2. In the words of Henry Fayol , “To manage is to forecast and to plan,
to orga nize, to command, to co -ordinate and to control.”

3. George Terry defines “Management is a distinct process consisting
of planning, organizing, staffing and controlling performed to
determine and accomplish stated objectives by use of human being
and other r esources”.

4. Harold Koontz states : “Management is the art of getting things done
through and with People in formally organized groups”.

1.2 MANAGEMENT - CHARACTERISTICS
The important characteristics of management can be explained as follows:
1. Management is a process –
Managers have to perf orm certain functions in their day to -day activities.
It is a process of planning, organizing, directing and controlling. To
achieve objectives managers have to plan the activities, and then
organize the necessary resources required for activities, direct the
subordinates and finally control the activities of subordinates.









DIRECTING ORGANIZIING CONTROLLING PLANNING ORGANISATIONAL OBJECTIVES munotes.in

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3 2. Management is a continuous activity -
Management process starts with business establishment and continues up
to the end of the business. Manage ment is required for day to -day
functioning of the organization. It is a continuous process, as it
continues till business survives.
3. Management requires group efforts -
Management requires group efforts from all the people working in
the organization. It is a t e a m w o r k t o a c h i e v e c o m m o n
organizational objectives. So it involves integration of group behavior so
that human efforts can be directed towards achievement of common
objectives.
4. Management is goal oriented -
Targets and results are important in managem ent. The
managerial activities are carried on to achieve objectives. It requires
actions for better results. The results can be in terms of higher productivity,
optimum use of resources, motivated staff, etc.
5. Management is all pervasive -
Concept of managem ent is pervasive in nature i.e. applicable everywhere. It
is used in business as well as non -business organizations like educational
institutions, charitable trusts, etc. The principles of management are
applicable at all the levels, departments, employees in the organization.
6. Management is intangible -
Management activity is not visible. One cannot see management but the
presence of management can be felt and experienced. Effectiveness of
management is reflected in form of higher profitability, unity in org anization,
corporate image of the organization, etc.
7. Management is separate from its ownership -
Management and ownership need not be the same. In large organizations ,
shareholders are the owners and managers are carrying on management
functions.
8. Mana gement is dynamic -
Management requires creativity and innovation. Managers need to
introduce new products, new cost effective processes, new ideas, etc.
Dynamic and creative managers bring success to the organization.
9. Management follows well established principles -
While carrying on management activities, managers need to follow well
established p r i nc i p l e s . T h e se p r i nc i p l es ar e di v i s i o n o f w or k , un i ty
of command, unity of direction, discipline, etc. munotes.in

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4 10. Management is an Art -
Management is an art as it in volves getting things done through people. Art
is inborn talent and requires skills. Managers as an artist need to be
creative and should have skill to get the work done through people to
achieve organizational objectives.
11. Management is a Science –
Mana gement is a science as it follows well established principles which are
universally applicable. Management is a social science as it deals with people.
12. Management follows professional approach -
Modern managers need to follow professional approach. Professional
managers delegate authority, involves subordinates in decision making,
invites suggestions from subordinates, etc.
13. Management is aided but can’t be replaced by computers -
Computers cannot replace managers. The talent, skill, creativity and
experience of managers are not available in computers. But computerized
data will definitely help the managers to take quick decisions.
14. Management is an integrated process -
Management is an integrated process of 6 ‘M’s. 6 ‘M’s includes Men,
Material, Machine, Money, Method and Market . Managers need to
combine all these resources effectively to achieve objectives.
15. Management is situational -
Management decisions vary from situation to situation. Business is subject
to environmental changes. Managers need to resp ond these changes by
making necessary changes in their decisions. Managers can not follow
same decision in all situations.
Check your Progress :
1. Professional managers delegate ----------- .
2. Management is separate from its ---------- .
Explain :
1. Man agement is aided but can’t be replaced by computers.
2. Management is all pervasive.
Answer the following :
1. Why management require group efforts ?
2. How management vary from situation to situation ? munotes.in

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5 1.3 MANAGEMENT – AS SCIENCE, ART AND
PROFESSION
1.3.1 – MANAGEMENT –NATURE :
Implementation of Management through different ways in life goes back
to the days of human civilization. Ancient civilizations of Indus -valley,
Rome, Greece, construction of Indian temples, TajMahal, Egyptian
monuments, old chur ches, different properly working utilities and
systems, etc. substantiate the practice of management since the archaic
times. Thus, management has been practiced for thousands of years.
Management in a systematic way as an academic stream has been
recogniz ed in recent times, since last few decades. It can also be thought
of as the phenomenon of industrial revolution as well. As a result,
management is said to be “oldest of the arts and youngest of the sciences”.
But the science part of it ‘the systematic b ody of knowledge’ is an
outcome of the present century.
Considering Management purely as Science or Art or Profession lies on
everyone’s conceptions of looking at it as still there is vagueness whether
management is a science or art or profession.
1.3.2 – MANAGEMENT AS SCIENCE :
Science is a systematic body of knowledge which is universally
accepted and applied. Management is considered as a science which deals
with cause and effect relationship, F. W. Taylor is considered as father of
scientific managemen t.
There are two types of sciences i.e. Physical Sciences and Social Sciences.
Physical Sciences like Physics, Chemistry, Mathematics, etc. are exact in
nature whereas Social Sciences are not exact sciences.
Management is a social science as it deals with people. As people’s
behavior cannot be predicted accurately, results of management are
variable in nature.
Due to following reasons management is a social science:
1. Principles of management are universally applicable.
2. Management is systematic and organized body of
knowledge.
3. Management results are not identical but variable in nature.
4. Management uses scientific methods for decision making.
5. Management process is universally followed.

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6 1.3.3 – MANAGEMENT AS AN ART :
Mary Parker Follet defines management as, “Management is an art of getting things
done through people.”
Art is an inborn talent and creative skills which are required by managers to
conduct managerial activities.
Due to following reasons management is an art:
1. Innovative –
Managers need to be innova tive in nature. They have to always
introduce new ideas, new techniques, new methods, etc. for better results.
2. Initiative –
Managers have to take initiative to do the right things at right time. They
should also encourage initiative on the part of their sub ordinates.
3. Individual approach –
Every manager should follow his own style of managing the activities.
The style should also change from situation to situation.
4. Intelligence –
Managers should be intelligent in all the areas of their operations. They
should b e more intelligent than their subordinates.
5. Creativity –
Managers should be creative enough. They should follow the latest
techniques to get the things done through their subordinates.
6. Result oriented –
Management is a result oriented activity. Managers sho uld conduct
management activities to achieve objectives like higher productivity,
higher profitability, etc.
1.3.4 - MANAGEMENT AS A PROFESSION :
Profession is an occupation carried on by professional people like doctors,
lawyers, chartered accountants, et c. There is a debate whether
management is a profession or not.
Following are the features of profession:
1. Formal education –
There are specialized institutions that provide formal education required
for a specific profession.
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7 2. Qualifications –
The profession als require possessing s p e c i f i c qualifications to
enter in to profession.
3. Specialization –
The p rofessional s need to specialize in a particular field.
4. Code of conduct -
The p rofessional s have to follow code of conduct prescribed by their
institution.
5. Licens e–
The p rofessional s obtain a l i c e n s e t o p r a c t i c e t h e i r professional
activities.
6. Fees –
Professionals charge fees to their clients for services rendered by them.
7. Social obligation –
The p rofessional s are socially responsible to their clients and to the
socie ty.
8. Independent office –
Generally professionals practice through their own independent offices.
Management does not have all the above mentioned features but
management can be considered as profession due to some common
features:
1. Managers need to have exp ert knowledge.
2. Mangers specialize in certain areas.
3. Managers are socially responsible to the workers,
shareholders, creditors, banks, society, etc.
From the above discussion we can conclude that management is not a
true profession but it has some features of profession. Modern management
follows professional approach in their activities.
Check your Knowledge :
1. Management achieves optimum use of resources - explain .
2. Characteristics of Management as a Social Science.

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8 Define :
1. Management as an Art.
2. Profession.
Answer the following :
1. Why management is called as an art ?
2. Which are the features of Profession ?
1.4 LEVELS OF MANAGEMENT AND MANAGEMENT
SKILLS
1.4.1 - LEVELS OF MANAGEMENT :
In every organization, managers are responsible for the w ork of others.
The primary task of them is ‘getting the things done by other people’.
Nevertheless there are variations in terms of authority and responsibility
held by each manager. These variations are the resultants of the
different levels of management i n o r g a n i s a t i o n . M a n a g e m e n t p r o f i l e
requires many skills and talents in light of the scope of authority and
responsibility.
All the people in the organization do not belong to the same level of the
organization.
There are three levels of management in th e organization. These levels
are i) Top level ii) Middle level iii) Lower level.
The three levels of management can be explained with the help of
pyramid as a matter of custom and convenience :

A) Top level



B) Middle level



C) Lower level


A) Top level ma nagement :
It includes the CEO, President, Vice -president, etc. They are involved
in long term planning. They require more conceptual skills.
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9 Functions:
i) Determining business objectives
ii) Formulation of plans and policies
iii) Arrangement of required resources
iv) Controlling activities of all the departments
v) Reporting to the Board of Directors regarding organizational
performance.
B) Middle level management :
It includes all departmental managers like Production Manager,
Purchase Manager, Sales Manager, Marketing Manage r, etc. They are
involved in medium term planning.
Functions:
i) Implementation of policies formed by top level management
ii) Motivating staff for better performance
iii) Directing to lower level executives
iv) Controlling the activities of lower level executives
v) Reporti ng to top level management regarding departmental
performance.
C) Lower level management :
It includes supervisors, foreman, etc. They are involved in short term
planning. They require more technical skills.
Functions:
i) Controlling the performance of workers a nd employees
ii) Motivating personnel for better performance
iii) Reporting to middle level management for day to -day
performance
iv) Directing the subordinates
v) Framing of day to -day plans.
1.4.2 –MANAGEMENT / MANAGERIAL SKILLS :
The concept of managerial skills was fi rst developed by Henry Fayol.
Afterwards this concept was popularized by Prof. Robert L. Katz.
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10
Katz has classified managerial skills into three groups:
i) Conceptual skills
ii) Human skills
iii) Technical skills
All the skills are required at all the levels of manag ement. But their degree
of requirement differs from one level to another level. This can be
explained with the help of following diagram:













i) Conceptual skills:
These skills are required more by top level managers. These skills
help the managers to understand the problems and situations. So these
skills are more used in planning and policy making.
ii) Human skills:
All the managers at all the level require these skills. These are
interpersonal skills i.e. to interact with other persons in the
organization. These skills are more used for effective communication,
motivation, team work, etc.
iii) Technical skills:
These skills are mainly required by lower level managers. These skills
help the managers to undertake day to -day operations. These skills a re
more used for directing and controlling day to -day activities in the
organization.
In reality, the above mentioned three types of important skills are not
mutually exclusive as the management job always requires all the three
skills, but in different pr oportions depending upon the level of
management. Top
Level
Middle
Level Lower Level CONCEPTUAL SKILLS
HUMAN SKILLS
TECHNICAL SKILLS
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11 There is a gradual shift in the weightage of such skills from the bottom to
the top of the pyramid as per the level of management . Technical skills
and human skill are always vital for the lower level of m anagement as the
productive processes and operations are carried out at lower level of
management. Most of the employees or workers work at that level, where
the actual action takes place. On the contrary, the need for conceptual skill
is greatest at the t op level of management. Top managers are not often
involved in the direct application of specific methods, procedures and
techniques, compared to those at the lower levels of management.
At the Lower level of management, i.e. at the entry level of manageme nt,
a manager has to possess human skills and the problem -solving skills
(conceptual) besides technical skills. To climb up the organizational
ladder, one must not only be good at the skills required for the present job,
but also be acquaint with and learn the skills required at the next level.
Consequently he/she would feel comfortable and discharge the
responsibilities with ease at the times of promotion to the next higher
levels.
Organizations analyses the training needs of the managers based on the
differences in the type of skills required. Appropriate training,
development methods and programs are designed to equip them with the
skills required at the respective levels accordingly. Nevertheless, each of
these skills is required at some extent at every level of the management. In
the event of Top Management personnel lacking in technical skills,
compensate the lack of that skill through superior creative ability and
skills in identifying the talent and empowering the people through
effective human resour ces development practices and good leadership.
Apart from these important skills, manager should possess other skills as
follows:
1. Decision making skills:
These skills are required at all the levels to take appropriate decisions. As
managers are decision ma kers, they should have these skills.
2. Communication skills:
Every manager should have these skills to communicate effectively with
other managers, subordinates, superiors, etc.
3. Leadership skills:
Good managers should be good leaders. They should follow right type of
leadership style to lead their subordinates. Leadership skills are required to
get the things done through subordinates.
4. Administrative skills:
Good managers need to be good administrators. They should have
ability to frame plans and policies. Th ey should be able to facilitate co -
ordination among all the activities conducted in the organization.
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12 5. Design skills :
It refers to the problem solving skills. Managers should not just identify a
problem but devise the best solution to solve the problem.
Check your Progress :
1. Medium level of management has --------- term planning.
2. ---------- skills are mainly required by the Lower level of managers.
Explain :
1. Functions of Top level management.
2. Conceptual skills.
Answer the following :
1. What is meant by Decision making skills ?
2. Which functions are carried out by Lower level of management ?
1.5 DEVELOPMENT OF MANAGEMENT THOUGHTS
1.5.1 – INTRODUCTION :
The classical school includes three theories:
1. The Scientific Management Theory.
2. The Administr ative Management Theory.
3. The Theory of Bureaucratic Organization and Management.
1.5.2 - SCIENTIFIC APPROACH :
A) Foundation of Scientific Approach :
Fredrick Winslow Taylor (1856 -1915) -
The Scientific Management Theory owes its origin to F.W. Taylor, who
is regarded as the father of scientific management. Taylor’s primary
concern was to increase productivity through greater efficiency in
production and increased pay for workers, through the application of the
scientific method. Taylor’s followers include He nry Gnatt, Frank and
Lillian Gilbreth and Harrington Emerson.
B) Principles of Scientific Management :
Taylor’s Scientific Management was based on the following
principles:
1. Development of true science of management – so that the best way
or method of performi ng each task can be identified.

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13 2. Scientific selection of workers – so that the right work can be
assigned to the right worker depending upon his abilities and skills.

3. Scientific training and development of workers – so that the
knowledge, attitudes and s kills of the workers get improved, which in
turn would improve their efficiency.

4. Close cooperation between management and workers – so as to
bring harmony and to develop team spirit among the members of the
organization. Taylor advocated complete “mental revolution” on the
part of management and workers. In other words, both management
and workers should develop a positive attitude towards each other.

5. Maximum output in place of restricted output – so that the
workers are benefited by way of profit sharing or increased pay. Taylor
believed that management and labor has a common interest in
increasing production.

6. Divisions of work – so that each worker concentrates on one function
and specialize in that function so as to improve the efficiency of the
indivi dual worker and that of the organization as a whole.
C) Techniques of Scientific Management :
In order to put the principles of scientific management into practice,
Taylor and his followers developed the following techniques :
1. Performance Standards –
Taylor fe lt that the performance standards were fixed not on any scientific
basis but on the basis of rule of thumb or the amount of work done by an
average worker. Taylor introduced ‘time studies’ to fix performance
standards. Predetermined standards were laid dow n in respect of time,
cost, and quality of work performance, so as to ensure uniformity of
operations and to facilitate comparisons of efficiency.
2. Differential Piece Rate System –
Taylor advocated the differential piece rate system.
Under differential piece rate system, two piece rates were laid down:
 Low wage for those workers who fail to achieve the standard output.

 Higher wage rate for those workers who achieve or exceed the
standard output.
According to Taylor, due to differential piece rate system, th e inefficient
workers would try their best to improve their efficiency and the
efficient workers would be motivated to maintain or enhance their
output above the standard.
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14 3. Functional Foremanship –
Taylor advocated “functional foremanship” under which as m any as 8
foremen were required to supervise the workers job. He was of the
opinion that one supervisor cannot be an expert in all aspects of
supervision work. Taylor’s functional foremanship consists of two groups
of supervisors:

I. At the Planning Level:
Taylor advocated separation of planning from doing. Therefore,
at the planning level, he suggested four foremen –
 Disciplinarian – to enforce rules and regulations and to
maintain discipline.

 Instruction Card Clerk – to prepare instruction cards
relating to work activities.

 Route Clerks – to lay down sequence or path of operations.

 Time and Cost Clerk – to decide about the time and cost
relating to each job.

II. At the Shop Level:
At the work -shop level, Taylor suggested four foremen to supervise the
workers .
 Repair Boss – to ensure proper repairs and maintenance of the
tools and machines.

 Inspector – to ensure that the workers perform the work as per
the standards.

 Gang Boss – to arrange and assemble the necessary
machines and tools.

 Speed Boss – to ensur e proper speed of work so that the work
is done on time.
4. Mental Revolution –
Taylor advocated the concept of “Mental Revolution” in the interests of
the managers and that of the workers. He advocated that there should be
positive attitude on the part of the management towards the workers and
on the part of the workers towards the management. The positiv ity
would result in close cooperation between the management and the
workers, which in turn would increase productivity and profits.

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15 5. Time Study –

Taylor sug gested the use of time study to lay down standard for each day’s
work. The time study involves ana lysis of each element of a job and then
recording of the time taken in performing each element of job. Through
proper time study, the management can fix prope r standard for workers for
a certain period of work, say an hour or a day.
6. Fatigue and Motion Study –
Frank and Lillian Gilbreths (the husband and wife team) made significant
contribution to scientific management by way of fatigue and motion
studies. Throug h fatigue and motion studies, they were in a position to locate
and eliminate unnecessary and wasteful movements on the job.
According to the Gilbreths, fatigue and motion were interlinked. Every
motion that was eliminated reduced fatigue. Using motion pic ture
cameras, they tried to identify the most economical motions for each job
in order to improve performance and reduce fatigue. The Gilbreths first
studied the motions of bricklaying workers and after identifying wasted
motions, reduced the bricklaying m otions from 18 to 5, thus improving the
bricklayers’ productivity. The Gilbreths advocated that motion study
would raise workers’ morale because of physical benefits and since it
showed management’s concern for the workers.
The Gilbreths also concluded tha t, it is not the monotony of work that
causes so much of worker dissatisfaction, but rather management’s lack of
interest in workers.
7. Gantt Charts –
Henry Gantt developed a charting system for production scheduling. The
Gantt chart showed time relationships between “events” or “supporting
plans” of a production program. Gantt recognized the fact that the total
production program should be regarded as a series of interrelated
supporting plans or events that people can understand and follow.
The Gantt chart fo rmed the basis of two charting devices, which were
developed to assist in planning, managing and controlling complex
organizations as :
i) The Critical Path Method (CPM)
ii) The Program Evaluating Review Technique (PERT)
D) Evaluation of Taylor’s Scientific Manageme nt :
Taylor’s scientific management was responsible for improvement of
production efficiency leading to better working conditions and
compensations to the employees. However, Taylor’s scientific
management has been criticized by the workers, trade unions a nd even
employers.
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16 The main criticisms are:
1. Exploitation of Workers –
Critics point out that the “speed up” conditions placed undue pressures on
employees to perform the work at fast levels. The emphasis on
productivity and profitability led some employe rs to exploit workers. As a
result, more workers joined unions, which resulted in mistrust between the
management and the workers.
2. Mechanical Approach –
Taylor’s approach has been criticized as mechanical approach. Taylor
placed too much emphasis on efficie ncy without considering the human
element. Taylor considered workers as robots who could speed up the
work at any cost.
3. Wrong Assumptions –
Taylor and his followers assumed that workers are motivated merely by
monetary gains. In fact, it is not just wages t hat motivates a worker to
perform better, but workers have social and ego needs as well that can
motivate them to perform better.
4. Individualistic Approach –
Taylor’s scientific management places too much emphasis on individual
performance rather than group performance. Nowadays, the success of an
organization does not depend just on individual performance of workers,
but also on group performance of workers. It is obvious that informal
work groups and work teams can be very effective in improving work
effici ency as well as gaining job satisfaction.
5. Narrow Applicability –
Taylor’s scientific management can at best be applied only for factory
management, where the performance can be measured quantitatively.
There are number of cases, such as in services, where t he performance of a
person cannot be measured in quantitative terms. For instance, the
performance of a teacher cannot be measured in terms of number of hours
engaged and the completion of subject matter, but by the quality of
teaching and benefit to the s tudents.
6. Problem of Separation of Planning from Doing –
Taylor advocated separation of planning from doing. In real practice, one
cannot separate planning from doing. The planners should also be engaged
in doing, and then only they will be able to frame rea listic plans and
policies for the organization.

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17 7. Problem of Unity of Command –
Taylor advocated functional foremanship, where the workers have to
report to eight functional heads. This violates the principle of unity of
command, where the workers are suppo sed to report to only one
supervisor and not to several bosses. Lack of unity of command can
create confusion and chaos in the organization.
1.5.3 – ADMINISTRATIVE SCHOOL :
The Administrative Management School also called as the ‘ Management
Process School ’, regards management as ‘the process of getting things
done through people as members of work -groups rather than as
individuals’.
The first advocate of administrative management theory was Henry Fayol
(1841 -1925), regarded as the “Father of Modern Managem ent”. Apart
from Fayol, there were other management thinkers who contributed to the
Administrative Management Theory, such as Mary Parker Folle t, Luther
Gulick, Lyndall Urwick, Earnest Dale, James Mooney, Oliver Sheldon,
Hawthorne, Elton Mayo, etc.
A) Princip les of Management :
Henry Fayol developed the concept of administration . His principles were
based largely on his own experience. The 14 principles of management
advocat ed by him were discussed in detail in his book published in 1917,
‘Administration indus trielle et generale’. It was published in English,
titled ‘Industrial and General Administration ’ in 1949 and is widely
considered a s the foundational work in classical management theory .
Some of the principles are :
 Division of work
 Authority and Responsi bility
 Discipline
 Unity of Command, etc.
B) Business Activities :
Fayol also gave a classification of business activities, which include:
 Technical (manufacturing of goods)
 Commercial (buying and selling of goods and services)
 Financial (obtaining and appli cation of funds)
 Accounting (recording of business transactions and statistics)
 Security (protection of persons and property) and
 Managerial Activities.
C) Management Functions :
According to Fayol, the managerial activities were mostly neglected in the
business organizations in those days and therefore he focused on
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18 Fayol identified five functions of management, which include:
 Planning
 Organization
 Commanding (Directing)
 Coordinating and
 Controlling.

D) Managerial Qualities and Skil ls:
Fayol also identified certain ‘Qualities and Skills’ required by the
managers to perform their managerial tasks. The managerial qualities and
skills include:
 Physical qualities (good health and vigour)
 Mental qualities (good judgment and analyzing)
 Moral qualities (such as loyalty, integrity and dignity)
 General education
 Special knowledge (relating to a particular function / field)
 Experience (knowledge and skills acquired from acquaintance
with the job)

E) Critical Evaluation :
Fayol’s administrative m anagement theory – principles and functions
are universally used even today in managing organizations.
However, this theory has been criticized on the following grounds:
1. Management Oriented Theory –
The administrative management theory is management oriente d. It
does not give much attention to the problems of the workers.
2. Lack of Emphasis on Informal Organization –
The administrative management theory does not place any
emphasis on informal organization or groups. It places emphasis
only on the formal organiz ation al structure.
3. Concepts Borrowed from Military Science –
Some of the concepts of administrative management theory were
borrowed from military science and then an attempt has been made to
apply such concepts to social and business organizations. For instance,
Fayol placed emphasis on the function of ‘Commanding’ rather
than ‘Directing’ the subordinates.
4. Mechanical Approach –
The administrative management theory is more of a mechanical
approach and it does not deal with some of the important dimensions of
management such as motivation, communication and leading.
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19 F) Hawthorne Studies / Experiments :
The human relations movement began with the Hawthorne experiments
which were conducted at Western Electrical Works in USA between 1924
and 1932. The Hawthorne exper iments were conducted in four parts as
follows:
Part I – Illumination Experiments (1924 -1927) : From 1924 -27, the
National Research Council made a study in collaboration with Western
Electric Works to determine the effect of different levels of illuminatio n
on the productivity of labour s. The experiment involved the prolonged
observation of two groups of employees making telephone relays. The
intensity of light under which one group worked (test group)
systematically varied while the light was held constant for the second
group (control group).
The researchers found that the productivity of the test group improved with
an improvement in lighting conditions and surprisingly it even
improved, when the lighting conditions were worsened. To complicate
further, the productivity of the control group also rose, even when there
were no changes in the lighting conditions. The researchers concluded
that something besides lighting was influencing the workers performance.
Part II – Relay Assembly Test (Room Experiment) (1927 -29): In this
experiment, Elton Mayo and his associates were involved. Two groups of six
female telephone relay assemblers w e r e m a d e . E ach group was placed in
separate room and a number of variable s w e r e altered – w a g e s w e r e
increased; rest periods of varying length were introduced; the workday and
work week were shortened. The researchers, who now acted as supervisors,
also allowed the groups to choose their own rest periods and members of their
own groups as well as to involve in decision making rega rding suggested
changes.
Performance tended to increase over the period but it also increased o r
decreased unevenly . Productivity and morale of the group increased
consistently during the period of the experiment. The researchers also
observed that even w hen the improvements in physical working conditions
were withdrawn, productivity and morale of the group were maintained.
The researchers concluded that the socio -psychological factors such as
small informal groups, non -directive supervision, participatio n in work
matters, etc. were responsible for improvement in productivity.
Part III – M a s s I n t e r v i e w i n g P r o g r a m ( 1 9 2 8 -31): Mayo initiated a
three year long interviewing programme in 1828, covering more than 21,000
employees to find out the causes for increa sed productivity. The emphasis of
the phase was on human relations rather than on working conditions. The
point demonstrated by this interviewing programme is central to the human
relations approach.
For the first time, the importance of the informal work group was recognized.
Then, the bank wiring room experiment was set up in order to find out how
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20 be increased, if people are allowed to talk freely about matters that are of
import ance to them.
Part IV – Bank Wiring Observation (Room Experiment) (1932): In
this experiment, 14 male workers were formed into a work group and were
intensively observed for 6 -7 months in the bank wiring room, engaged in the
assembly of terminal banks for the use in telephone exchanges. The
employees were paid individual wages and a bonus based on group effort.
It was expected that highly efficient workers would put pressure on others for
increased output and high bonus. However, the expected results did n ot
appear and the group established its own standard output and developed
specific mechanisms to protect themselves from the social pressure which
were based on certain sentiments.
Work group norms, beliefs, sentiments had a greater impact in influencing
individual behaviour than did the monetary incentives offered by the
management. Thus, the Hawthorne Experiments indicated that employees
were not only economic beings but social and psychological beings as well.
The researchers concluded that employees wou ld work better had they
believed that the management was concerned about their welfare and
supervisors paid special attention to them. This phenomenon (subsequently
labeled the Hawt horne effect) h as remained quite controversial till to day.
G) Conclusion of th e Hawthorne Experiments:

1. The social and psychological factors are not just monetary incentives
but physical working conditions are responsible for workers’
productivity and job satisfaction.
2. The informal and interpersonal relations among workers influence
the workers behaviour and performance more than the formal relations
in the organization.
3. Employees would perform better when they are given freedom to
participate in decision -making affecting their interests.
4. Employees would also work more efficiently, w hen they believe
that the management is concerned to employees – welfare.
5. When employees are treated with respect and dignity, their
performance tends to improve significantly.
6. Effective communication between the superiors and subordinates
can improve the relations and overall productivity of the
subordinates.
H) Criticisms of Hawthorne Experiment:
The Hawthorne experiments and the human relations approach has been
criticized on the following grounds:
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21 1. Lacks Validity –
The Hawthorne experiments were conducted under controlled situations
and as such, the findings cannot be justified in real setting. The workers
under observation were conscious of the experiments and therefore they
may have improved upon their performance, which may not be so in real
situation.
2. Too much Emphasis on Human Aspects –
The Hawthorne experiments placed too much emphasis on human
aspects. In real situation, it is not just human aspects that can improve the
productivity, but also the technical and technology aspects that can have
an impact on the workers performance.
3. Too much Emphasis on Group Decision Making –
The Hawthorne experiments placed too much emphasis on group decision
– making. In real situation, individual decision making cannot be totally
neglected, especially when quick decision need to be made. Research
evidence on the superiority of group decision -making to individual
decision -making is conflicting and inconclusive.
4. Over Emphasis on Freedom to Workers –
The Hawthorne experiments placed over emphasis on freedom to the
workers. I t does away with the constructive role of the supervisors.
However, too much of freedom to the workers may lower down the
performance or productivity of the workers.
5. Shortsighted -
The following points confirm the shortsightedness of this approach: (i) it
lacks adequate focus on the work, (ii) human relations tend to neglect
economic dimensions of work satisfaction and (iii) human relations
research is concerned with only operative employees but not managerial
and supervisory personnel.
6. Total Work Environme nt is not considered -
Work environment comprises of organizational structure, its culture and
climate, labour - management relations, social environment, etc. But the
human relations approach considered only social environment as the total
work environmen t.
1.5.4 – BEHAVIOUR SCHOOL :
A) Introduction :
Behavioural science approach is an extension of the human relations
approach. Elton Mayo and his associates developed the use of the
scientific method in their studies of human resources in the work
environment. Later researchers, like Abraham Maslow, Douglas
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22 became known as ‘behavioural scientists’ rather than ‘human relations
theorists.
The behavioural science approach also known as ‘human resource
approach’ placed emphasis on the behaviour and performance of
individuals and groups in organizations. The behavioural scientists brought
two new dimensions to the study of management and organizations:
 They advanced more sophisticated view of human being s and their
needs and motives, as compared to Elton Mayo. For instance,
Abraham Maslow in his ‘Theory of Hierarchy of Human Needs’
advocated ‘self -actualization needs’, apart from other needs.

 They also applied the methods of scientific investigation to d etermine
the group behaviour of people in organizations.

B) Basic Assumptions and Propositions of Behavioural School of
Thoughts :
 Organizations are social as well as technical systems and it is the
responsibility of the management to integrate the two.

 There are a number of factors that influence interpersonal behaviour of
people and work in an organization.

 Employees are motivated not only by physiological needs but also by
social and psychological needs.

 Individuals differ in perceptions, attitudes, nee ds and values. These
differences must be identified and recognized by management.

 Conflict in an organization to a certain extent is inevitable and even
desirable in certain cases. Conflict and cooperation can co-exist in an
organization.

 There should be a fusion of personal goals and organizational goals in
an organization.

C) Contributions of Behavioural Scientists :
Abraham Maslow, Douglas McGregor, Chestar Barnard, Fredrick
Herzberg, Victor Vroom and others made significant contributions to the
behaviou ral science approach. The main contributions are as follows:
 Human beings have several needs. Some are lower -level needs like
physiological needs, safety and security needs and social needs, which
are to be satisfied first; other are of the higher -level li ke ego needs and
self-actualization needs, which can be satisfied after satisfying lower -level
needs. (Abraham Maslow’s Hierarchy of Needs Theory , 1943 )

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23  There are various patterns of communication in an organization, which are
vital for the performance of the organization. (James March and
Herbert Simon)

 Managers can have different assumptions of people depending on
situation. Douglas McGregor’s ‘Theory X ’: Managers may have
traditional assumptions about the nature of people – s u c h a s h u m a n
beings hate to w o r k a n d therefore they must be coerced, controlled,
directed and threatened with punishment to make them work. ‘Theory
Y’: Managers may have positive assumptions of people such as people
love to work as play or rest and that they can exercise self-contro l and
self-direction.
 People will be motivated to do things to reach a goal, if they believe
in the worth of that goal and if they can see that what they do – will
help them in achieving it. The expectancy theory suggests that the
motivation or inclinatio n to act in a certain way depends on the
intensity of the desire of the employee for a given outcome and on the
attractiveness of such an outcome. There are three variables in the
expectancy theory as : Attractiveness, Performance –Outcome
Linkage and Effo rt -Performance Linkage (Victor Vroom’s – The
Expectancy Theory of Motivation , 1960 )

 There are several factors that influence behaviour and work of
people in an organization. Herzberg named the factors related to job
satisfaction as motivators and those r elated to job dissatisfaction as
maintenance factors or hygiene factors . (Herzberg’s –Two Factor
Theory , 1950 )
 If ‘Motivators’ such as job, recognition, achievement, challenging
work, responsibility, growth and adbvancement, etc. exist in a work
environmen t, then they would result in satisfaction and motivation. The
set of motivators are related to the nature of work and are intrinsic to
the job itself. These factors positively contribute for satisfaction and
increase performance.

 If ‘Hygiene factors’, suc h as wages and salary, company policies and
practices, interpersonal relations with peers, superiors and
subordinates, working conditions, job security, etc. exist in a work
environment then they would result in no dissatisfaction, but not
motivation. Unli ke motivators, hygiene factors do not motivate
employees. However, they prevent dissatisfaction and try to maintain
status quo. They do not contribute for growth but prevent loss. The
absence of these factors may lead to job dissatisfaction which the
organ ization cannot afford. The elimination of dissatisfaction does not
mean satisfaction.

 The tasks of executives or managers are to maintain a system of
cooperative efforts in a formal organization. (Chestar Bernard)
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24 1.5.5 –SYSTEMS APPROACH :
A) Introduction :
The systems approach views the organizations as a unified, purposeful
system composed of interrelated parts. In this approach, the managers look
at their organization as a whole and as a part of the larger external
environment. The focus of the systems ap proach is that the managers in an
organization cannot function only within their department but they also
have to communicate and interact with other departments and also within
representatives of other organizations.
The systems approach to organization a nd management appeared around
1960. Some of the important contributors to the systems approach include
Robert Katz, Daniel Katz, Robert Kohn, W.G. Scott and Ludwig von
Bertalanffy.
B) Some Key Concepts :
Sub-systems –The part that make up the whole of a system are called
subsystems. Also, each system can be a subsystem of a still larger whole.
For instance, a department is a subsystem of a division and a divisi on is a
subsystem of a company and a company is a subsystem of an industry and
industry can be a subsy stem of an economy.
Synergy –It means that the whole is greater than the sum of its parts. In
an organization, synergy can exist among departments and employees
in an organization. When individuals and departments cooperate
and interact, they become more p roductive than if each of them were to act
in isolation.

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25 C) Open and Closed Systems :
A system is considered as an open system if it interacts with its
environment. And a system is considered as a closed system if it does not
interact with its environment.
D) Organization as an Open System :
All organizations interact with their environment, but the extent to
which they do so differs. A business organization is a part of a larger
system, i.e., society. A business organization gets its inputs from
society such a s manpower, materials, money, etc. and supplies its
output (in the form of goods and services) to the society.
A business organization cannot operate in isolation. It needs active
support from members of the society to conduct its business activities.
For instance, it needs resources such as finance from investors and
financial institutions; it needs traders to distribute its goods and
services to final consumers and it also needs the support of consumers
to consume its goods and services.
1.5.6 – CONTINGEN CY APPROACH :
A) Introduction :
Contingency approach is also referred as “situational approach”.
According to the contingency approach, certain techniques may also
work well in a certain situation and not in all situations. The
management’s task is to iden tify that technique, which will work well
in a particular situation. Decisions must be situation -adaptive and
situation specific. The nature of the situation or problems determines
the method or technique that can be used to deal with it. A technique or
method that is good for a particular situation may not be good in
different situation. In other words, there is no one best way of doing
things, which is universally applicable to all situations.
B) Contingency Approach and Commonsense :
According to conting ency approach, there is no ‘One best way’ of
doing things. The same situation may be effectively handled differently by
two different persons or even by the same person at different times.
Management needs to adopt a particular technique to handle a partic ular
situation. The contingency approach may appear to be a matter of
commonsense, but in reality it is much more than commonsense due to:
 The management must have a thorough analysis and understanding of
each situation.

 The management must then find out the various techniques or methods
that can be used to deal with the situation or problem.

 Each technique may then be examined to find out whether or not it will
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26  After proper examination of each technique, the management m ust
select the best possible technique that can deal with the situation.

 The management must then implement the technique or method to deal
with the situation or to solve the problem.

 The management may also review the performance of the technique or
methods to find out whether or not the problem is getting solved or
not, and if not, the management may modify the technique or adopt
another technique to deal with the situation.

C) Evaluation of Contingency Approach:
Contingency Approach is useful to manag ers in a number of ways. It
cautions managers that there is no ‘One best way’ of doing things.
Managers have to find out the best possible methods or technique to solve
a particular problem or to deal with a particular situation. The utility of
contingency approach to management can be cited in a number of cases.
Some of them are as follows:
 It guides managers to select a particular leadership style depending
upon a particular situation. In other words, it makes managers to adopt
situational leadership styl e rather than following a particular leadership
style in all situations.

 It helps management to adopt appropriate motivational packages for
the employees in the organization. Proper weightage is to be given
either to monetary incentives or to non -monetary incentives depending
upon the nature of the employees and their needs and expectations.

 It helps to resolve the conflict between the manager and the employee s
in the organization. Depending upon the nature of the conflict, the
management may adopt a part icular technique to solve the conflict.

 Managers can also delegate authority to their subordinates depending
upon the nature of the work and the situation. Before delegating
authority, the managers should analyze the nature of the subordinates
and also th e situation or the activity that needs to be delegated.

 The contingency approach can be useful to management in dealing
with the managerial process. i.e. planning, organizing, directing and
controlling of activities. The management should first analyze th e
situation and then only undertake the managerial process.

 The management can select the most appropriate form of
organizational structure depending upon the situation. For instance,
in the case of a number of projects to be undertaken at a time, the
organization may adopt the matrix structure.

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27 1.6 EVOLUTION OF INDIAN MANAGEMENT
THOUGHTS
1.6.1 – INTRODUCTION :
India has been the land of rich culture and varied heritage and our
civilization has given the rest of the world priceless gems such as
precious gems and jewels like Kohinoor; innumerable forms of arts;
musical instruments like flute, sitar, tanpura, veena, etc.; preaching of
wisdom by plenty of knowledge schools from education institutes like
Gurukul, world’s first university, classical philosophy , abundant classic
literature, diversity of poetry, etc.; ayurveda, ayurvedic medicines,
therapies like Panchakarma, Litch therapy, and ayurvedic surgeries like
cataract, plastic surgery; Homeopathy, varied range of treatments and
therapies, Naturopathy, U nani therapy, Siddha therapy, Yoga; Sanskrit;
many mathematical inventions like Vedic math., the number zero,
Binary system, Fibonacci numbers, trigonometry, etc.; many physical
games like kabbaddi, kho -kho, martial arts as well as mental games like
chess, snake & ladder, etc.; variety of yields like basmati rice, turmeric,
spices; inks and rangolis (sand floor); discovery of water on moon,
astrology and many scientific, mathematical and astronomical insights.
Much of modern management is a common sense approach to doing
business and managing people, politics, economics and international
relations all of which the ancient Indians did very well without
specifically categorizing their practices under the nomenclature of
‘Management’. To this end, we have seve ral noteworthy treatises
(Arthasastra, i.e. Economics), biographies of kings and rulers
(Megasthenes’ Indica, Akbar nama of Abu Fazl), references in puranic
and vedic literature (Ramayana, Mahabharata, Gita) which indicate in
no uncertain terms that the pr inciples of management (PODSCORB)
that we refer to today were very much in practice.
India was ruled by many kings who belonged to different ethnic,
religious and cultural backgrounds all of which made India extrapolate
the humongous demands on the kingshi p to govern his empire in the
most just and equitable manner, taking into consideration the complete
personality of all his subjects. While most organizations worldwide are
struggling with geopolitical relations and facing so many issues in
managing a glob al workforce, Indian kings and rulers mastered the art
of doing this while ruling over a truly heterogeneous population in their
times.
There are innumerable instances which prove that many management
principles are followed and have been practiced in Indi a since ancient
times.
The wealthy contribution to the Management concept by Indian
management thinkers such as Birbal, Tenali Rama, Shivaji Maharaj as
the old masters of management, modern management thinkers to name
few Chanakya, Swami Vivekanand, Swami Dayanand Saraswati, V. K. munotes.in

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28 Krishna Menon, Amirtya Sen, Nirmalya Kumar, Gurcharan Das, Kiran
Karnik, Vineet Nayyar, Nandan Nilekani, Arun Maria, Deepa Prahalad,
Professor J B P Sinha, etc. whose monumental works and fundamentals
laid the foundation for the d evelopment of framework for Indian
Management.
However, many of the practices and documented learnings from Indian
history stand sound and valid even today in spite of the fact that the
demographic, social, societal, political and geographic structure of the
world has seen a sea -change. Ultimately management education world -
wide is looking to India to help enrich its boundaries with its vast
repositories of knowledge on values, ethics and cultural ethos –
something that ‘Modern Management’ had not originall y included in its
framework.
Management is an art and a science – it has the characteristics of both.
It is also acquiescent and lends itself to modification and improvement
to stay in step with changing times. The relevance of Indian
Management thought is being felt deeply today even and is respected
and admired by the Ivy League schools of the US and perhaps the time
is to dig deep into Indian history and understand why it is in trend so
much.
1.6.2 – INSIGHT INTO THE JOURNEY OF INDIAN
MANAGEMENT THOUGHTS :
India is multi -cultured, multi -faced and diverse body, which support
multiple ethoses ( c o d e o f w o r k ) . These multiple work -ethos, surpass
the usual widely -practiced western management tactics for an effective
business execution.
A) Analysis of different In dian Management thoughts:

1. Harmony with environment (Effects of Yoga in management of
all dimensions on everyone’s life) –
With the help of YOGA, meditation man (manager) tries to purify
himself within, tries to eliminate dust of anxieties; stress and
depression from his mind and tries to achieve tranquility so that he can
work in present and with more concentration and achieve his targets
efficiently.
Thus practicing these activities he truly and not only concentrates on
his body and his work, but at th e same time man cannot ignore the
environment he is living in. As he concentrates on himself to realize his
targets, he has to get harmonize with the environment for the same. He
has to get adjust with the people around him, his family, his home, his
offic e environment, his boss, subordinates, nature around , etc. So that it
would have positive impact on his actions, his mind, ideas will flourish
in harmonized environment. He could also maintain healthy and
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29 Harmonizing with environment will result into getting along with
people, so that managers will not face any opposition in his work, and
thus will not get any pressures, depression, stress, jealousy, anxiety,
overwork which are route causes of all negative happenings.
2. Self-Control –
Self-control is the ability to make choices about how one behaves and
acts rather than relying on impulses. Instead of acting on instinct or
immediate impulse, individuals –with self -control pause and evaluate a
situation and the c onsequences that may result from their behavior. By
exercising self -control, one can learn to make appropriate decisions and
choose behaviors that will be more likely to have positive outcomes.
Self-control is critical for getting along with other people. It’s thinking
before acting, like looking before crossing the street. Self -control
prevents impulsive behavior that may have dangerous or negative
consequences.
3. Dharma, Swadharma and Detachment –

a. DHARMA : Dharma is the law of right living, the observance of
which secures the double object of happiness in your own life and also
the happiness in others life. It stands for all those ideals, pur poses,
influences, institutions and the ways of life and behavior that shape the
character and evolution of man both as an individual and as a member
of the society.
The openly spirit, righteousness (godliness), and fearlessness are the
three divine elements of Dharma .
Dharma is spirit (or evolves from spirit) in Indian ethos. ‘ Do right
things (Dharman -Chara), do good, be good and the whole chamber of
our heart shines with Light of Consciousness’. In dharma, not mere
action but rightness is given great emphasis. Dharma stresses
fearlessness .
Dharma is ethics and spirituality combined.
b. SWADHARMA : Gita emphasizes tha t Swadharma (one’s
duty based on one’s swabhava – inclination and aptitude – on the
work that falls to one’s lot by virtue of one’s placement in society)
should be carried on for the general welfare of society and as worship
of Divine, as our offering to god.
This is applicable in today’s business world to support and actively co -
operate in the business world and to live with the mother earth,
safeguarding her grand ecological balance.
c. DETACHMENT : Detachment is the ability to allow people,
places or things the freedom to be themselves. Giving another person
“the space’’ to be him or herself. Detachment is disengaging from an
over-enmeshed or dependent relati onship with people. It’s the munotes.in

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30 willingness to accept that you cannot change or control a person, place
or thing. Developing and maintaining of a safe, emotional distance
from someone whom you have previously given a lot of power to affect
your emotional outlook on life. It means the ability to maintain an
emotional bond of love, concern and caring without the negative results
of rescuing, enabling, fixing or controlling. It suggests the ability to
exercise emotional self -protection and prevention so as not to
experience greater emotional devastation from having hung on beyond
a reasonable and rational point. Ability to allow people to be who they
“really are’’ rather than whom you “want them to be.’’ Ability to avoid
being hurt, abused, taken advantage of by people who in the past have
been overly dependent or enmeshed with you.
1.6.3 – RELE VANCE OF INDIAN MANAGEMENT THOUGHTS IN
THE CURRENT ERA :
Current management models are not holistic as they do not take into
account aspects such as liberation, culture, spirituality and deeds
(karma). Western theories also do not focus on the higher order purpose
of existence. This is where Indian Management/ Bharatiya Management
can play a big role. As IndianManagement/ Bharatiya Management is
rooted in spiritual and cultural ideas, it can plug the gaps in the current
management models and create holistic models with a focus on human
quality development.
The Indian epic book of Bhagavad Gita portraying Mahabharata has not
only guided the personal lives of humans but also has shaped the
context of managerial decision -making and building an ethical
decision -making ecosystem among Indian professionals. This book
posits that the ethical ideology is always adopted at individual level
that leads the managers to contemplate the issues and determine the
right way to behave and make decisions at a professional level .
Another interesting verse is a book by famous poet Kalidas titled
‘Meghadutam’ (Cloud Messenger). The cursed Yakshya sings hymns as
a prayer to the dark clouds of southwest monsoon. Deities of worship in
different towns of ancient India from all the reli gious places comes
there, through the prayer by the Yakshya so that the dark clouds will
bring rain to the sacred cities and in the process he will be free from the
curse. If one is a passionate traveler or a travel planner, it is an
interesting read to do itinerary planning and destination marketing.
This book is like a travel guide and lists all places of religious
importance that come along the movement of monsoon in India. The
students of tourism and travel can learn great lessons of destination
marketi ng from this scripture.
One of the major domain contributions is the paradigm of ‘Customer
Satisfaction’. This paradigm has become immense necessary for
survival of modern business. The idea of ‘customer Satisfaction’ is
explained as the sole goal of the s ervice provider in some famous verse munotes.in

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31 of medieval period which throws light on how dimensions of service
quality are mapped to customer satisfaction through its poetry.
Successfully organizing events as Kumbh -Mela and procedures and
functions like dabbawall as has substantiated the victory of Management
practices in India since ages.
Many Indian thinkers and strategists of ancient past have proposed
concepts, thoughts, processes and strategies that are relevant in today’s
business environment. The u nderstandi ng of two diverse areas of
ancient Indian wisdom and modern management thought will build an
entire new management domain which will guide business managers of
tomorrow.
Check your Knowledge:
1. Father of Scientific school of management.
2. Important princ iples of management by Henry Fayol.
3. Practicing of Yoga plays important role in management.
Define :
1. Performance standards.
2. Fatigue and motion study.
3. Self -Control
Answer the following :
1. Which are the managerial qualities and skills ?
2. Why o rganization is called as an open system ?
3. How Indian management relate in the current era ?

1.7 FUNCTIONS OF MANAGEMENT
“Management is what management does.” This point s o u t t h e functional
approach to t h e management. Henry Fayol provided a functional
approach to management in his book “Industrial and General
Management”.
1.7.1 – FUNCTIONS OF MANAGEMENT :
The important functions of management can be explained as follows:
1. Planning –
Koontz and O’Donnell defines planning as, “Planning is deciding in
advance what to do, how to do it, when to do it and who is to do it.”
Planning is the primary function of management. It is the function of
deciding future course of action to achieve desired results. It is the
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32 that and how to do that. Planning provides guidelines for actual work.
Planning set the standards against which actual activities are measured.









2. Organizing –
Louis Allen defines organizing as, “Organizing is a process o f
identifying and grouping of works to be performed, defining and
delegating authority and responsibility and establishing relationships to
accomplish objectives.” Organizing is concerned with the arrangement
of resources in the organization. It involve s the decisions about division
of work, delegation of authority, etc. It establishes proper superior –
subordinate relation ships and facilitates co -ordination of activities in
the organization.
3. Staffing –
H. Weitrich and H. Knootz define staffing as, “fi lling and keeping
filled, positions in the organization structure.” Staffing function helps to
find out right person for the right job. It includes recruitment, promotion,
transfer, retirement, job rotation, etc. of the employees.
4. Directing –
Directing i nvolves giving instructions to people and ensuring that they
know what is expected of them. It includes three sub -functions:
i) Communicating : It refers to transfer of message from one person
to another. Effective communication requires proper feedback so th at
it is ensured that message is clearly understood.
ii) Leading : Leading is an act of influencing subordinates to work
willingly towards the attainment of objectives. A manager has to get
work done through people. The success of an organization
depends upon q uality of leadership of managers.
iii) Motivation : It refers to encouraging and inspiring the people for
better performance. It is a process of stimulating people for desired Directing Controlling Co-ordination Management Functions Planning Organizing Staffing munotes.in

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Introduction

33 course of action. Managers should provide monetary and non -
monetary incentives to mot ivate the subordinates.
5. Controlling –
James Stoner defines controlling as, “Controlling is the process of ensuring
that actual activities conform to the planned activities.” Controlling involves
monitoring of actual performance, finding out deviation if any and taking
corrective measures for improvement.
6. Coordinating –
Coordinating refers to interlinking of activities of all the subordinates
and departments. There is a need for co ordination at all the levels.
Co-ordination gives direction to all the de partments and develops team
spirit. Co -ordination is an essence of management.
1.8 SUMMARY
Management is a vital element or backbone for running and surviving
every organization successfully. It’s an art of getting things done though
people by synchronizi ng various processes like Planning, Organising,
Staffing, Directing, Coordinating & Controlling the different activities,
which are considered as the functions of management.
Management is all pervasive, universal, intangible, innovative, dynamic,
integra ted & continuous process which succeeds with the goal oriented
group efforts involving people’s integration and follows its well
established principles.
Management is situational and has multi -disciplinary approach which can
be perceived with the aspects o f Art, Science and/ or professional
approach.
There are three levels of operation of management as, Top; Middle &
Bottom which designates its unique functions; for carrying out those
smoothly, managers are required to possess specific skills namely :
Conce ptual, Human & Technical skills.
The management thoughts have been developed with the distinct theories
of management like : Scientific, Administrative, Behavioural, Systems &
Contingency approach propounded by different management scientists.
Indian manag ement thoughts are very ancient, based on old Indian
philosophies, morals, ethics and values. These thoughts go hand -in-hand
to run & survive any organization smoothly & successfully subsuming the
happiness, peace of mind and job -satisfaction of the member s working in
it.
1.9 EXCERCISES
State whether following statements are True or False :
1. Management is a stand -alone process.
2. Management decisions fluctuate time to time.
3. Every manager has same decision style. munotes.in

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34 4. Taylor supported the concept of Mental revolut ion.
5. Planning follows Directing.
Select the most appropriate option from the given :
1. Which among the following is not the principle of
management ?

(a) Division of work, (b) Unity of command,
(c) Discipline, (d) None of the above, (e) All of the above

2. Whic h of the following is ‘M’ amongst the integrated process
of management ?
(a) Manpower, (b) Mapping,
(c) Merchant, (d) Measure issues

3. Following is the workforce of the Middle level of
management :
(a) CEO, (b) Sales manager,
(c) Foremen, (d) None of the above

4. Following is not at the shop level supervisor according to
Taylor :
(a) Route Clerks, (b) Inspector,
(c) Repair Boss, (d) Gang Boss

5. Following is not the function under Staffing :
(a) Recruitment, (b) Promotion,
(c)Transfer, (d) None of the above
Write short notes on :
1. Management as intangible aspect .
2. Features of management as Science.
3. Managerial skills.
4. Basic assumptions and prepositions of Behavioral School of
thought.
5. Sub functions of Directing.
Give brief ans wers :
1. Why management is called as dynamic in nature ?
2. Why management can be considered as profession ?
3. Why different skills are required at different levels of
management ?
4. How ancient Indian concepts relate to today’s management
thoughts ?
5. Which are the different functions of management ?


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35 Match the columns :
Column ‘A’ Column ‘B’
i) Planning a) Arrangement of resources
ii) Organising b) Monitoring actual performance
iii) Staffing c) Giving instructions to people
iv) Directing d) Provides guidelines for work
v) Controlling e) Find out right person for the job





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36 2

PLANNING
Unit Structure
2.0 Objective
2.1 Introduction
2.2 Planning
2.3 Nature of Planning
2.4 Classification and Components of Plans
2.5 Essentials of a good Plan
2.6 Management by Objectives
2.7 Summary
2.8 Exercise
2.0 OBJECTIVES
After studying the unit the students will be able to :
1. Understand the concept of Planning.
2. Bring out the Planning with reference to Forecasting, Decision Making
and Problem Solving.
3. Know the Nature, Characteristics, Merits and Limitations of P lanning.
4. Analyse Classification of Plans.
5. Explain the Components of Plans.
6. Discuss the Essentials of a good Plan.
7. Evaluate the Planning Process.
8. Elaborate the concept of Management by Objectives – (MBO).
9. Know the Importance and Relevance of MBO.
2.1 INTRO DUCTION
Planning is a primary function of management. Management process starts
with planning of activities. Planning provides directions for activities.
Planning is setting objectives and developing appropriate course of action munotes.in

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37 by formulating the policies and procedures to achieve those objectives.
Objectives provide direction for all managerial decisions and actions. It is
also known as a Blue -Print of managerial actions.
Planning decides the objectives, duties and responsibilities of all managers
at all levels. Ultimately it requires taking decisions as it involves making a
choice from alternative course of action. All members need to work
towards achieving organizational goals. These goals set the targets which
needs to be achieved, eventually against wh ich actual performance is
measured.
Planning precedes all other managerial functions. Planning inevitably is
forward looking. It is looking into the future. It involves visualizing a
future course of action and putting it in a logical way. It provides rat ional
approach for achieving predetermined objectives for a given period of
time; formulating various courses of action s to achieve the organizational
objective, then selecting the most appropriate alternative amongst the
various courses of action s availab le. Subsequently it leads to forecasting
as it is the technique of gathering information. It then facilitates for
decision making and also provides direction or guidelines for problem
solving. Therefore Planning makes room for Forecasting, Decision
Making and Problem Solving. Systematic planning helps in facing the
uncertainties of future with less embarrassment. It helps in making things
happen in the expected way.
In short we can conclude that planning is nothing but deciding in advance
what to do, how to do, when to do, where to do, with whom to do, what
will be the cost of it, etc. in another word , answering all ‘W’ and ‘H’
questions related to business activity for its successful completion is
known as ‘Planning ’.
2.2 PLANNING
2.2.1 –DEFINITION :
1. Koon tz and O’Donnell defines planning as, “Planning is deciding in
advance what to do, how to do it, when to do it and who is to do it.”
2. In the words of George R. Terry , “Planning is a method or a
technique of looking ahead, a constructive reviewing of future needs
so that present actions can be adjusted in view of the established
goals.”
“Planning is the selecting and relating of acts and the making and
using of assumptions regarding the future in the visualisation and
formulation of proposed activities believ ed necessary to achieve
desired results”.
3. According to Alfred and Betty “planning is the thinking process, the
organized foresight of the vision, based on facts and experience that is
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38 4. Gray and Smeltzer stated that “ Planni ng is the process of setting
goals and establishing methods or paths reaching them” .
5. Philip Kotlar defines planning as “Planning is deciding in the present
what to do in the future. It is the process whereby companies reconcile
their resources with their o bjectives and opportunities” .
2.2.2 – FORECASTING :
A) Introduction :
Planning is future oriented activity based on forecasts. Planning includes
forecasting. Forecasting is an assessment of the future. It is systematic
attempt to know probable events to provi de presumptions against the
future. It works in relation to activities and working of an enterprise.
A forecast is a prediction. It is the estimate of probable events. Forecasting
helps in decision making by providing tips about what is likely to happen
in future. In short, forecasting is a systematic attempt to investigate
inference from known facts.
Forecasting is a technique of gathering information, it’s important in
developing premises. Forecasts can be made about the demand for a
particular product, p olicy change, interest rates, prices of capital goods,
tax rates etc. Accurate forecasts therefore become essential for successful
plans.
B) Definition :

According to Henry Fayol , “To manage is to forecast and to plan, to
organize, to command, to co -ordinate and to control.”

According to literature , forecasting can be defined as follows :
As per Golden J. et.al , “Forecasting is predicting, projecting, or
estimating some future event or condition which is outside an
organization’s control and provides a basis for managerial planning” .
Waddell D., et.al defines, “Forecasting is generally used to predict or
describe what will happen (for example to sales demand, cash flow, or
employment levels) given a set of circumstances or assumptions” (1994,
p.41) .
In the wo rds of Mentzer J.T. & Moon M.A. , “Forecasting is a projection
into the future of expected demand, given a stated set of environmental
conditions” .
C) Planning as Forecasting :
Planning premises are the assumptions and predictions about the future
business situation, i.e. about the various elements of the environment that
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39 All managers involved in planning should be familiar with and use the
same assumptions. Appropriate assumptions have to be made on vario us
aspects of the environment – both internal and external to the organization.
For example, important internal premises include sales forecasts and
policies of the organization. Each one of these element is a critical success
factor. For instance, the ac curacy of the sales forecast influences the
procurement of resources, production scheduling and the marketing
strategies to be pursued to achieve the objectives. Sales forecast and past
experience also facilitate to arrive at monthly consumption pattern.
Production planning and control helps to estimate required resources.
Production is planned according to the sales forecast. On the basis of this
forecast , proper quantity and quality of resources is decided. Thus, it
avoids excess or shortage of resources.
Continuous production is a method used to manufacture, produce or
process materials without interruption. Here, goods are produced
constantly as per the demand forecast.
Batch production is the production of a number of identical units
according to specif ic orders or on the basis of demand forecasts. The items
are produced in batches or lots.
D) Difference between Planning and Forecasting :
Following table depicts the difference between Planning and Forecasting :
Basis of
difference Planning Forecasting
Mean ing Planning is the process of
identifying the future goal
and looking ahead for the
future course of action in
advance. Forecasting is predicting
future performance of the
organization on the basis of
past and present
performance and data.
Related with Future course of action. Prediction of future
performance.
Concerned with Assessing the future and
providing plan for it. Estimating future event or
trend.
Base Based on relevant
information, objective and
performance. Based on an assumption,
postulation and certain
degree of guess.
Responsibility
held Top level managers, CEO
or President. Experts or different levels
of managers, economists or
analysts employed by the
organization.
Weightage
given to Facts and expectations Only facts
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40 2.2.3 – DECISIO N MAKING :
Organizations operate by people making decisions. A manager plans,
organizes, recruits , leads, and controls his team by executing decisions.
The effectiveness and quality of those decisions determine how successful
a manager will be.
Managers ar e constantly called upon to make decisions in order to solve
problems. Decision making and problem solving are ongoing processes of
evaluating situations or problems, considering alternatives, making
choices, and following them up with the necessary action s.
A) Meaning :
Decision Making is a process of identifying a set of feasible alternatives
and selecting the best course of action from these. It is a technique used to
find a solution to solve the problem.
While finalizing one plan, several alternative plans are drawn and
evaluated. Out of all these available alternatives, the best plan is selected
and implemented. Thus planning facilitates selecting the best plan i.e.
Decision Making. Decision Making plays an important role for the
effectiveness and for the excellence of plan.
B) Definition :
1. Oxford Dictionary defines Decision Making as “The action of
carrying out or carrying into effects”.
2. In the words of James stoner , Decision Making as, “The process of
identifying and selecting a course of action to solve a s pecific
problem.”
3. According to Haynes and Massie , “A decision is a course of
action which is consciously chosen for achieving a desired result.”
C) Importance/Advantages of decision making:
Decision making is an essential element of management process. Decisi on
making is necessary in all management functions. Manager needs to take
sound decisions for conducting correct actions so that objectives can be
achieved.
Decision making is vital for the following reasons :
i. Facilitate achievement of objectives
ii. Facilit ate optimum use of resources
iii. Enable to attain higher efficiency
iv. Facilitates innovation
v. Motivates employees munotes.in

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41 vi. Leads to growth and expansion
vii. Helps to face new challenges
viii. Encourages initiative
D) Steps in Decision making:
i. Defining the problem or situation.
ii. Form ing alternative solution.
iii. Evaluating alternative solutions.
iv. Selection of the best alternative.
v. Implementation of alternative.
vi. Review of performance.
2.2.4 – PROBLEM SOLVING :
A) Introduction :
As Forecasting is the part of Planning and Planning involves Decis ion
Making and provides direction or guidelines for problem solving as well.
So Planning initiates Forecasting which gives birth to Decision Making
that leads to Problem Solving. Systematic planning helps in facing the
uncertainties of future with less emb arrassment. It helps in making things
happen in the expected way.
Planning can be considered as an approach to problem solving. It provides
a systematic way of viewing problems and developing short and long -term
solutions.
B) Definition :
Problem solving is t he process of developing a sequence of actions to
achieve particular objective. Literally, planning means deciding a course
of action before acting. Problem solving is finding a plan for a task.
Problem solving is an act of defining a problem, determinin g the cause of
problem, identifying, prioritizing, selecting alternatives for a solution and
implementing a solution.
Yokam & Simpson says, “A problem occurs in a situation in which a felt
difficulty to act is realized. It is a difficulty that is clearly p resent and
recognized by the thinker. It may be a purely mental difficulty or it may be
physical and involve the manipulation of data. The distinguishing thing
about a problem, however, is that it impresses the individual who meets it
as needing a solution . He recognizes it as a challenge”.
According to Skinner , “The Problem Solving is a process of overcoming
difficulties that appears to interfere with the attainment of goal. It is a
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42 In the words of Risk. T. M., “Problem solving is a planned attack upon a
difficulty or perplexity for the purpose of finding a satisfactory solution”.
James Ross has defined “Problem -solving is an Educational device
whereby the teacher and the pupils attempt in a conscio us, planned,
purposeful manner to arrive at an explanation or solution to some
educationally significant difficulty”.
“Any behaviour which through the manipulation of variables makes the
appearance of the solution more probable” .
C) Steps in Problem Solving :
i. Identify the problem
ii. Analyse the problem
iii. Describe the problem
iv. Look for root causes
v. Generate alternative solutions
vi. Evaluate and select an alternative
vii. Implement the solution
viii. Measure the results
2.3 NATUREOF PLANNING
2.3.1 – NATURE OF PLANNING :
Planning means setting objectives and targets and formulating an action
plan to achieve them. It starts with framing an idea then how to work on a
particular task. It is closely connected with creativity and innovation.
Planning is an intellectual process of logical thinking and rational decision
making.
Planning is concerned with both ends and means; i.e. what is to be done
and how it is to be done.
Plan is like a jigsaw puzzle; all the pieces have to be put together properly,
so that they make sense. It bridges the gap between where we are and
where we want to go.
Planning is an intellectual process of decision making. It involves thinking
capacity, foresight and vision for that one needs brain capacity. I t is the
intellectual process where the planner goes through certain steps and then
come to a perfect conclusion. That is what is planning. As per Henry
Fayol’s opinion , it is action at once and at the sometime the result
envisaged. It is future picture where in proximate events are outlined with
certain distinctnes s. Therefore for the purpose of planning one needs
imagination foresight and sound judgment . Planning involves problem munotes.in

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43 solving and decision making. Planning cannot be done on the balls of
guess or it is not a work of common people those who are lacking vis ion
forecasting, no thinking capacity.
Designing a proper planning and implementing accordingly is the key of
achieving the objectives of an organisation. Planning is the detailed
programme of future course of action.
2.3.2 – CHARACTERISTICS OF PLANNING :
Following are the important characteristics of planning:
1. Planning is a primary function –
Management process starts with planning. So planning is a primary
function of management. Other functions of management i.e.
organizing, directing and controlling are dependent on planning.
2. Planning is result oriented –
Every plan is framed to achieve certain well defined objectives.
Planning is done to achieve goals. First targets are set and then planning is
done.
3. Planning is future oriented –
Planning is always done fo r the future. The future can be short term,
medium term or long term. It is a programme for future by which
management tries to look ahead.
4. Planning is a continuous activity –
Planning is a continuous function of management. Managers are required to
formula te, modify and withdraw the plans according to business
environmental changes. Planning is necessary as long as the business
remains in existence.
5. Planning is pervasive –
Planning is pervasive in nature. It is required for all the business activities
and by all the managers at all the levels. Planning is required not only in
business organizations but also in non -business organizations.
6. Inter -dependent activity –
Planning is inter -dependent activity. One departmental plans are dependent
on other departmental plans. Every plan is linked with other plans.
7. Intellectual process –
Planning requires imagination, intelligence, talent, vision, etc. on part of
managers. Planning is based on practical considerations. Proper thinking is
required before finalizing a plan. The quality of plan depends upon
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44 8. Planning requires past, present and future analysis –
Planning requires proper analysis of past, present and future. Managers need
to check past performance, present targets and future possibili ties while
planning.
9. Basis of control –
Planning provides base for control. The actual performance is compared
against planned targets. Plans provide basis for comparison of actual and
standard performance.
10. Flexible in nature –
Planning is always flexible. I t keeps on changing as per the situation
changes. As business environment is dynamic in nature, planning needs to
be flexible in nature. Plans should match with environmental changes.
2.3.3 – MERITS OF PLANNING :
The need and importance of planning can be explained as follows:
1. Minimizes risks and uncertainties –
Planning studies future situations. Therefore future risks and
uncertainties are studied well in advance. Solutions for these risks and
uncertainties are kept ready. Thus , planning helps to minimize risks and
uncertainties.
2. Facilitates innovation –
While planning, managers come out with new ideas and concepts.
Planning encourages innovative and creative ideas on the part of the
managers.
3. Facilitates efficiency -
Planning facilitates optimum utilization of all physical and human
resources in the organization. As the right course of actions is decided in
planning, resources are utilized at optimum level and wastages are reduced.
So planning facilitates efficiency.
4. Facilitates organizing –
Proper plans faci litate systematic organizing in the
organization. Required resources are arranged in the right manner and
are put to the best use. Proper arrangement of resources will be done to
achieve targets.
5. Facilitates directing –
As per the plan manager can issue dir ections to his subordinates. Good
plan provides guidelines to the people for achieving desired objectives.
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45 6. Facilitates controlling –
Plan provides basis for comparison in controlling function. Under
controlling, actual performance is compared against standa rd performance
laid down in the plan.
7. Facilitates co -ordination –
Planning co -ordinates with all the activities in the organization. Due to
planning one departmental activities are linked with other departmental
activities. It facilitates co -ordination at a ll the levels in the organization.
8. Facilitates decision making –
While finalizing one plan, several alternative plans are drawn and
evaluated. Out of all these available alternatives, the best plan is
selected and implemented. Thus planning facilitates sele cting the best
plan, thereby it facilitates decision making.
9. Facilitates motivation –
Planning develops team spirit among all the people in the organization. On
the basis of planned performance, rewards can be given for better
performance.
10. Growth and expans ion–
Planning provides a benchmark for development. It improves
performance of the organization which leads to growth and
development.
2.3.4 - LIMITATIONS OF PLANNING :
The limitations of planning can be explained as follows :
1. Time consuming –
Planning need s collection of data of past, present and future of the
organization. It requires consultation and discussion with other people in
the organization. It requires approval from higher authority. Therefore
planning is a time consuming process.
2. Paper work –
Lot of paper work is involved in planning function. Paper work is more due
to reports making, taking approvals, framing alternative plans, etc.
3. Costly affair –
A good amount of money is required to be spent for collecting and
analyzing the data. So the compan ies wh ich c a n n o t afford such
expenses avoid planning.
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46 4. Possibility of under -targeting –
Sometimes managers may under -target while planning. This is because, they
may think that they can achieve targets easily and can get
appreciation. This happens mostly in public sector
organizations.
5. Possibility of over -targeting –
Sometimes managers may target at higher level. This may be due to
wrong collection and interpretation of data.
6. Generates frustration -
If the managers are not able to achieve the planned targets in spite of best
efforts, it may lead to frustration.
7. Possibility of human error –
Plans require judgment and intelligence on the part of the managers. But if
managers have done wrong judgment about future, then it may lead to wrong
targeting.
8. Problem of chan ging situations –
Business environment is not constant. Changes are always taking place and
plans need to adjust with such changes. But every time it may not be possible
to adjust plans with every change.
9. Inter -departmental conflicts –
Planning requires co -ordination between all the departmental managers. But it
is possible that, these managers may have conflicts due to which plan may not
yield expected results.
10. Generates rigidity –
While carrying on actual performance, managers always focus only on
planned t argets. It may be possible that, sometimes higher performance may
be possible. But managers tend to achieve only what has been planned.
Check your Progress :
1. Management process starts with -------- .
2. Planning develops team -------- .
3. Planning premises are the ---------- and predictions about the future
business situation
Define :
1. Planning.
2. Forecasting.
3. Decision making. munotes.in

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47 Answer the following :
1. How planning minimize risks and uncertainties ?
2. What is meant by Problem Solving ?
3. Why planning bec omes costly ?
2.4. CLASSIFICATION OF PLANS
2.4.1 - CLASSIFICATION OF PLANS :
Several plans are prepared while making a plan. Classification of plans
can be done on several basis as depicted in the following chart.

A) Classification on the basis of Use :
1. Standing plans –
These plans are prepared for repeat use. They are used again and again.
Therefore they are referred as ‘repeat use plans’.
Standing plans are made to deal with situations which occur repeatedly in
the organisation. They standardize the recurr ent activities so that routine
decisions with respect to such activities can be taken by lower level
managers and top -level managers can concentrate on strategic issues.
These plans can be repeatedly used in similar situations. Managers refer to
these plan s to deal with problems of recurring nature and thus save time,
money and efforts in making decisions every time a problem of the same
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48 For example, standing plans can be made for dealing with leave cases of
employees. Every time an employee go es on leave, he follows leave rules
framed in the standing plans. This saves top managers from facing the
issues of personally dealing with leave case of every employee.
Standing plans are directives that serve to increase organisational
effectiveness by standardizing many routine decisions.
a) Advantages of Standing plans :
i) These plans guide daily behaviour so that managers can delegate
part of their work load to subordinates. Standing plans facilitate
delegation.
ii) They facilitate co -ordination as there is p re-determined way to
solve recurrent organisational problems.
iii) As the decisions for recurring problems are routinized,
organisational efficiency tends to increase.
iv) They provide ready basis for making decisions, consequently
facilitate fast decision -making.
v) They save top managers’ time, money and energy by providing a
basis for quick action.
b) Types of Standing plans :
i. Policies,
ii. Procedures,
iii. Methods,
iv. Rules.
2. Single -use plans –
These plans are prepared to achieve specific objectives. These are used
only once. Once the purpose is served, plan becomes obsolete.
They are short time plans made for non -recurring activities.
For example, if company wants to install a machine, it has to plan its
purchase; whether it wants to buy a new machine or a second hand
machine ; whether it wants to buy or acquire it on lease , etc . Various
alternative courses of action will be guided by their respective returns and
costs and once the machine is acquired, the plan does not exist anymore.
Single use plans are intended to achieve a par ticular objective which is
not likely to be repeated in future. These are meant to deal with problems
which are non -repetitive and distinct in nature.
a) Types of Single -use plans :
i. Programmes,
ii. Projects,
iii. Schedules,
iv. Budgets. munotes.in

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49 b) Differences between Single -use an d standing plans :
Basis of
difference Single -use Plans Standing Plans
Meaning These are used only once. These plans are prepared
for repeat use .
Related with Carrying out activities that
are not intended to be
repeated. Carrying out activities that
are to be repeated.
Concerned with Achieving a specific
objective. Achieving overall
organizational goal.
Lifespan of plan Once the purpose is
served, plan becomes
obsolete. They are used again and
again .
Deals with
problems Such problems which are
distinct in nature. Such situations which occur
repeatedly in the
organization.

2.4.2 – COMPONENTS OF PLANS :
Various components of plans can be explained with the help of following
chart :














Miss ion
Objectives
Strategies
Standing Plans Policies
Procedures
Methods
Rules
Single Use Plans Programmes
Projects
Schedules
Budgets munotes.in

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50 1. Mission –
Every organization should have mission. M ission is the statement which
reflects purpose, philosophy and vision of the organization. Mission
guides the overall working of the enterprise.
2. Objectives –
Objectives are the goals or targets that management wants to achieve.
Objectives are drawn from mis sion. These are ends towards which all the
actions are directed.
3. Strategies –
Strategy is a broad long term plan. It provides guideline for achieving the
objectives of the organization.
4. Standing Plans –
i. Policies :
Policy is considered as guideline for actio n. Policies provide a framework
within which the organization has to operate. It defines boundaries for
decision making.
ii. Procedures :
Procedure is a series of activities required to be performed for attaining
objectives. It is the sequence of works to be d one.
iii. Methods :
Method describes the way of performing particular work. By following a
proper method, procedure is completed.
iv. Rules :
Rules lay down specific actions to be done. It describes what is to be done
and what should not be done or avoided.
5. Single Use Plans –
i. Programmes :
Programme is a plan which is designed to implement the policies and
accomplish objectives. It is a combination of goals, policies, procedures
and rules to carry out activities.
ii. Projects :
Projects are the plans which are required t o complete complex and special
work. It requires expert knowledge from various departments.
iii. Schedules :
A schedule is a time table for activities. It defines start time and
completion time of each and every activity. It ensures completion of work
on time.
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51 iv. Budgets:
Budgets express the anticipated results in numerical terms. It is mainly
used for controlling the actual performance of activities.
2.5 ESSENTIALS OF A GOOD PLAN
2.5.1 – ESSENTIAL OF A GOOD PLAN :
Good plans are always the bas is for other manage rial functions like
organizing, directing and controlling. The success of management
functions depends upon quality of the plan formulated.
Following are the certain essentials of a good plan:
1. Simplicity –
A plan must be simple to understand and easy to exe cute. It should be well
understood by those, who are involved in its implementation.
2. Flexibility –
Plan should always allow changes required to be done according to
changing situations. Plans should not be rigid. Flexible plans are always
adjustable, as it facilitates modifications to be done.
3. Suitability –
A plan should be suitable to the needs of the organization. It should
consider resources and capabilities.
4. Clear objectives –
Plan always indicates the objectives that need to be achieved by the
organizati on. These objectives should be clear and well defined.
5. Continuity –
Good plans should be continuous in nature. Plans should be adjusted
periodically to ensure continuity in the planning process.
6. Acceptance –
The plans must be acceptable by the others. It sho uld be accepted by top
management for approval as well as by subordinates for implementation.
7. Comprehensive –
A good plan should be comprehensive in nature i.e. it should cover all the
details necessary for its execution. There should not be any ambiguity in
the plan. Plan needs a practical approach.
8. Realistic –
A good plan should be realistic. It should be based on facts and not on
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52 9. Facilitates organizing –
A good plan should facilitate proper arrangement of all resources i.e .
physical and human resources.
10. Provides direction –
Plan should provide guidelines for actual working. Based on plans,
directions can be given to complete the work on time.
11. Facilitates control –
A good plan should facilitate controlling of actual performanc e. Actual
performance can be compared against targets mentioned in the plans.
12. Generates efficiency –
A good plan should generate maximum efficiency in the organization. It
should minimize wastage by doing optimum use of resources.
2.5.2 – PLANNING PROCESS :
Following steps are involved in the planning process:
















1
2
3
4
5
6
7
8
9 Analysis of internal environment
Analysis of external environment
Establi shment of objectives
Establishment of planning premises
Framing alternative plans
Evaluation of alternative plans
Selection of the best plan
Formulation of derivative plans
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53 The stages of planning process are explained as follows:
1. Analysis of internal environment –
Planning process starts with analysis of internal environment. Internal
environment includes all the variables from the organization like
manpower, plans and policies of top management, machines, materials,
etc. Planner needs to study these variables properly to find out strengths
and weaknesses of the organization.
2. Analysis of external environme nt–
After the analysis of internal environment, planner needs to study factors
from external environment. External environment includes all those
factors which are outside the organization like government policies,
competition, international factors, techn ological changes, consumer
behavior, etc. This analysis is required to find out possible threats and
opportunities for the organization.
3. Establishment of objectives –
After the analysis of environment is over, planner should establish the
objectives to be achieved. Objectives should be well defined to provide
guidelines for planning. Objectives should be SMART i . e . Specific,
Measurable, Achievable, Realistic and Time-bound.
4. Establishment of planning premises –
Planning premises are the assumptions or base (g rounds) which provide a
framework within which plans operate. Appropriate assumptions have to
be made regarding internal and external environment.
Assumptions are the base material upon which the plans are drawn. It can
be some forecasts, existing plans or any past information about policies.
For example being a technique of gathering information, it’s important in
developing premises. Forecasts can be made about the demand for a
particular product, policy change, interest rates, prices of capital goods,
tax rates etc. Accurate forecasts therefore become essential for successful
plans.
5. Framing alternative plans –
Planner should always frame alternative plans instead of only one final
plan. For e xample : to improve product quality, planner can make
alternative plans such as, purchase of better quality raw material,
installation of advanced technology, training to workers, etc.
6. Evaluation of alternative plans –
All the alternative plans should be evaluated by the planner. Evaluation
should be in terms of cost an d returns possible from that particular plan.
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54 7. Selection of the best plan –
Once the plans are evaluated, planner should select the best plan out of all
the alternatives. The plan which gives maximum returns at minimum cost
should be selected as the best pl an.
8. Formulation of derivative plans –
Derivative plans are sub -plans which are derived from the final plan, that
are required for operational purpose. Derivative plans are required for the
implementation of the final plan. Programmes, policies, schedules,
budgets, etc. are the examples of derivative plans.
9. Implementation –
Final plan should be implemented with the help of such ready derivative
plans. Plan should be communicated to all those people in the organization
who are required to implement them.
10. Follow up –
Periodic follow up is required to find out whether the actual performance
is matching with planned targets. Certain changes can be done in that plan
if required.
Check your Progress :
1. -------- is a broad long -term plan.
2. -------- p l a n s a r e s u b -plans which are required for the operational
purpose.
Check your Knowledge :
1. Difference between Standing plan and Single use plan.
2. Continuity in the plan.
Explain :
1. Components of Standing plan.
2. Establishment of objectives.
Answer the following :
1. What ar e the essentials of a good plan?
2. Which are the stages of Planning process ?
2.6 MBO – IMPORTANCE AND RELEVANCE
2.6.1 - INTRODUCTION : MBO (MANAGEMENT BY
OBJECTIVES):
The concept of MBO was popularized by Peter Drucker in 1954 in the
book entitled ‘The Practice of Management’ . MBO is based on
assumption that people perform better when they know what is expected
of them. It also assumes that people are interested in decision making
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55 A) Meaning :
Management By Objectives (MBO) is a strategic management model
that aims to improve performance of an organization.
The organizational goals are achieved by clearly defining objectives by
supervisors and subordinates jointly and setting action plans that are
conveyed b y the management to the members of the organisation and
are agreed to by both management and employees. In MBO ,
supervisors and subordinates jointly control the activities. According to
the theory, it encourages participation and commitment among
employees , as well as aligning objectives across the organization.
B) Process of MBO :
1. Collect ively formulation of objectives –
The superior and subordinate collectively formulate the goals. The
goals can be in the areas of production, marketing, finance, etc.
2. Colle ctively formulation of action plans –
After setting of goals, superior and subordinate managers collectively
formulate action plans. These action plans are required to achieve the
goals.
3. Evaluation of alternatives –
Superior and subordinate managers have to collectively evaluate the
action plans. In evaluation, cost -benefit analysis of each action plan is
required to be done.











1
2
3
4
5
6 Collectively formulation of objectives Collectively formulation of action plans Evaluation of alternatives
Selection of the best plan
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56 4. Selection of the best plan –
After evaluation, the superior and subordinate manager shoul d select
the best plan. The be st plan is that plan which gives maximum returns at
minimum cost.
5. Implementation –
The subordinate implement the selected plan. If required, superior can
give guidance to the subordinates for implementation.
6. Collectively monitoring performance –
At the end, subor dinate compare actual performance against planned
targets. At this stage, superior acts as a guide. If any deviations is
found , superior and subordinate once again frame objectives.
2.6.2 – IMPORTANCE OF MBO :
Advantage of MBO approach is the monitoring an d evaluation of the
performance and progress of each employee against the established
objectives. Ideally, if the employees themselves are involved in
setting goals and deciding their course of action, they are more likely
to fulfill their obligations.
1. Optimum utilization of resources –
MBO facilitates optimum utilization of physical and human resources in
the organization.
2. Team work –
In MBO , superior and subordinate collectively formulate plan and control
the performance. This leads to continue interaction between superiors and
subordinates. This develops team work in the organization.
3. Motivation –
Subordinates are motivated in MBO. They are given chance to participate
in decision making process along with superiors. Organizational goals are
converted into pe rsonal goals at all the levels.
4. Result oriented –
MBO is result oriented. It links evaluation directly to performance.

5. Improved planning –
MBO involves participative decision making on the part of the
subordinate managers. This makes plans more realistic. T hus planning
improves qualitatively.

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57 2.6.3 – RELEVANCE OF MBO :
Objectives are essential to ensure that all contributors spend their time
at work productively and are working towards a concerted outcome.
They also teach about how much the management and em ployees are
truly capable of accomplishing in a set amount of time.
Management by Objectives (MBO) is an approach adopted by managers to
control their employees by implementing a series of concrete goals that
both the employee and the organization aim to a ccomplish in the
immediate future and work accordingly to achieve.
If the management by objectives strategy is n ot adequately set, decided
upon and controlled by organizations, self -centered workers can be likely
to misinterpret results, wrongly portraying the achievement of short -term,
narrow -minded goals.
Different management departments in the organization like Production,
Marketing, Sales, HR, Finance, Operations, Customer Support, etc. can set
their specific objectives and assess the actual output or r esult with the set
index.
The relevance of MBO with its application in the business organization
can be explained as follows :
1. Management by objectives helps employees appreciate their on -the-
job roles and responsibilities.
2. The Key Result Areas (KRAs) planned are specific to each employee,
depending on their interest, educational qualification, and
specialization.
3. MBO uses a set of quantifiable or objective standards against which
to measure the performance of a company and its employees.
4. Managers can identify problem areas and improve efficiency by
comparing actual productivity to a given set of standards.
5. The MBO approach is imple mented to ensure that the employees get
a clear understanding of their roles and responsibilities, along with
expectations, so that they can understand the relation of their
activities to the overall success of the organization.
6. The MBO approach usually re sults in better teamwork and
communication.
7. It provides the employees with a clear understanding of what is
expected of them. The supervisors set goals for every member of the
team, and every employee is provided with a list of unique tasks.
8. Every employee is assigned unique goals. Hence, each employee
feels indispensable to the organization and eventually develops a
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58 9. Managers help ensure that subordinates’ goals are related to the
objectives of the organization.
2.7 SU MMARY
Planning is a primitive function of management which provides
directions for setting objectives and developing appropriate course of
action by formulating the policies and procedures to achieve those
objectives.
Planning is deciding in advance what to do, how to do, when to do, where
to do, with whom to do, what will be cost of it, etc. related to business
activity for its successful completion.
Forecasting is a systematic attempt to assess the probable events to
provide presumptions against the futu re. It is a technique of gathering
information, which is important in developing premises.
Decision making is a process / technique of identifying a set of feasible
alternatives and selecting the best course of action from these. It is used to
find a solut ion to solve problem.
Problem solving is an act of defining a problem, determining the cause of
problem, identifying, prioritizing, selecting alternatives for a solution and
implementing a solution.
Planning is concerned with both ends and means, i.e. sett ing objectives
and targets and formulating an action plan to achieve them.
Planning has specific characteristics as : Planning is a primary function ;
Planning is result oriented ; it is future oriented ; Planning is a continuous
activity ; it is pervasive ; I nter-dependent activity ; Intellectual process ;
Planning requires past, present and future analysis; Basis of control ;
Flexible in nature.
Advantages of planning are : Minimizes risks and uncertainties ; Facilitates
innovation, efficiency, organizing, direc ting, controlling, co -ordination,
decision making, motivation, growth and expansion.
Disadvantages of planning are : Time consuming ; Paper work ; Costly
affair ; Possibility of under -targeting ; Possibility of over -targeting ;
Generates frustration ; Possibil ity of human error ; Problem of changing
situations ; Inter -departmental conflicts ; Generates rigidity.
Classification of plans can be done on several basis like : Levels in the
Organisation, Use of plan, Time -span of application of the plan,
Functional Area s.
Classification of Plans on the basis of Use : Standing plans & Single -use
plans. Standing plans are made to deal with situations which occur
repeatedly in the organisation. They save time, money and efforts in
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59 Single -use plans are prepared to achieve specific objectives. They deal
with problems which are non -recurrent and distinct in nature.
Components of plans are as follows : 1. Mission ; 2. Objectives ; 3.
Strategies ; 4. Standing Plans – a. Policies, b. Procedures, c. Methods, d.
Rules; 5. Single -Use Plans – a. Programmes, b. Projects, c. Schedules, d.
Budgets.
Following are the certain essentials of a Good Plan : Simplicity,
Flexibility, Suitability, Clear objectives, Continuity , Acceptance,
Comprehensive, Realistic, Facilitates organizing, Provides direction,
Facilitates control, Generates efficiency.
The steps involved in the planning process are as below : Analysis of
internal environment, Analysis of external environment, Es tablishment of
objectives, Establishment of planning premises, Framing alternative plans,
Evaluation of alternative plans, Selection of the best plan, Formulation of
derivative plans, Implementation, Follow up.
Management By Objectives (MBO) is a strategic management model
that aims to improve performance of an organization. It is based on
therapeutic assumption that people perform better when they know what
is expected of them. It encourages participation and commitment among
employees, as well as aligning objectives across the organization.
Process of MBO includes following steps : Collectively formulation of
objectives, Collectively formulation of action plans, Evaluation of
alternatives, Selection of the best plan, Implementation, Collectively
monitoring performance.
MBO has the importance for the following merits : Optimum utilization of
resources, Team work, Motivation, Result oriented, Improved planning.
Relevance of MBO can be recognized as Objectives are essential to ensure
that all contributors spen d their time at work productively and are working
towards a concerted outcome. They also teach about how much the
management and employees are truly capable of accomplishing in a set
amount of time. It is an approach adopted by managers to control their
employees by implementing a series of concrete goals that both the
employee and the organization aim to accomplish in the immediate future
and work accordingly to achieve it.
2.8 EXCERCISES
State whether following statements are True or False :
1. Planning is an independent activity.
2. Planning takes place with great speed.
3. Single use plans are prepared to achieve specific objectives.
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60 in MBO.
Select the most appropriate option from the given :
1. Which of the following is not required to have by the manager
involved in planning process?
(a) Imagination, (b) Young age, (c) Intelligence (d) Talent
2. Select the correct sequence involved in planning process?
(a) Planning  S t a f f i n g  O r g a n i z i n g  C o n t r o l l i n g 
Directing Coordinating
(b) Planning  O r g a n i z i n g  S t a f f i n g  C o n t r o l l i n g 
Directing Coordinating
(c) Planning  O r g a n i z i n g  S t a f f i n g  D i r e c t i n g 
Controlling  Coordinating
(d) Planning  O r g a n i z i n g  D i r e c t i n g Staffing 
Controlling  Coordinating
3. Which of t h e f o l l o w i n g i s t h e d i s a d v a n t a g e o f t h e p l a n n i n g
process?
(a) Raises Paper work, (b) Increases efficiency,
(c) Generates rigidity (d) Improves Decision Making
4. Which of the following is not the SMART objective of the
planning process?
(a) Specific, (b) Measurab le, (c) Attractive (d) Realistic
5. Arrange the process of MBO in a logical manner :
(a) Collective formulation of objectives  C o l l e c t i v e
formulation of plans  Evaluation of alternatives  Selection of
the best plan  Implementation Collectively monitoring
performance
(b) Collective formulation of objectives  C o l l e c t i v e
formulation of plans  Evaluation of alternatives  Selection of
the best plan  C o l l e c t i v e l y m o n i t o r i n g p e r f o r m a n c e 
Implementation
(c) Collective formulation of plans  Collective formulation of
objectives  E v a l u a t i o n o f a l t e r n a t i v e s  S e l e c t i o n o f t h e b e s t
plan  Collectively monitoring performance  Implementation
(d) (d) Collective formulation of plans  Collective formulation
of objectives  Collectively monitoring performance 
Evaluation of alter natives  S e l e c t i o n o f t h e b e s t p l a n 
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61 Write short notes on :
1. Characteristics of Planning.
2. Steps involved in Problem Solving.
3. Limitations of Planning.
4. Substantiate the ‘Framing alternative plans’ as the step in the
Planning process.
5. MBO conc ept.
Give brief answers :
1. Why Planning is an important function in management ?
2. How Forecasting is utilized in the Planning process, explain with
example.
3. How does planning give rise to Decision Making ?
4. List out essentials of a good plan.
5. Advantages of MB O.
Match the columns :
Column ‘A’ Column ‘B’
i) Planning a) Sequence of actions to achieve
particular objective
ii) Forecasting b) Assessment of the future
iii) Decision Making c) Technique of looking ahead
iv) Problem Solving d) Identifying and selecting a course
of actio n to solve the problem


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62 3
ORGANIZING –
AS A MANAGERIAL FUNCTION

Unit Structure
3.0 Objective
3.1 Introduction
3.2 Definition and Principles
3.3 Departmentalization
3.4 Formal Organizations – Functional, SBU, Matrix, Committees
3.5 Informal O rganizations – Relevance and Importance
3.6 Authority, Responsibility, Accountability and Span of Control
3.7 Organizational Hierarchy – Charts
3.8 Delegation of Authority and Decentralization
3.9 Emergence of Virtual Organization – Merits and Limitations
3.10 Summary
3.11 Exercise
3.0 OBJECTIVES
After studying the unit the students will be able to :
1. Understand the concept of Organising and its principles.
2. Know the theory of Departmentalisation and its types.
3. Discuss the types of Organisation.
4. Explain the m eaning and characteristics of Formal Organizations.
5. Elaborate on various forms of Formal Organizations.
6. Bring out the meaning and characteristics of Informal Organisation.
7. Acknowledge the relevance and importance of Informal Organisation.
8. Understand the concept of Authority, Responsibility and
Accountability and analyse the difference between them.
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63 10. Elaborate Organisational Hierarchy / charts and its types.
11. Bring out Delegation of Authority, its process & significance.
12. Know about Decentralisation and its importance.
13. Understand Virtual Organisation, its types, merits & demerits.
3.1 INTRODUCTION
Organizing is an element of management process which follows planning.
Organizing is basically concerned with allocation of dut ies and
responsibilities among the people so that work will be carried on
systematically.
It is a function in which the synchronization and combination of important
resources like human, physical, financial and information resources takes
place for the ac hievement of the results. Organizing simply means
arrangement and orderly use of required resources and ways for
conducting business activities. It is a creation of administrative set up.
Therefore, organizational function helps in achievement of results w hich
in fact is important for the functioning of a concern. It facilitates
administration as well as the functioning of the organization.
Organizing is the next important function of management after the
planning. In case of planning, the management decide s what is to be done
in future. In case of organizing, it decides on ways and means through
which it becomes easier to achieve what has been planned.
3.2 DEFINITION AND PRINCIPLES
3.2.1 – DEFINITION :
1. Louis Allen defines Organizing as , “The process of iden tifying and
grouping of the works to be performed, defining and delegating
responsibilities and authorities and establishing a pattern of
relationships for the purpose of enabling people to work most
effectively together in accomplishing objectives.”
2. Accor ding to Henry Fayol , “To organize a business i s to provide it
with everything useful to its functioning – raw materials, tools, capital
and personnel.”
3. In the words of Chester Barnard , “Organizing is a function by which
the concern is able to define the ro le positions, the jobs related and the
co-ordination between authority and responsibility. Hence, a manager
always has to organize in order to get results.
3.2.2 – PRINCIPLES OF ORGANIZING :
The most commonly mentioned and well accepted principles of organ izing
are as follows:
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64 1. Objectives –
Every organization should have well defined objectives. Every
department in the organization should have their objectives. Every
individual in the organization should know what is to be achieve d. Finally
there should be u nity among all the objectives.
2. Specialization –
Every department should be given a specific work to be performed.
Division of work leads to specialization. Every individual in the
organization should be given the work as per his skills.
3. Co-ordination –
All t he activities of all the individuals and departments should be
interlinked with each other. Co -ordination will lead to proper direction
for work, which will result into better results.
4. Delegation of authority –
The superior should pass on the authority to t heir subordinates. There
should be fixation of responsibility once the authority is delegated.
5. Short chain of command –
As far as possible there should be short chain of command in the
organization. This will lead to speedy work as well as chances of
distor tion will be avoided.
6. Balance –
There should be proper balance in different aspects of the organization.
There should be balance between authority and responsibility,
centralization and decentralization, human and material resources, etc.
7. Continuity –
Organi zing is a continuous process. It will be over only after the
closure of the organization. Therefore organizing should provide a
framework which is long lasting in nature.
8. Simplicity –
The structure of the organization should be as simple as possible. Al l
the people in the organization should be able to understand the
structure.
9. Span of control -
Span of control is the number of subordinates who can be effectively
managed and supervised by manager. There should be limited span of
control.
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65 10. Flexibility –
The organization structure should not be rigid in nature. It should adjust
with the changing situations.
11. Authority and responsibility –
Authority is a power to take decision. Responsibility is an obligation to
perform the work. There should be a proper bal ance between authority and
responsibility.
12. Unity of command –
This principle suggests that subordinate should get orders only from
one boss at a time. There should not be duplication of orders which leads
to confusion.
3.3 DEPARTMENTALIZATION
3.3.1 – MEANIN G :
Departmentalization is a process of grouping all the organizational
activities into logical or functional units. These logical or functional units
are known as departments. It is grouping of activities and employees into
departments on the basis of the ir area of specialization for effective
management and resultantly to achieve the goals of the organisation.
So, in this way, the entire organization is divided into parts,
i.e. departments which comprise of a group of employees, who carry out
activities o f similar nature.
Departmentalization refers to the formal structure of the organization,
composed of various departments and managerial positions and their
relationships with each other.
3.3.2 – DEFINITION :
1. According to Pearce and Robinson , “Departmenta lization is the
grouping of jobs, processes and resources into logical units to perform
some organizational task.”
2. James and Stoner defines, “Departmentalization is the grouping of
work functions so that similar and logically related activities occur
toget her.”
3.3.3 – BASES OF DEPARTMENTALIZATION :
Organization can follow various basis for departmentalization from the
following:
1. Departmentalization by functions -
In this type, similar activities are grouped under specific department. This
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66






2. Departmentalization by area -
In this type, departmentalization is done according to market areas where
product is sold. This departmentalization facilitates low cost of operations,
better service s to customers, etc.







3. Departmentalization by Product –
This method is followed by those companies dealing in multi - products.
Separate manager is in charge of separate brand. This facilitates better
marketing strategies of each product.






4. Depart mentalization by Customer -
This technique is followed when organization wants to offer maximum
customer satisfaction. Income, purchasing power, habits, etc. are the main
factors considered in this type of departmentalization. General
Manager
(H.O.)

Mumbai
Kolkata
Chennai
Delhi

General
Manager

Product
X
Product
Y
Product
Z
Accounts General
Manage r


Purchase
Manu -
facturing
Sales
Marketing
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5. Departmentalization by Time -
In this method, activities are divided on the basis of time. For example there
are morning shifts, night shifts, etc.
6. Departmentalization by numbers –
In this method, each unit consists of a particular number of persons. For
example in school or coll ege students are divided in all the classes
(divisions of classes) by fixing the strength in each class or division.
3.3.4 ADVANTAGES / IMPORTANCE OF
DEPARTMENTALIZATION :
1. Departmentalization facilitates specialization as all the activities are
allocated a s per the skills of the people.
2. Departmentalization helps to fix authority and responsibility of each
department and thereby of each employee.
3. Departmentalization facilitates better services to customers. This is
possible especially in departmentalization by customers.
4. Proper departmentalization results into optimum utilization of resources
as resources are allocated for right things .
5. Departmentalization facilitates controlling and supervision in the
organization.
6. If facilitates management development of th e departmental managers as
they take all the departmental decisions.
7. It facilitates growth and expansion of the organization.
Check your Progress :
1. Organizing is concerned with allocation of ---------- and ----------
among the people.
2. Departmentaliza tion is the process of ------------ all the activities into
------------ .
General
Manager
Customer
‘A’ Group Customer
‘B’ Group Customer
‘C’ Group Customer
‘D’ Group
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68 Check your knowledge :
1. What do you think the reason of having short chain of command ?
2. Recall the example of Departmentalization by Time.
Define :
1. Organizing
2. Departmentalization
Explain :
1. The Co -ordination principle of Organising.
2. Departmentalization by product with suitable example.
Answer the following :
1. What is meant by Unity of Command?
2. Enumerate the bases of Departmentalization.
3.4 FORMAL ORGANIZATIONS
3.4.1 – INTRODUCTI ON :
An organization structure is a framework through which management
works to accomplish its objectives. It is primarily concerned with the
allocation of duties and responsibilities and delegation of authority. It is a
role of the management to achieve the organizational goals.
In an organization there exist two types of internal structures or
relationships , i.e.
i. Formal organization
ii. Informal organization
3.4.2 – MEANING :
Formal organization refers to structure of well -defined jobs, having
definite author ity and responsibility. This structure is specifically
designed to achieve common organizational goals. This is the structure to
which everyone in the organization has to adjust.
According to Chester Barnard , “an organization is ‘formal’ when two or
more persons are consciously coordinated towards a common objective.”
3.4.3 – CHARACTERISTICS OF FORMAL ORGANIZATIONS :
1. It is a structure of well -defined authority and responsibility.
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69 3. There is a balance betw een authority and responsibility.
4. There is superior -subordinate relationship among all the people.
5. Rules and regulations are followed by all the people.
6. It is stable in nature. It comes to an end only after closure of the
organization.
7. Communication betwee n people is a formal communication.
8. There is system of co -ordination.
3.4.4 – STRUCTURE OF FORMAL ORGANIZATIONS :
The following are the various forms of formal organizations found in
many enterprises : Line organization, Line and Staff organization,
Funct ional organization, SBU, Matrix organization, Committee
organization.
A) Functional Organizations :

I. Introduction :
This form was introduced by F.W. Taylor to bring about specialization of
management. It is not an independent form of organization. It is a mid -
way position between line and staff authority. Functional organization is a
way of putting specialists to work.













General Manager
Finance
Manager Production
Manager Personnel (HR) Manager Marketing
Manager
Forman Design Shop
Plant
Supervisor
Maintenance
Chief Engineer
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70 II. Characteristics of Functional Organizations :
1. All the organizational activities are divided according to specified
functions .
2. Each function is performed by specialist.
3. A superior specialist has a right to give orders relat ed to these specific
functions.
4. Functional authority is a limited form of authority as it covers only
specific task areas.
5. Unity of command principle is not f ollowed.
6. It is mainly suitable for large organizations.
7. Functional authority should be established by prior agreement among
the line departments affected, preferably in written procedures that are
approved by middle management and finally by top management .
B) SBU Organizations :

I. Introduction :
Companies that are organized based on different divisions often find it
difficult to determine which activities and business process actually
generate the most value and which ones should be ceased. This applies
mainly to businesses where the divisions are purely functional in nature,
such as sales, service, marketing and logistics.
Although different divisions can have different profit centres, decisions
about the allocation of resources are not easy ones. For Strategi c Business
Units (SBU), it’s easier to make such decisions, making their use of
resources more likely to be efficient.
In business, a Strategic Business Unit (SBU) is a profit cen ter which
focuses on product offering and market segment. An SBU may be a
business unit within a larger corporation , or it may be a business into itself
or a branch. Corporations ma y be composed of multiple SBUs, each of
which is responsible for its own profitability .
SBU is a cluster of associated businesses which are responsible for its
combi ned planning treatment, i.e. the company engaged in a diversified
range of businesses, categorizes its multitude of businesses into a few
separate divisions, in a scientific way. The task may include analysis and
bifurcation of a variety of businesses.
II. Mea ning :
A single Strategic Business Unit (SBU) is considered a ‘Profit Centre’. It
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71 Companies today often use the word segmentation or division while
referring to SBUs or an aggregation of SBUs that share such
commonalities.
By creating Strategic Business Units (SBU), companies can develop and
gain access to n ew products, markets or technologies, without
experiencing the limitations of working in a huge organisation. The
business unit has its own dedicated management team, own brand and
reputation, own objectives , often other physical locations and own /
distinct/ separate departments of Manufacturing, Human Resource
Development (HRD), Research and Development (R&D), Marketing plan.
Having SBU assists organizations to plan their strategie s and
make manufacturing decisions. Typically the SBU is a business , providing
a single product or a number of closely r elated products that serve a well -
defined product -market combination and compete with a well -defined set
of competitors.
Once a unit is given an SBU status, it can make its own decisions,
investme nts, budgets etc. It will be quick to react when the product market
takes a shift or changes start happening before the shift happens.
Strategic Business Unit supports co -operation and co -ordination between
multiple departments of an organization that has a very similar range of
functions and activities to perform as well as deliver. They also enable an
organization to operate for a longer period as it ensures that an
organization is fully aware of the upcoming shift and changes in the
market place so that the same can readily adjust itself and easily survive in
the highly competitive scenario.
III. Definition :
SBU can be defined as ‘An independently managed division/ department
or a sub -unit or an entity of a large organization that is fully functional and
focuses upon a target market and has its own mission, vision, direction,
objectives whose planning is done separately from other businesses of the
company. The vision, mission and objectives of the division are both
distinct from the parent enterprise and elem ental to the long -term
performance of the enterprise . It has its own support functions such as
training and human resource departments and this unit have to report to
the headquarters of the concerned organization directly about the status of
its operatio n and performance.’
According to Grant , (2002) “A Strategic Business Unit (SBU) is a basic
organizational unit for which it is meaningful to formulate a separate
competitive strategy ”.
Johnso n et al. , (2008) defines SBU as “SBUs operate as autonomous
units, and have the primary responsibility and authority for managing their
basic functions”.
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72 IV. Characteristics of SBU :
SBU can be a business division, a product line of the division or even a
specific product/brand, targeting a particular group of customers or a
geographical location.
SBUs typically have a discrete marketing plan, analysis of competition,
and marketing campaign, even though they may be the part of a larger
business entity. SBUs are able to affect most factors which influence their
performance. Managed as separate businesses, they are responsible to a
parent corporation.
The SBU structure adopted by an organizatio n should play to its strengths
and make good use of the opportunities in the industry.

The different characteristics of SBU are as follows:
1. Separate business or a grouping of similar businesses, offering scope
for autonomous planning, production, laborat ory testing,
manufacturing, finance, accounting, sales, training, HRD, R&D and
marketing.
2. Own set of competitors.
3. A manager who is accountable for strategic planning, profitability and
performance of the division.
4. A strategic business unit is specially for med to target a particular
market segment, which requires expertise in production or
management, not present in the parent company.
5. SBU utilizes a product -market strategy.
6. SBU is a part of the organizational structure.
7. It is regarded as organizational unit s that are exhibit individual and
independent legal personality.
8. They perform activities that are considered as utmost crucial and
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73 9. It has a divisional structure determined by its size of p roduction,
accounting processes, research and development activities and
marketing function.
10. It is responsible for functions like strategic planning, performance and
profitability of the division.
11. Strategic Business Unit even has a set of competitors.
V. Stru cture of SBU :
The structure of SBU consists of operating units; wherein the units serve
as an autonomous business. The top corporate officer assigns the
responsibility of the business to the managers, for the regular operations
and business unit strategy. So, the corporate officer is accountable for the
formulation and implementation of the comprehensive strategy and
administers the SBU by way of strategic and financial controls.

In this way, the structure combines related divisions of business into the
strategic business unit and the senior executive is empowered for taking
decisions for each unit. The senior executive works under the supervision
of a chief executive officer.
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74 There are three levels in a strategic business unit, wherein the corporate
headquarters remain at the top , SBU s as Autonomous Businesses in the
middle and divisions clustered by similarity of Business activities, within
each SBU, as Operational level remain at the bottom. Hence, the divisions
within the SBU are associated with each other. T he SBU groups are
independent of each other. From the strategic perspective, each SBU is an
independent business.
A single strategic business unit is considered as a profit centre and
governed by the corporate officers. It stresses over strategic planning
instead of operational control so that the separate divisions of the SBU can
respond as fast as they can, to the changing bus iness environment.
The top corporate officer assigns the responsibility of the business to the
managers, for the regular operations and business unit strategy. So, the
corporate officer is accountable for the formulation and implementation of
the comprehen sive strategy and administers the SBU by way of strategic
and financial controls.
VI. Examples of SBU :
This principle works best for organizations which have multiple product
structure. The best examples of SBU are companies like Proctor and
Gamble, LG etc. T hese companies have different product categories under
one roof. For example, LG as a company makes consumer durables. It
makes refrigerators, washing machines, televisions, monitors, mobiles
phones, laptops, air -conditioners and other electronic gadgets. These are
made by different ‘small’ strategic units as separate SBUs so that sales,
revenues, cost incurred as well as profits can be tracked independently.
Once a unit is given an SBU status, it can make its own effective
decisions, investments, budgets e tc. It will be quick to react when the
product market takes a sudden shift or changes that start happening before
the shift happens.
General Electric is an example of a com pany with this sort of business
organization. General Electric has 49 SBUs. General Electric uses a
simple diagram of nine boxes and three essential labels to define the
importance of each business unit. This is done in terms of uniqueness and
appeal for each industry and the strength of individual business unit in this
industry. These criteria make up the foundation of an analysis GE uses to
assess the viability of a strategic unit in the long term. The idea behind the
model is to determine the appeal and relative strength of a unit to see if
they would be successful, which ones would perform averagely and which
ones would perform poorly and therefore have to be shut down .
VII. Advantages of SBU :
Some of the advantages are as follows:
1. Strategic Business Unit g ives organization ample opportunities to
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75 2. They give abundant opportunities to an organization to identify and
make well -informed strategic decisions.
3. SBU even offers multiple financial benefits to an organization.
4. It improves strategic management in an organization.
5. They even improve the accounting function of an organization.
6. Strategic Business Unit eases out the planning of organ izational
activities.
7. It gives full independence when it comes to decision making,
investments and budgets.
8. It can respond quickly to shifts in product markets.
9. The company can develop their own strategies.
10. The companies can then also analyze their own co mpetitive position,
develop products and meet the needs and demands of their customers
in specific markets , analyze a nd study the market .
11. Another big advantage of adapting the organizational structure is the
independence and freedom this grants the separate business units. By
separating business units from each other, teams are given room to
experiment and break things, without its creativity being suppressed
by process and branding problems.
12. Strategic Business Units (SBU) supports the collaboration between
different company departments.
13. SBUs make strategic management simpler.
14. SBUs are efficient for the bookkeeping of la rger organizations.
15. SBUs are easier to monitor and check.
16. SBU supports cooperation between the departments of the company
which has a similar range of activities, improvement of strategi c
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76

VIII . Disadvantages of SBU :
Some of the Disadvantages are as follows:
1. Strategic Business Unit faces a lot of difficulties while contacting with
the top -level management.
2. They can also sometimes be one of the probable causes of unclear
situations when it comes to managerial activities.
3. SBU can also be one of the probable causes of internal tensions arising
due to difficulties in accessing external and internal funding sources.
4. Communication with upper management can be a challenge.
5. It can lead to internal tension as a result of access to sources of
funding.
6. Brings d ifficulty in contact with higher level of management,
7. SBU may be the cause of internal tension due to difficult access to
internal and external sources of funding.
8. SBU may be the cause of the unclear situation with regard to the
management activities.
C) Matrix Organizations :

I. Introduction :
This type of organization was first developed in the United States in the
early 1960s. It was developed to solve management problems in
Aerospace industry.
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77 Departments
Projects Dept. A
Manager Dept. B
Manager Dept. C
Manager Dept. D
Manager Dept. E
Manager
Project A
Manager
Project B
Manager
Project C
Manager
Project D
Manager
Project E
Manager

Matrix organization is a combination of two or more str uctures. It can be
the combination of project organization and functional organization. Both
the organizational managers work in close co -operation with each other.
The authority of departmental managers flows downwards whereas
authority of project manager s flows across.
II. Characteristics of Matrix Organizations :
1. It is a hybrid structure. It is a combination of project organization and
functional organization.
2. This type of structure is mostly suitable for multi projects
organization.
3. It is highly complex and most difficult form of organization to
implement.
4. This type of organization offers more specialization as project
managers and functional managers specialize in their areas.
5. The responsibility of project managers is of administrative type. They
decide act ivities of project.
6. The responsibility of functional managers is of functional type. They
decide how the work is to be done.
7. Subordinates receive orders from two bosses so unity of command
principle is not followed.
D) Committee Organizations :

I. Introduction :
Committee does not represent a separate type of organization like line, line
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78 existing organization al structure. A committee may be defined as a group
of people performing some aspe ct of managerial function. A committee is
a body of persons appointed to meet on an organized basis for the
consideration of matters brought before it and to arrive at a decision.
II. Characteristics of Committee Organizations :
1. A committee is a formally organ ized group of individuals who meet
repeatedly to consider some problems. (issues referred to it)
2. Some committees perform managerial functions and make decisions.
Some committees are constituted to make recommendations to the
managers. Some committees are c onstituted just to receive
information and pass it on to the management.
3. Committees have defined structure. They have their own organization
with defined authority and responsibility delegated to them.
4. Committees are generally required to follow definite r ules and
procedures, which are often written.
5. Committee organization is not only used in business organizations but
also in social, religious, political and other organizations. For
example, e ducational institutions mostly run their operations through
comm ittees.
There are three elements to ensure effective committee operations:
i. A written statement describing purpose for which the committee is
established is essential.
ii. The authority of committee must be clearly specified.
iii. The chairman of the committee must have ability to conduct
committee meetings efficiently.
3.5 INFORMAL ORGANIZATIONS
3.5.1 – INTRODUCTION :
Informal organization refers to the relationships between the people in the
organization based on personal attitudes, emotions, likes, dislikes, etc.
This structure comes into existence as per desire of the people.
The informal organization exists within the formal organization. It is a
network of personal and social relations existing in a formal organization.
People in the organization do not always follow formal lines. Employees
in one department know those in other departments. They may like to
know what is happening in each others’ department. In such cases
informal organizations get developed. It does not have any definite
structure. So it cannot be shown by any chart.
According to Keith Davis , “Informal organization is a network of
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79 organization but arising spontaneously as people associate with one
another.”
3.5.2 – CHARACTERI STICS OF INFORMAL ORGANIZATIONS :
1. It is a network of personal and social relations existing in a formal
organization.
2. Informal organization represents human tendency to cut across formal
channels and communication informally with other parts of enterprise.
3. It is established to develop personal and social relations.
4. It develops spontaneously and is not established by formal managers.
5. There is no question of granting authority and deciding responsibility
as relations are social in nature.
6. There are no specifi c goals or well defined objectives to be achieved.
7. The relations are informal. Therefore there are no superior -
subordinate relationships.
8. There are no rules and regulations to be followed.
9. It is not stable in nature. Relationship can come to an end at any time.
10. Communication among the people is informal communication known
as ‘Grapevine Communication’.
11. There is no need for co -ordination.
12. It is all pervasive. It exists in every enterprise.
13. It is useful to serve personal and social relations. It provides so cial
satisfaction.
3.5.3 – RELEVANCE OF INFORMAL ORGANIZATIONS :
The informal organization has great and unavoidable relevance in the
organization. It goes hand in hand with the Organizational culture. The
organization’s management can use the informal or ganisation fruitfully by
understanding the lateral value of informal organisation.

The informal organization consists of the personal relationshipsand means
of communication that are often necessary to accomplishingthe work of
the organization but are not a part of the formal organizationstructure. An
organization culture is the blend of the shared beliefs,attitudes and
opinions about the company and what it stands for.

Following are the relevance of Informal Organisation with the business :
1. Theinformal o rganization and the organization’s culture are created by
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80 2. Informal organization and culture are important aspects inthe overall
design of an organization because of their influence on thebehaviour
and performance of employees.
3. The management should not fail to recognize the rise of
informalorganization as it growshand in hand with the formal
organizationand fills in some of the vital gaps in the formal
organization.
4. Management can fulfil the needs of affiliation, aff ection, esteem, etc.
of the workers by encouraging informal organization as itprovides a
shield to suck up the shocks of tensions and frustrations amongthe
members arising due to the turmoilin formal organization.
5. Informal organization may act to fill in g aps in a manager’s abilities.
6. Management cantake the informal group leaders into confidence to
intervene the management and the employees in case of chaos between
them.
7. Manager can consult the leaders and seek their advice on human
relations problems if he has built favourable relations with informal
leaders.
8. The experiencedemployees can also be consulted when direction or
guidance is needed in handling a work assignment or solving some
problems connected with technical matters.
9. The new joiners canbe made competent workers in their formal job
assignments if induction training is provided to them by such informal
group leaders if the manager asks for their assistance andcooperation
for that.
10. Informal communications is very fast and ensures speedy
transmissi onof information. So, management can use every aspect of
informal organization to achieve theorganization objectives.
3.5.4 – IMPORTANCE OF INFORMAL ORGANIZATIONS :
The importance of informal organization arises from the functions
performed by informal gro ups. The primary function of informal
organizations is basically to maintain cultural values of people. When
people can associate themselves with each other socially, they always feel
a sense of togetherness. The other function of informal organizations is to
provide social satisfaction to members.Finally, an informal organization
also provides an effective means of communication to its members. They
can interact with each other freely and efficiently. Managers can use it to
send across messages quickly and directly.
Following are the certain importance of Informal Organisation :
1. It assists a formal organization to become humanistic and prevents its
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81 2. It blends with the formal organiz ation to make it more effective.
3. The presence of informal organization encourages the manger to plan
and act carefully. It gives support to the formal organization.
4. Informal organizations inculcate a sense of unity and togetherness
among their members.
5. It leads to work satisfaction and stability in the organization.
6. It provides social as well as psychological satisfaction to group
members. These are created to satisfy the needs of friendship,
companionship, sense of belonging, security, etc. They get a pla tform
to express their feelings.
7. As it provides the best means of human communication, managers also
benefit from informal organizations by using them to understand the
grievances of employees. Since employees freely interact with each
other, they can unif y and address their problems collectively.
8. It acts as an effective agency for social control of human behaviour.
9. It helps the formal organization to get the work done.
10. It increases co -operation among all the people in the organization.
11. The informal leader lightens the burden of the formal manager and
tries to fill in the gap in the manager's abilities.
12. It provides a safety value for employee emotions.
Check your Progress :
1. ---------- and ---------- are two of the internal structure of an
organization.
2. Informal organization is the network of -------- and ------ relations.
Check your knowledge :
1. Example of Functional Organization in the current business era.
2. Recall the Informal organization seen by you.
Define :
1. SBU
2. Informal Organization
Explain :
1.Matrix Organization.
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82 Answer the following :
1. Benefits of Functional organization.
2. Features of Informal Organization.
3.6 AUTHORITY, RESPONSIBILITY,
ACCOUNTABILITY AND SPAN OF CONTROL
3.6.1 – AUTHORITY :
A) Introduction :
In an organization , dividing work among people and coordinating their
activities towards a common objective needs to be done efficiently.
Authority and responsibility are two of the most important components of
a smooth -functioning business .
In business, authority and responsibility need to be aligned appropriately.
The manager requires authority and responsibility to accomplish any task.
Authority means to authorize to do something, and responsibility means to
act on something.
Authority is the key to managerial functions. A manager is in a position to
influence his sub -ordinates only by use of authority. An individual without
authority canno t occupy the position of a manager. Without authority there
would be no superior -subordinate relationshipand the organization will be
in chaos. Authority always flows downward.
Authority refers to the official capacity to make a decision or take an
action. Organisation authorizes the supervisors or managers to carry out
certain tasks. Different functional managers may have different authorities
assigned to them.For the decisions taken, authorized person is held
responsible.
Authority, in simple words, is th e legal right of commanding subordinates
and exercising control by issuing orders and instructions and demanding
obedience from the team. It gives the person (superior/ manager) power to
take decisions. Authority is the power to command others and decide to
act or refrain from acting to achieve the organization’s goals.
B) Definition :
According to Barnard ,“Authority is the character of a communication
(order) i n a formal organization, by virtue of which it is accepted by a
contributor to, or member of the organization as governing the action he
contributes; that is, as governing or determining what he does or not do, so
far as the orga nization is concerned.”
As Simon puts it, “Authority is the power to make decisions which guide
the action of another. It is a relationship between two individuals —one of
them superior, and the other a subordinate. The superior frames and
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83 and comply with them. The subordinate expects such decisions, and his
behaviour is determined by them.”
C) Examples of Authority:
Following are some examples of Authority of Functional managers :
1. HR Managers are authorized to make hiring and termination decisions.
2. Finance Managers have authority for spending money on certain
fields.
3. Purchase Managers possess authority to select suppliers, to sign a
purchase order and so on.
4. General Managers are authorized to set deadlines and p riorities.
5. Staffing Managers have authority to advice, support and service to line
departments.
6. Project managers possess authority to successful implementation of the
projecting by engineering different technical aspects of it.
D) Factors affecting successfu l implementation of Authority:
1. Atmosphere –
Favorable atmosphere is a basic requirement for successful
implementation of authority. In favorable atmosphere relations can be
maintained properly which helps to use authority successfully.
2. Faith and confidence –
For successful implementation of authority superior and subordinates
should have faith and confidence in each other.
3. Interest in work –
The employees should have interest in the work given to them. If they
are not interested in work then it is very difficu lt for the superiors to use
authority.
4. Mutual respect –
Superiors and subordinates should have respect for each other. Then
only both of them can co -operate for other’s decisions.
3.6.2 – RESPONSIBILITY :
A) Introduction :
A basic essence of responsibility is obligation to perform the assigned task
to achieve organistional objectives. As authority flows downward,
responsibility flows exactly upward. Authority flows from a superior to
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84 The ba sis of responsibility is superior -subordinate relationships existing in
the organization. It may continue with the accomplishment of the desired
objectives. In other words, a subordinate’s obligations in any business unit
will arise basically from his rela tionship with his superior who is given the
authority to get something done.
It is the duty of the subordinate to perform organisational tasks, functions
or activities assigned to him. Authority and responsibility go side by side.
When authority is delegat ed then some responsibility for getting the
assigned task is also fixed. One can delegate authority but not
responsibility.The person responsible for the work is answerable for the
results.
Responsibility is associated with authority. A person who has auth ority
has a corresponding responsibility for the proper exercise of authority
given to him.
What a manager is responsible for should be well defined. Job descriptions
are most often a list of responsibilities and management focus on ensuring
that those re sponsibilities are being met.
Whether an individual exercises the authority himself or gets it exercised
through others, he remains responsible to his own superior for proper
performance.
B) Definition :
Keith Davis defines, “responsibility is an obligation o f the individual to
perform the assigned duties to the best of his ability under the direction of
his executive leader.”
According to Theo , “responsibility is the obligation of a subordinate to
perform his duty as required by his superior.”
In the words of Koontz and O’Donnell , “Viewed internally with respect
to the enterprise, responsibility may be defined as the obligation of a
subordinate, to whom a superior has assigned a duty to perform a service
required. The essence of responsibility is then, obligat ion.”
Allen states “By responsibility we mean the work or duties assigned to a
person by virtue of his position in the organisation. It refers to the mental
and physical activities which must be performed to carry out a task or
duty. That means every perso n who performs any kind of mental or
physical effort as an assigned task has responsibility.
George Terry defines “Responsibility is the obligation to carry out
assigned activities to the best of his abilities.”
C) Features of Responsibility :
The following are the characteristics or features of responsibility:
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85 2. It arises from duty assigned.
3. It always flows upward from juniors to seniors.
4. It is the obligation to complete the job as per instructions.
5. Responsibility may be discharged by accomplishing single task.
6. Responsibility is a personal attribute.
7. It is absolute and can never be delegated or shifted to others.
D) Examples of Responsibility :
Following are some examples of Responsibility:
1. Managers a re responsible to answer to the senior or responsible
authority.
2. Managers are responsible to perform tasks as per job requirements.
3. Managers are responsible to provide a healthy work environment to
employees, and so on.
4. Project manager is expected to deliv er the tasks related to the project
as required by his/her superior.
5. A Production manager could be responsible for a particular step in a
manufacturing process and thus responsible for the people and
machines that perform that step.
6. Responsibility of Prod uction manager entail ensuring the team
understands and follows policy and procedures while the machines are
well maintained and safe.
3.6.3 – ACCOUNTABILITY :
A) Introduction :
Accountability refers to answerability for the accomplishment of the task
assigne d by the superior to his subordinates. When the subordinate accepts
authority and responsibility, at the same time he accepts accountability for
the same work. It becomes his obligation to ‘account for’ and ‘report for’
the discharge of responsibility. The se obligations involve carrying specific
actions that you complete in order to fulfill the assigned role and a
member of an organization. Accountability in the workplace refers to a
person's commitment to their tasks.
Accountability is a liability of a subordinate for proper discharge of his
functions. Accountability cannot be delegated.
What managers are accountable for should also be well defined with clear
boundaries, metrics, timelines, and be agreed to by both the senior leader
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86 Orga nizations understand the importance of accountability and for good
reason. When a company fosters a culture of accountability, there are
significant positive outcomes.
B) Definition :
Webster's Dictionary says, "Accountability is the obligation or
willingness to accept responsibility for one's actions."
According to Henry Evans , the author of ‘Winning with Accountability ’,
accountability is “clear commitments that in the eyes of others have been
kept.”
As per McFarland, “accountability is the obligation of an individual to
report formally to his superior about the work he has done to discharge the
responsibility.”
C) Features of Accountability :
The following are the characteristics or features of Accountability :
1. Accountability cannot be delegated and everyone in the organization
stands accountable to his superiors.
2. Accountability cannot be reduce d despite delegating the authority.
3. Accountability is always upward as subordinate remains accountable
to the boss above him.
4. Accountability is unitary in the sense; a subordinate should be
accountable to only one boss.
D) Importance ofAccountability :
Follow ing are the certain importance of Accountability :
1. Accountability helps in the smooth functioning of the workplace.
2. Accountability reduces the time spent on unproductive and distracting
activities that do not take individuals closer to their defined goal.
3. Employees monitor their leaders to understand what is acceptable and
how they themselves should operate.
4. It increases performance as there are rewarding the results of
achievement.
5. Accountability increases collaboration.
6. It inspires individuals to excee d their goals and improve their
performance.
7. It builds trust as each individual, team and department knows they can
rely on one another.
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87 9. It promotes employee engagement because it has been shown when
individuals feel empowered to find solutions to achieve their goals,
that sense of ownership is a key driver in employee engagement.
10. Accountability fosters better wo rk relationships, trustworthiness,
cooperation, and responsibility.
11. It improves job satisfaction, and helps teams work more
effectively together.
E) Examples of Accountabil ity :
Following are some examples of Accountability :
1. For everyone working in the organization, accountability lies in the
liability for completing assigned task in the scheduled time efficiently
and effectively with minimum or without wastage of resources to
fulfill the organizational objectives and to achieve the profits.
2. A Sales Manager is accountable for achieving the agreed -upon
revenue targets for a given time period, which could be a quarterly or
annual target.
3. A Purchase Manager is accountable for p rocuring the required
materials for maintaining the sufficient stock for production.
4. A Production Manager is accountable for arranging the required men,
material & resources for completing the accepted order.
5. A Finance Manager is accountable for ensuring a dequate flow of
finance in the business for carrying out all financial chores and
maintaining the optimum finance for future endeavors.
6. For a General Manager, being respectful to external stakeholders like
clients or customers.
7. For every employee in the or ganization, accountability means meeting
deadlines and working according to plan to achieve results.
8. For all managers, accountability is finding solutions to complex
problems to get back on track.
3.6.4 – DIFFERENCE BETWEEN AUTHORITY,
RESPONSIBILITY AND A CCOUNTABILITY:
Authority can be delegated whereas responsibility cannot be delegated.
After delegation of the authority, responsibility for the same remains with
the superiors only. For this subordinates cannot be held responsible. Once
authority is accep ted, responsibility automatically comes and person
becomes accountable for the same. Thus accountability need not be
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88 While there is a good deal of similarity between Authority, res ponsibility
and Accountability and these are interrelated terms, there is difference
between allthree.
Following table depicts the difference between Authority, Responsibility
and Accountability :
Basis of
difference Authority Responsibility Accountability
Meaning Authority is the
right of
commanding
subordinates and
exercising control
by issuing orders
and instructions. Responsibility is the
obligation to
perform the assigned
task. Accountability
refers to
answerability /
liability for the
accomplishment of
the task.

Expectation of
others Authority expects
the subordinates
to follow his
orders and
demanding
obedience from
the team. Responsibility is not
contingent on the
expectations of
others. Accountability is
being held to
someone account
for another person
or action or result.
Required
action Action of
Authority
involves
delegating works
and orders to
others. Individuals who feel
a sense of
responsibi lity often
takes action because
of their own
personal ideals. Accountability
requires that a
person take
definitive action.
Concerned
withvalues Authority is
concerned with
exercising power
or rights. Responsibility is
more values driven,
coming from wit hin. Accountability is
obligation /
Commitment for
something.
Base / Origin It originates from
the job position
in the
organization as
per the
organizational
hierarchy or
scalar chain. It arises from
delegated authority. Its takes place from
the responsib ility.
Direction of
flow Authority flows
downward, from
a superior to
subordinate.
Responsibility flows
upward, from a
subordinate to a
superior.
Accountability
flows upward, from
a subordinate to a
superior.
Delegation Authority can be
delegated. Resp onsibility
cannot be delegated. Accountability
cannot be
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89 Finally to conclude we can say that, authority, responsibility and
accountability should be equal to each other in any position. There should
be a proper balance between all three.
3.6.5 – SPAN OF CONTROL :
A) Introduction :
Span of control is also called as span of management or span of
supervision Span of Authority as well. This concept was introduced by Sir
Ian Hamitton. It was supported by V.A.Graicunas and Urwick. There is a
limit on the number of persons that can be managed by a manager at a
time. Span of control deals with this concept.
Span of control refers to estimating the optimumnumber of subordinates
that can be effectively managed and supervised by a manager at a time. It
is a pr imary factor that determines the shape of the organization.
It depicts the organization’s size and workgroups as the levels of
management are created based on the span of control expressed by
comparing managers with employees.
B) Definition :
1. Dimock defines, “Span of control is the number and range of direct,
habitual communication contacts between the chief executive of an
enterprise and his principle fellow officers.”
2. According to Lois Allen , “Span of control refers to the number of
people that a ma nager can supervise.”
3. Peterson and Plowman , “Span of control refers to the maximum
number of subordinates which may be placed under the jurisdiction of one
executive immediately superior to them.”
4. Elliott Jaques has the view -point that a manager ma y have up to as
many immediate sub -ordinates that he can know personally in the sense
that he can assess personal effectiveness.
5. In the words of Haimann and Scott , “Span of control as the number of
subordinates who can be effectively supervised and man aged.
6. Longenecker simply defined span of control as the number of
immediate subordinates reporting to a given manager.
C) Types of Span of Control :
The types of Span of Control are :
1. Wide
2. Narrow
The flatter organization has a wide span of control, wherea s the taller
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90 1. Wide Span of Control –
When one manager manages orsupervises many subordinates, it shows a
wide span of control. It is also called Operative Span as it is generally
applicable at the lower or operating managerial level. The wide span
involves simple working and leads to a flatter organizational structure.
The organizations large in size go for a wide span of control.








It involves less operating cost and is highly adaptive to the changes. The
supervisors have excellent coordination and communication horizontally
& vertically because of the fewer levels.
2. Narrow Span of Control –
When one manager manages or supervisesa few subordinates, it shows a
narrow span of control. It is also called the Execu tive span because it is
applicable at the top or middle managerial level. Organizations opt for
narrow span when the nature of work is complex and requires more
assistance from the superior.
A narrow span contains fewer subordinates at a single level. It r esults in an
increased number of management levels making an organization taller in
structure.







Flat Organisation
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D) Importance / Advantages of Span of Control :
Span of control is very important principle of organizing. The importance
of span of contro l can be explained as follows:
1. Superior can concentrate on important work –
Due to proper span of control superiors/ supervisor gets enough time to
concentrate on important activities. If span of control is unreasonably
large, then superior may not be able to concentrate on important areas or
functions as his time will be spent more for supervision.
2. Good relations -
Proper size of span of control facilitates to maintain good relations
between managers and subordinates.
3. Team work -
Proper span of control facil itates team work in the organization.
As relations are healthy, it develops good team spirit amongst all.
4. Quick actions -
Because of good co -ordination, relations and team spirit, quick
actions are possible.

Tall
Org
anis
atio
n

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92 5. Increased efficiency -
Due to proper supervision e fficiency of the organization increases.
6. Corporate image -
Due to higher efficiency and good relations, corporate image of the
organization develops.
7. Motivates personnel -
Proper size of span of control motivates subordinates. As subordinates are
close to th eir superiors, they get proper guidance from time to time.
8. Reduces labor absenteeism and turnover –
As all the employees are part of co -coordinated team, it develops morale
of the employees. It results into less labor absenteeism and turnover.
E) Factors affec tingSpan of Control:
Various factors that affect size of span of control are explained as follows:
1. Nature of work –
If the work to be performed is of routine nature, then span of control can be
large. But if work is complex and complicated then there sho uld be few
subordinates in span of control as manager will have to spend more time on
discussion rather on supervision.
2. Experience of subordinates –
If subordinates are enough capable and experienced then span can be
large whereas if there are less experien ced subordinates then span
should be less. This is because less experienced people require more
supervision resulting into more time spent on supervision by superiors.
3. Capacity and experience of superior –
If manager is experienced and capable enough, span can be large;
whereas new managers with less experience should be given few number
of subordinates for supervision.
4. Extent of delegation of authority –
If manager delegates more and clear authority then much of his time will
be saved which can be used for supervision. In this case span of control
may be large.
5. Personal assistance –
If manager is able to use assistance from personal staff like personal
assistant then he can handle more number of subordinates. As
personal assistant is available, manager can spend more time on
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93 6. Superior subordinate relations –
If the relations between superior and subordinates are sound, then size
of span of control can be large. Good relations always develop good
communication and team work.
7. Use of standing plans –
Standing plans are those plans which are used frequently. If the
organization has developed proper standing plans then subordinates can
follow the same. Then superior will not have to give more instructions
resulting in the saving of time and size of span of control can be kept large.
8. Control system employed –
Size of span of control also depends upon control system employed in the
organization. Good control system facilitates proper controlling of
subordinates performance. This reduces supervision work of man ager.
F) Examples of Span of Control:
Following are some examples of Span of Control :
1. Coca Cola - The span of control in Coca Cola is narrow, creating a tall
organizational structure. They have 1 superior over every 3-
5 employees.
2. Google - Earlier, the ratio of span of control in Google was 1 supervisor
over 7 subordinates. They have widened their structure by increasing
their span by 10 subordinates under 1 supervisor.
3.7 ORGANIZATIONAL HIERARCHY – CHARTS
3.7.1 - INTRODUCTION :
Organizational hierarchy refer s to how an organization or a company is
organized. Hierarchy is a way to structure an organization using different
levels of authority and a vertical link, or chain of command between
superior and subordinate levels of the organization. Higher levels cont rol
lower levels of the hierarchy. Organizational hierarchy can be thought as a
pyramid.
In this system, the relationship between the owner, directors, managers
and all the employees within the firm is distinct and cleared from the
beginning.
In an organis ational hierarchy everyone collectively works towards
achieving only the company goals and objectives without deviating from
their path.
3.7.2 - DEFINITION :
Earnest Dale wrote Organization Chart as “An organizational chart is
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94 George Terry defines an organization chart as
“Adiagrammatical form which shows important aspects of an
organization, including the major functions and their respective
relationships, the channels of supervision, and the relative author ity of
each employee who is in charge of each respective function.”
3.7.3 - ADVANTAGES / USES OF A CHART :
The organization chart offers the following advantages:
1. It shows job titles of each employee.
2. It indicates the number and type of departments.
3. It sho ws superior -subordinate relationship.
4. It indicates the chain of command and communication.
5. It helps in familiarizing and in training the new employees.
6. It provides an easy reference in case of organizational conflict.
7. It provides a basis for planning organ izational changes, after having
discovered the weaknesses of the existing organizational structure.
8. It enables to visualize the organization at a glance, rather than going
through a lengthy description about it.
9. It shows if there is any overlapping or dupl ication in functions and
as such corrective action can be taken to do away with duplication of
activities.
10. It provides a lot of information at a glance to the outsiders.
3.7.4 – LIMITATIONS OF A CHART :
1. A chart shows who has authority over whom, but it do es not show
the extent of that authority.
2. It shows job titles but it does not give details of duties which each
person is expected to perform.
3. It does not show the relationship with other groups and
individuals who do not report directly to a particular ma nager.
4. The chart does not reveal the full picture of the organization,
especially that of a large concern.
5. It cannot show informal relationship existing in the firm.
6. A chart may develop feelings of superiority and inferiority which may
pose a problem for t eam work.
7. It shows organization structure at the time when it was drawn up. It
becomes out of date as changes occur in an organization, unless efforts
are made to keep the chart up -to-date.
8. In the absence of dynamic management, a chart gives rigidity to the
organization because each individual prefers to remain within his
charted areas.
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95 3.7.5 – ESSENTIALS / PRINCIPLES OF A GOOD CHART :
1. The chart should permit flexibility. Whenever, there are changes in
the organization, it should permit such changes.
2. There should be a clear flow of authority from the top management
to subsequent levels. Each level and the chain of command should
be clearly depicted in the chart.
3. The chart should depict clearly the position and responsibility of
each and every member so as t o avoid conflicts.
4. Every position in the organization should be assigned to a
responsible person.
5. It should provide easy reference at a glance to the members of the
organization as well as to the outsiders.
6. It should clearly show the lines of co -ordination between various
individuals and groups or sections.
7. There should not be any duplication in the position.
8. It should clearly show the promotional avenues for members of the
organization.
3.7.6 –TYPES OF CHARTS :
There are several kinds of charts. The variou s types of charts are as
follows:
1. Vertical Charts : (From Top to Bottom) –
This is the most common and popular type of charts. Almost all companies
prefer to use vertical charts. In this chart, major functions are shown
at the top and the subordinate funct ions are shown in successive lower
positions. In other words, the supreme authority is at the top, while the
lower authority is shown at the bottom.










Major functions
(Supreme Authority)
Moderate functions
(Middle Authority)
Successive functions
(Lower Authority) Successive functions
(Lower Authority) Successive functions
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96 2. Horizontal Charts : (From Left to Right) –
In this type, the top positions are shown at the lef t and those with lower
authority are shown towards the right. This type of chart is rarely used.





3. Circular Charts : (From Inner to Outer) –
In this type of chart, the position and authority are shown in the circles.
The centre circle represents the su preme authority, and the outer circles
represent the lower authority. The higher the position of authority, the
nearer they are to the centre, and the lesser the positions of authority, the
more distant they are from the centre.










4. Departmental cha rts :
These are also known as supplementary charts. They show the structure of a
particular department, giving details of positions, authority and
responsibility within the department. For instance, the marketing department
may have a separate chart of its own.
5. Master chart :
This is the overall chart of the organization. It shows the entire structure of
the organization - the divisions, the departments, the sections, etc. and
indicates the overall relations of its major components. Top positions Middle functions Lower Authority
Lower Authority
Lower Authority
Lower Authority








Moderate Authority Supreme
Authority
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97 6. Personnel chart :
It show s the job titles with the names of the position holders.
Check your Progress :
1. Authority is the legal --------- of commanding subordinates.
2. Types of Span of Control are : -------------- and ------------ .
Check your knowledge :
1. Examples of Authority.
2. Examp les of Accountability.
Define :
1. Span of Control.
2. Organisational Hierarchy.
Explain :
1.Difference between Authority, Responsibility and Accountability.
2. Importance of Span of Control.
Answer the following :
1. Factors affecting successful implementation of Authority
2. Types of Charts.
3.8 DELEGATION OF AUTHORITY AND
DECENTRALIZATION
3.8.1 – DELEGATION :
Delegation is a process by which a superior transfers formal authority to his
subordinates. It is a transfer of authority from higher authority to the lo wer
authority.
A) Definition :
John Pearce and Richard Robinson define delegation of authority as
“a process by which a manager assigns tasks and authority to
subordinates who accept responsibility for those jobs.”
According to George Terry , “Delegation means conferring of
authority from one executive or organization unit to another.”
B) Process of delegation of authority :
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Stage I:
Here the delegator finds out the work to be assigned t o delegate.
Stage II:
Here the delegator actually transfers the work to the delegate.
Stage III:
At this stage delegated work can be either accepted or rejected by the
delegate. If it is accepted, then process continues. But if it is rejected
then delegato r will have to start again with the process by delegating to
someone else.
Stage IV:
If the work is accepted by delegate then responsibility will be created for the
delegated work. It is the responsibility of both delegator and delegate to
accomplish the a ssigned work (job / task) properly in the stipulated time.
C) Significance of delegation of authority :
The process of delegation of authority is important for both i.e.
superior and subordinates.
The significance of delegation of authority can be explained as follows:
1. Reduction in burden on superiors –
By delegation of authority the work of superior gets reduced. Superior can
use this saved time for concentrating on important areas.
2. Quick action –
As authority is distributed among superior and subordinate, fast
decisionsare taken. This leads to higher efficiency and better results. Transfer of authority Stage I
Stage II
Stage III
Stage IV Assignment of duties
Acceptance of assignments
Creation of responsibility
Accept Reject
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99 3. Motivation –
Delegation of authority acts as motivation for the subordinates.
Subordinates get opportunity to handle the authority of superiors.
4. Better relations –
Delegation of authori ty leads to better relations between superior and
subordinates. As authority is transferred to subordinates, team spirit
increases. This results into higher productivity.
5. Facilitates Training and Development –
As subordinates get opportunity to take decisio ns, it increases their
skills. As subordinates perform superior’s authority, they get a chance to
learn managerial functions.
6. Reduction in wastages –
Due to delegation of authority subordinates work with more care,
responsibility and concentration. This lea ds to better efficiency and
wastages are reduced.
7. Basis of Performance Appraisal –
Delegation of authority facilitates proper performance appraisal of the
subordinates. After delegation superior can judge the ability of
subordinates.
8. Expansion and Diversifi cation –
Delegation of authority is required for expansion and diversification of the
organization. For expanded activities authority need to be distributed among
superior and subordinates.
D) Barriers to effective delegation of authority :
Delegation of autho rity is very important process for all the types of
organizations as it offers many advantages. But practically there are many
barriers to delegation of authority. These barriers are on the part of
superior as well as subordinates. Some of the barriers are explained as
follows:
I. Barriers on the part of superiors :
1. Unwillingness to delegate –
Some managers are not willing to delegate the authority. They want to
do the things on their own.
2. Desire to dominate –
Some managers want to dominate among subordinates by exercising
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100 3. Lack of confidence –
Sometimes managers may not have faith and confidence in subordinates.
They feel that if delegated, the subordinates may not perform well.
4. Fear of competition –
Sometim es managers are not ready to delegate to competent
subordinates. Managers may have fear about subordinates’
excellence.
5. Inability to direct –
Proper direction is required to be given by the superior to subordinates
after delegation. But if managers do not h ave ability to direct subordinates,
then they may not delegate.
6. Fear of losing control –
Some managers feel that, they will lose control if the authority is
delegated. They want to have complete control over subordinates so they
do not delegate.
II. Barrier s on the part of subordinates :
1. Lack of self -confidence –
Many times subordinates do not have self -confidence. Due to this, they are
not ready to accept the authority.
2. Fear of criticism –
Sometimes subordinates have fear of criticism by others. They feel tha t
if authority is accepted, others will criticize them.
3. Fear of getting exposed –
Subordinates, who are involved in malpractices, do not accept
authority. This is because they have fear of getting exposed.
4. Lack of information –
In some cases subordinates are not ready for delegation because they may
have an idea that they may not get enough information required to
complete delegated work.
5. Lack of incentives –
If managers do not provide proper incentives for delegation then
subordinates may not be ready to acce pt delegation.
6. Undue interference by superiors –
If the superiors have a tendency to do undue interference in subordinates
work, then subordinates may not like that. This will lead to rejection of
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101 3.8.2 – DECENTRALIZATION :
A) Meaning :
Decentralization is the tendency to disperse decision making authority in
an organization structure. In decentralization only broad powers are
reserved at top level and routine authority will be delegated at the
lower level. In every organization there is n eed to have a proper balance
between centralization and decentralization. No organization can be
completely centralized or decentralized.
B) Definition :
1. According to Henry Fayol , “Everything that goes to increase the
importance of the subordinate’s role is d ecentralization, everything
that goes to reduce it, is centralization.”
2. In the words of Louis Allen , “Decentralization refers to the
systematic effort to delegate to the lowest levels all authority except that
which can only be exercised at central points.”
C) Factors affecting Decentralization :
1. Cost and importance of decision –
If the decisions to be taken are costly and of important nature then
there will be less decentralization and more centralization.
2. Availability of managers –
If the numbers of compe tent managers are available enough in the
organization, then decentralization will be more.
3. Desire of uniformity –
If the management wants to have uniformity in all the decisions taken
throughout all the levels then degree of decentralization will be less.
4. Management philosophy –
If management is following professional approach then they will
decentralize more. Management with broad mind, provide opportunity to
subordinates to participate in decision making.
5. Control techniques –
If there are proper control syst ems implemented in the organization, the
degree of decentralization will be more. Mangers will not be able to
delegate if there are no good control techniques available.
6. Size of the organization –
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102 7. Decentralized performance –
Decentralized performance means operations of the company are carried on
by various branches. In this case there will be more decentralization.
8. External factors –
External environmental factors such as government policies, licensing, etc.
affect degree of decentralization.
D) Importance of Decentralization:
1. Less burden on top management –
By decentralization the work of top management gets reduced. Top level
managers can use this saved time for conc entrating on important areas.
2. Quick action –
As authority is distributed among all the levels, fast decisions are taken.
This leads to higher efficiency and better results.
3. Motivation –
Decentralization acts as motivation for the lower level and middle level
managers. Lower level managers get opportunity to handle the authority and
to take decision.
4. Facilitates Training and Development –
As lower and middle level executives get opportunity to take decisions, it
increases their skills. They get a chance to lear n managerial functions. Thus
decentralization facilitates training and development of the lower and
middle level executives.
5. Reduction in wastages –
Due to decentralization lower level managers work with more care,
responsibility and concentration. This lea ds to higher efficiency and
wastages are reduced.
6. Expansion and Diversification –
Decentralization is required for expansion and diversification of the
organization. For expanded activities authority need to be distributed among
all the levels of management .
7. Specialization –
Decentralization follows the principle of division of work. Work is
distributed among all the levels. Top management concentrates only on
important areas whereas others decide about routine work.

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103 8. Better control –
The span of control beco mes effective due to greater degree of
decentralization. This leads to better supervision and controlling of
performance at all the levels.
3.9 EMERGENCE OF VIRTUAL ORGANIZATION
3.9.1 – INTRODUCTION :
A virtual organisation is referred to as a flexible net work of entities that are
linked by computing technologies to share knowledge and skills . This
electronic network goes beyond organizational and geographical
boundaries.
The virtual organization exists wi thin a network of alliances to perform their
work using the internet, phones and e -mails. i.e. ICT (Information and
Communication Technology) tools, to sustain, maintain and enable the
sharing of resources in distributed work environments as they do not have a
base or geographical location.
In Virtual Organization, the core of the organization can be small but still
the company can operate globally; it ev en can be a market leader in its
niche. Although none sell in huge numbers, there are so many niche
products that are made highly innovative which collectively make
significant profit and brings success for the organisation.
Virtual organization can alsobe a temporary alliancebetween two or more
organizations that come together to achieve specific objectives. The
participants in virtualorganisation are inter - dependence to each other; being
closely coupled by upstream with its suppliers and downstream with its
customers. It can be composed of different participants every day.
The project organisationgets winded up once the target is achieved for
which the project was formed. It may remain functionalas long as the
consumer demand exists.
3.9.2 - DEFINITION :
Virtual organisation refers to a new organizational formcharacterized by a
temporary or permanent collection.
A virtual organisation is defined as an organisation that is dependent o n
electronic linking to complete the process of production. It can be of
permanent or temporary nature and can include groups, individuals
dispersed at various locations, the entire organis ation or even an
organizational unit. In simple terms, a virtual organisation is referred to a
company with an electronic presence and one who does not have a physical
existence.
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104 3.9.3 – CHARACTERISTICS OF VIRTUAL ORGANIZATION :
Following are the characteristicsa of Virtual Organisation :
1. No separate entity –
Participating organizations don’t have clear rules like traditional
organisation. It has neither cent ral office nor organizational chart.
2. Interdependence –
Virtual organizations are mostly interdependent with eachother making it
possible to deliver a product collaboratively. Allthe alliance partners
usecombined working method forproper development of th e organisation.
3. Temporary in nature –
Virtualorganisation is generally temporary in nature and terminate once the
desired objectives are achieved.
4. Importance of role of Information &Communication Technology
(ICT) –
Virtual organisation largely depends on the ICT fordeveloping &
diversification of organization’s informationalnetworks. It becomes easier
to spread over geographical boundariesas the world wide communication is
spread within few seconds.It provide platform forstart -upcompanies to link
up wor ktogether from the scratch.
5. Changing participants –
In this type of organisation participants may change day by day. One day
theorganisation may be a part of a network formulatingvirtual organisation
along with others networks; the other day virtual org anisation could be
composed of otherorganisation.
6. Excellence –
Each partner brings his corecompetence and skillsin the virtual
organisationresulting in tothe increase in efficiency of the organisation due
to the joint efforts.Virtualorganisation can pro vide excellent performance in
a particular project or product by availing world class product or services
with competent feature &process.
7. Trust & Respect -
Mutual trust & respect of each other play important role indevelopment of
virtual organisation. Expansion, Diversion and modification ofvirtual
organisation largely depend on the trust of the members with each other.


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105 3.9.4 – TYPES OF VIRTUAL ORGANIZATIONS :
1. Telecommuters -
This type of virtual organisation hires employees that work from home
and interact with their workplace via personal computers and using
headphone and microphone.
2. Completely virtual -
These types of virtual organizations are linked to a network of retailers,
distributors, suppliers and customers.
3. Outsourcing employees -
This type of companies outsource almost all or a significant part of core
competencies . The virtual organisation owes one or two core
competen cies at which it is excellent and hires the rest. The areas for
outsourcing generally include information system, manufacturing, finance,
engineering, etc.
3.9.5 – MERITS OF VIRTUAL ORGANIZATION :
The popularity of Virtual organisations is growing for a nu mber of reasons.
It’s proving to be beneficial to the employers (organisations) as well as
employeesoffering following considerable advantages :
1. Lower Overhead Costs for organization –
Virtual organizations enjoy significant reduction in operating costs for the
associated services (e.g., computer, office space, maintenance costs,
communication between virtual and in -house staff, benefits, etc.)By
switching to a remote work setup, organisation can decrease these expenses
drastically.
For instance, company no longer need to payrent and utilities like gas,
electricity, waterand heating and cooling facilities, foo d and cafeteria
expenses during working hours, regular cleaning services, real estate taxes
(if applicable), provide PPE (personal protective equipment), sanitation
supplies or even change workplace layout to make office safe for
employees.
According to Global Workplace Analytics, employers can save almost
$11,000 annually per half -time virt ual employee .
All of this contributes to a carbon footprint reduction – as a company and as
individuals.
2. Cost savings for employees -
Employees can also experience significant savings. The Global Workplace
Analytics survey showed that remote employees c ould save somewhat
between $600 to $6000 annually by cutting expenses such as commuting
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106 3. Improved Employee Satisfaction –
Employees are happier when they are able to work from home. Many of
them have reported that they have lower stress levels . The study also
showed that a shift towards remote work led to fewer absences and a higher
morale in employees.
4. Improved Employee Efficiency –
Remote employees get more work done without or with
lesscommunicationswith the office resulting into accomplish ing more tasks
in less time.
5. Improved Employee Productivity –
Employees feel more productive and tend to have fewer distractions at
home. As a result, they’re able to give their undivided attention to any given
task and work more compared to in -office.
Mem bers of virtual organisations tend to have higher focus on the task at
hand. As a practice, virtual organisation supports flatter organization
structure. The members do not have to deal with unnecessary bureaucracy
which slows down the decision making. Thi s enhances the productivity
which yields into higher profits.
6. Improved Scalability and Growth Potential –
Apart from office overheads, fewer investments in supplies lead companies
to free up capital and utilize it to improve their scalability and growth
potential.
7. Larger Global Talent Pool –
Traditional teams often have to rely on local talent to recruit a larger pool of
talent, but a virtual organization can access candidates with diverse
backgrounds, skill sets, and knowledge bases from across the glob e without
limiting them to one specific geographic location or country of origin.
This brings the experts and specialists worldwide to work together on the
project. Increased knowledge sharing and greater innovation happens as
organization’s human capital share their understanding of global and local
markets as well as best business practices.
Virtual Organisations allow firms to expand their potential labour markets
enabling them to hire and retain the best people regardless of their physical
locations.
8. Flexible work schedules for employees -
Remote working can also be linked to flexible work schedules that let
employees work around important personal tasks, such as doctor
appo intments, family functions, etc. without needing an entire day off. They
can start work when best for them, take regular breaks and create their own
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107 work on multiple projects of multiple organisations or do freelancing work
simultaneously.
Virtual Organisations can be organized whether or not member s are in
reasonable proximity to each other. Employee can be assigned to multiple,
concurrent teams.
Virtual Organisations’ membership allows people to move from one project
to another.
9. Improved Employee Retention –
Employees that are happier in their wor k are more likely to stick around.
With competitive salaries, remote workers are less likely to leave their jobs.
Employees’ turnover ratio gets reduced resulting into less layoff of
employees.
In a virtual workplace, employers don’t have to worry about re location
costs. If an existing employee has to move, he can continue working with
the company without missing a beat. As a result, companies
can retain valued employees and need not stress over hiring replacements
every time an employee relocates.
10. Access to New Markets –
Hiring remotely provides access to thefirms to tap into new markets. This is
particularly useful when it comes to remote sales teams, who will be able to
reach out to new customers that otherwise would have been out of reach for
thefirm.
11. Affordability –
With virtual organisations, companies pay only for the level of support that
they require. They achieve tremendous reduction in cost for paying
professional consultancies and headhunters that have large infrastructures
and professional fees to support. It attains use of outside experts without
incurring expenses for travel, logging and downtime.
12. Flexible support –
Companies can set the length of the service according to their needs.
13. Full suite of services –
Virtual organisation offer access to multiple disciplines in different
geographic regions.
14. Healthy Work -Life Balance –
With remote work, employees havemore time for their loved ones and
experience less stress. Remote workers save commuting time and spend it
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108 Telecommuting (remote working) also justifies for people with disabilities
and mental he alth concerns. These people usually have a home office setup
to help them succeed during work while providing the required self -care.
Employees can accommodate both personal and professional lives. All these
factors significantly improve employees’ qualit y of life and their work -life
balance.
15. Newer Opportunities –
Virtual organisations have created newer opportunities for people who are
less mobile and hesitant to relocate due to either family requirement or
physical challenge. Any task that does not req uire the physical presence of a
person and which can be supported by communication technology provides
an opportunity for many deserving candidates.
16. Faster (Reduced) Time to Market –
When global virtual organisations are spread across various time zones,
there could be different team working on the same project 24X7, when one
member sleeps there will be another one somewhere else awaking, who
would start work where the former had left or slept. For instance,
a developer in India can take over once the American developer finishes his
work. This results into switching of work between different employees
which ensures that there is no discontinuation or break in the work in the
ongoin g project.
Such constant collaboration and teamwork will increase company’s
productivity. Company will be able to release a new product into the market
sooner and stay ahead of the competition. This shortens the product
development time as well as faster r esponse time to demands in both global
and local markets.
When this happens, business can spread its wings to new product
developments, opt for inclusive policies and adopt novel hiring practices
thereby expand business hours, increase business’ reach, and cater to more
clients.
17. Transparency & availability of information –
Virtual Organisations’ communication and work reports are available online
to facilitate swift responses to the demands of the (global) market.
3.9.6 – LIMITATIONS OF VIRTUAL ORGANIZATIO N :
1. The lack of physical interactions with its associated verbal and
non-verbal indications and also the synergies that often accompany
face-to-face interaction.
2. Non-availability of para -verbal and non -verbal signals such as
voice, eye movement, facial exp ression and body language which
help in better communication.
3. Problem of facing security and compliance issues by virtual
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109 3.10 SUMMARY
Organising is an important function which involves synchronization and
combination of allocation of duties and responsibilities among people and
important resources to achieve theorganisational goals by carrying out work
systematically.
Organising is based on some commonly accepted principles of
organisingas: Objectives, Specialization, Co -ordination, Delegati on of
authority, Short chain of command, Balance, Continuity, Simplicity, Span
of control, Flexibility, Authority and responsibility and Unity of
command.
.Departmentalization is a process of grouping all the organisational
activities into functional units on the basis of their area of specialization for
effective management to achieve organisational goals.
Departmentalization is based on different factors as : Departmentalization
by functions, by area, by product, by customer, bye time and by numbers.
There are many advantages of Departmentalization as Departmentalization
facilitatesspecialization of activities as per the skills of the people. It helps
to fix authority and responsibility of each department thereby achieves
controlling and supervision in the organisation.It facilitates better services to
customers. It results into optimum utilization of resources resulting into
development of the organisation.
There are two internal structures of an organisation: Formal and Informal.
Formal organisation is a s tructure of well -defined jobs having definite
authority and responsibility specially designed to achieve the common
organisational goals. The balance is maintained in it byassigning rules and
regulations to all employees establishing Superior -Subordinate r elationship
ensuring coordination and formal communication among all.
There are various forms of thermal organisationas :Functional, SBU,Matrix
and Committee organization. They are unique in themselves having distinct
characteristics, structure and importa nce.
Informal organisation refers to relationship between people based on their
personal attitudes, emotions, likes, dislikes, etc.Informal organisationexist in
the formal organisation nevertheless established or required by it but arising
spontaneously as people associate with one another. No authority and
responsibility is delegated in informal organisation and so no specific goal
is achieved. No rules and regulations are to be followed and no need of
coordination is there in case of informal organization . It includes a sense of
unity and togetherness among the members of the organisation which
provides social as well as psychological satisfaction to them.It provides
safety value for employees’ emotions resulting into increase in cooperation
among them. It helps the formal organisation to get more works done by
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110 Authority is the legal right of commanding subordinate and exercising
control by issuing orders and instructions, power to take decision or actions
to achieve organisational goal. Authority is delegated and it flows
downward from superior to subordinate.
Responsibility is the obligation of subordinate to perform the assigned tasks
to accomplish the desired organisational objectives. It is associated with
Authority. Responsibi lity cannot be delegated and it flows upward from
subordinate to superior.
Accountability is the answerability of subordinate for the accomplishment
of the task assigned by the supervisor for the discharge of responsibilities
which involves carrying specif ic actions to fulfill the assigned role. When
the subordinate accepts authority and responsibility, simultaneously
accountability comes on his shoulder. Accountability cannot be delegated
and it flows upward from subordinate to superior.
Span of control re fers to estimating the optimum number of subordinates
that can be effectively managed and supervised by a manager at a time. It
determines the shape of the organisation and depicts the organisation’s size
and workgroups as the levels of management are base d on it.
There are two type of span of control : Wide and Narrow. Wide span of
control attributes to one manager supervising many subordinates. It is
applicable at lower or operating manager level andits simple working leads
to flatter organisational struc ture.Narrow span of control attributes
toonemanager supervisingfew subordinates. It is applicable at top or middle
management level where the nature of work is complex and requires more
assistance from the supervisor. Fewer subordinates at single level inc rease
the management level making it taller in the structure.
Advantages of span of control are :Superior can concentrate on important
work, good relations are maintained by achieving team work with quick
actions and result into increased efficiency with i mproved corporate image
motivating personnel and reduces labour absenteeism and turnover.
Organisational hierarchy is a way to organise its structure using different
levels of authority or chain of command between superior and subordinate
where everyone co llectively works towards achieving the organisational
goal. In this system the relationship between the owner, directors, managers
and all the employees within the firm is distinct.
There are different types of Organisational hierarchy / charts as
Vertical ,Horizontal, Circular, Departmental, Master and Personnel chart.
Delegation of authority is a process by which superior transfers formal
authority to his subordinates. Different stages are involved in the process of
delegation of authority.
Advantages of delegation of authority are :Reduction in burden on
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111 Development,Reduction in wastages, Basis of Performance Appraisal,
Expansion and Diversification.
Decentralization refers to dispensing decision -making authority in an
organization.
Aadvantages of decentralization are :Less burden on top management,Quick
action, Motivation,Facilitates Training and Development, Reduction in
wastages, Expansion and Diversification, Specialization, Better control.
A Virtual Organisation is referred to as a flexible network of entities that are
linked by electronic and ICT Technologies to share knowledge and skills
beyond organisational and geographical boundaries. It does not have fixed
or physical existence. Its members are spread across various locations.
Virtual Organisations are interdependent with each other whose participants
are of changing nature. Though they are separate entities, each partner bring
excellence in his core competencies and sk ills where material trust and
respect lies between each member.
Types of Virtual Organisations are : Telecommuters, CompletelyVirtual
and Outsourcing employees.
Advantages of Virtual Organisationenjoyed by employer and employees
both are :Lower Overhead C ostsfor Organization,Cost Savings for
Employees, Improved Employee Satisfaction, Improved Employee
Efficiency, Improved Employee Productivity, Improved Scalability and
Growth Potential, Larger Global Talent Pool,Flexible Work Schedule for
Employees, Improv ed Employee Retention, Access to New Markets,
Affordability, Flexible Support, Full Suite of Services, Healthy Work -Life
Balance, New Opportunities, Faster or Reduced Time to Market;and
Transparency and Availability of Information.
3.11 EXCERCISES
State wh ether following statements are True or False :
1. The structure of organization should be complex.
2. Departmentalization by Customer is based on the similar activities.
3. Informal organization is based on personal attitudes, emotions, like,
dislikes, etc.
4. Matrix organization is a combination of two or more structures.
5. An organizational chart is a diagram of informal authority relations.
Select the most appropriate option from the given :
1. Which of the following is not the principal of Organization?
(a) Continuity, (b) Simplicity,
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112 2. Select the correct example of Departmentalization by Product :
(a) Mumbai.. Kolkata … Chennai .. Bengaluru
(b) Vineet … Ulhas … Meera …. Akshay
(c) Glucose biscuits … Marie biscuits … Cream biscuits … Dia betes
biscuits
(d) Production … Sales … Marketing … Finance
Write short notes on :
1. ‘Balance’ as the Principle of Organizing.
2. Departmentalization by functions.
3. Structure of SBU.
4. Factors affecting Span of Control.
5. Barriers to effective Delegatio n of Authority.
6. Importance of Decentralization
7. Organizational Charts
8. Benefits of Virtual organization
Give brief answers :
1. List out the principles of Organizing.
2. Elaborate on the benefits of Departmentalization.
3. What is the relevance of Informal O rganization ?
4. Differentiate between Authority and Responsibility.
5. Factors affecting Decentralization.
6. Limitations of a chart.
7. Characteristics of Virtual organization.
Match the columns :
Column ‘A’ Column ‘B’
i) Dept. by area a) Batch of 50
ii) Dept. by produ ct b) Konkan
iii) Dept. by function c) Finance
iv) Dept. by customer d) Crackjack
v) Dept. by numbers e) Middle class

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113 4
STAFFING

Unit Structure
4.0 Objective
4.1 Introduction
4.2 Importance of Human Resource in organizations
4.3 Estimation of Human Resource requirements
4.4 Human Assets Accounting
4.5 Job Analysis
4.6 Recruitment and Selec tion
4.7 Training and Development
4.8 Performance Appraisal
4.9 Summary
4.10 Exercise
4.0 OBJECTIVES
After studying the unit the students will be able to :
1. Understand the concept of Staffing.
2. Know the importance of Human Resource in the organisation.
3. Discu ss the estimations of Human Resource requirements.
4. Explain the techniques of estimating Human Resource requirements.
5. Understand the concept of Human Assets Accounting.
6. Bring out Objectives, Benefits and Limitations of Human Assets
Accounting.
7. Understand th e concept of Job Analysis.
8. Analyse the components of Job Analysis.
9. Evaluate the importance of Job Analysis.
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114 11. Understand the concept of Recruitment and Selection.
12. Know the different sources of Recruitment of t he Managerial
position.
13. Explain the Internal and External sources of Recruitment.
14. Understand the concept Selection.
15. Bring out the steps of Selection process.
16. Understand the concept Training and Development.
17. Know about the advantages of Training to the Comp any and
Candidates.
18. Explain the types and methods of Training.
19. Explain the On -the-Job and Off -the-Job Training.
20. Elaborate the Principles of Training.
21. Understand the concept Performance Appraisal.
22. Bring out the Need and Methods of Performance Appraisal.
23. Evaluate Judgmental Appraisal and Objective Methods of
Performance Appraisal.
24. Explain the uses of Performance Appraisal.
4.1 INTRODUCTION
The long term success of a company is usually examined on certain
financial and non -financial parameters. Human resource s (personnel) are
among these new nonfinancial parameters that plays vital role in
determining the corporate success. Human resources represent the
collective expertise, innovation, leadership, entrepreneurial and
managerial skills endowed in the employees of an organisation.
Staffing is the managerial function of recruitment, selection, training,
developing, promotion and compensation of personnel. It is the process of
hiring eligible candidates in the organisation or company for specific
positions. In man agement, staffing refers to an operation of recruiting the
employees by evaluating their skills, knowledge and then offering them
specific job roles accordingly.
Staffing involves the process of filling the vacant position by the right
personnel at the ri ght job at the right time ensuring everything occurs in
the right manner.
4.1.1 - MEANING :
Staffing is the filling of the various posts provided in the organisation. It
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Staffing
115 qualification an d experience according to their ability, talent , aptitude , and
specializations. It is that part of the process of management which is
concerned with obtaining, utilizing and maintaining a satisfactory and
contented workforce. Today, staffing may involve any combination of
employees including daily wagers, permanent salaried employees,
consultants and contract employees.
In order to carry out the staffing function, i.e. to fill the roles designed in
the organisation structure, first of all, identifying req uirements of the
workforce, followed by recruitment, selection, placement, promotion,
appraisal and development of personnel should be undertaken.
The staffing function includes the following components :
1. Recruitment and selection of employees,
2. Placing the right person at the right job,
3. Performance appraisal of the employees,
4. Promotion and transfer of employees,
5. Training and development,
6. Motivation and rewarding the employees.
4.1.2 – DEFINITION :
1. Staffing may be defined as the process of hiring and develop ing the
required personnel to fill in the various positions in the organisation.
2. H. Weihrich and H. Koontz define staffing as “Filling and keeping
filled, positions in the organization structure.”
3. According to Massie , “The staffing function includes the pr ocess by
which the right person is placed in the right organizational position.”
4. Koontz and O’Donnell say, “The managerial function of staffing
involves managing the organizational structure through proper and
effective selection, appraisal and development of personnel to fill the
roles designed into the structure.”

4.2 IMPORTANCE OF HUMAN RESOURCE IN
ORGANIZATIONS
There are no two opinions that people alone will determine the fate and
future of the organization. Therefore, management should place prop er
focus on the Human Resource i.e. the staffing function.
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116 Human Resource (HR) plays a key role in developing, reinforcing and
changing the culture of an organisati on. HR plays a significant role in
developing positive business culture and improving employee engagement
and productivity.
The HR function also takes the lead on employee wellness and personal
development. HR plays an essential role in developing a compan y's
strategy as well as handling the employee -centered activities of an
organisation.
HR provides a number of services to employees as below :
1. Strategic Management -
HR personnel expertise in strategic management participates in corporate
decision making that underlies current stopping assessment and
projections for future workforce needs based on business demand.
2. Wages and Salaries –
HR personnel specialist in developing realistic compensation structure ,
maintain compensation cost in line with the organiz ation’s current
financial status and projected revenue that set company's wages
competitive with other business in the area in the same industry or
companies competing for employees with similar skills.
3. Analyzing Benefits -
HR personnel specialist in Benef it Analysis reduces the company's cost
associated with turnover, reduction and hiring replacement workers. As
they have the skills and necessary expertise to negotiate group benefit
packages considering the organization’s budget and consistent with
prevail ing economic conditions.
4. Safety and Risk Management -
HR expertise in Workplace Safety and Risk Management develop the
programs that reduce the number of workplace injuries and fatalities. They
design such job specifications to engage employees in promotin g
awareness and safe handling of dangerous equipments and hazardous
chemicals.
5. Reduces Legal issues -
HR specialist in relations resolve workplace issues of the organisation and
protects the organisation in legal matters and saves it from further
harassmen t.
6. Training and Development -
HR expertise in Training and Development provides training that supports
company's fair employment practices and employee development to
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Staffing
117 7. Employee Empowerment -
HR specialists in employee relations strengthen the employees' morale by
conducting employee opinion surveys, involve employees in some
important decision making and adopt employee's input regarding jobs
satisfaction and follow the procedure by which employees' morale gets
elevated and consequently they get empowered.
8. Recruitment and Selection -
HR recruiters manage the employment process scratch from screening
resumes to scheduling interviews to processing new employees.
9. Hiring Process -
HR professionals co -ordinate with hiring manage rs by providing them
guidance on hiring processes to ensure that the company extends offers to
suitable candidates.
10. Maintaining Compliance -
HR professionals ensure that organisation complies with the prevailing
laws, contracts, rules regulations and proced ures, etc.

Check your Progress :
1. HR personnel expertise in ------------------ p a r t i c i p a t e i n c o r p o r a t e
decision making.
2. HR specialists in ------------ develop programs to reduce workplace
injuries.
Answer the following :
1. How employee empowerment i s achieved by HR ?
2. How HR helps in reducing the legal issues ?
4.3 ESTIMATION OF HUMAN RESOURCE
REQUIREMENTS
4.3.1 – INTRODUCTION :
Staffing is an ongoing process that begins with finding the right people
through proper planning, recruiting, and selec ting.
The first step in the staffing process involves human resource planning.
Human resource planning begins with a job analysis. Job analysis is then
followed by a human resource inventory, which catalogs qualifications
and interests. Next, a human reso urce forecast is developed to predict the
organization's future needs for jobs and people based on its strategic plans
and normal attrition. The estimation of human resource requirements
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118 organization's staffing needs will be met with existing personnel or
managers will have to recruit new employees or terminate existing ones.
4.3.2 – MEANING :
Estimation of human resource requirement is the forecasting process of
driving judgment of requi rement of approximate quantity of the future
human resource requirement.
Potential human resource requirement is to be estimated keeping in view
the organization’s plans over a given period of time.
4.3.3 FACTORS AFFECTING ESTIMATION OF HUMAN
RESOURCE R EQUIREMENTS:
HR Demand Forecasting is the process of estimating the future human
resource requirements in appropriate quality and quantity.
It’s the function of the human resources or HR department to forecast and
fulfill the hiring needs of an organizati on.
Estimation of Human Resource requirements can be internal to the
organization or external to the industry and economy at large specified as
under :
A) Internal Factors :
It’s a critical role of the HR department of estimating the HR requirements
for the smooth functioning of all departments. Following are some internal
factors affecting human resource planning :
1. Recruitment needs -
The vital internal factor affecting estimation of human resource
requirements is the recruitment needs of various departments t o f i l l
vacant positions.
Replacement needs of employees due to death, resignations, retirement,
termination, absenteeism and labour turnover, etc. places requirements on
HR.
2. Budget -
Budgetary constraints for hiring new employees, training and
developme nt, up -scaling or re -scaling of staff, increment, bonus, etc.
also affect the estimation of HR requirements.
3. Retrenchment policies -
Organizations need to let people go who are underperformers o r w h o
had been hired for a specific project or location that’s shutting down .
This affects the estimation of HR requirements.
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119 4. Productivity of employees -
Organisation having skilled or unskilled labors, fatigue, work pressure,
work environment, etc. affects the productivity of the organization.
5. Organizational chang es-
Appointing or removing people change according to organizational
changes taking place within the organization such as growth and
expansion, modernization, diversification, termination of business, etc.
B) External Factors :
Apart from above mentioned inte rnal factors, some external factors also
affect the estimation of human resource requirement as below :
1. Employment opportunities -
Estimation of human resource requirement is affected by the employment
situation prevailing in the country. The companies may be more
pressurized from government to appoint more people in the countries
having greater unemployment opportunities. On the contrary, companies
may have to appoint people from other countries facing shortage of skilled
labour.
2. Technological changes -
Tech nology changes taking place at the high pace enable the company to
require new people having the updated technological knowledge and
skills. Sometimes, companies retain existing employees and train them
with the new technology whereas some companies have t o recruit new
workforce by removing the existing ones who are unable to update.
3. Demographic changes -
Changes in age, gender, population, composition of workforce etc. are the
Demographic changes which take place in the industry. The deserving
new candidate s with fresh blood getting appointed on the place of retiring
employees, transfer, turnover, attrition, replacement due to unskilled or
non updated with latest technology, etc. can change the appointment or the
removal position in the company.
4. Multicultura l workforce -
Workforce travelling from country to country in search of a job also
should be accounted for estimating human resource requirements.
5. Pressure groups -
Certain Pressure Groups existing in the society stands as the important
factor to affect est imation of human resources requirements. As the
opponents for the new project citing pollution or environment issues,
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120 politicians, Human rights activist, woman activist, media etc. cre ate
problems for the company.
6. Unforeseen conditions -
The situations that arise out of the control of the organization can cause
massive changes to how the organization plan strategies for requirements
of HR. The Covid -19 pandemic is a current example. Alm ost overnight,
businesses had to adapt to closures, social distancing norms and
disruptions in the supply chain.
7. Natural or environmental conditions -
Natural disasters and climate change cause changes in the future
estimation of HR requirements.
4.3.4 TECHNIQUES OF ESTIMATING/FORECASTING HUMAN
RESOURCES REQUIREMENT :
Different techniques are opted by organizations for estimating /
forecasting Human Resource requirements. Some of them are mentioned
as follows :
1. Managerial Judgement –
Managerial judg ement technique is very common technique of Estimating
/Forecasting human resources requirement. It is implemented by large as
well as small scale organisations.
This technique involves two types of approaches i.e. 'bottom -up approach'
and 'top -down appro ach'.
Under the 'bottom -up approach', line mangers send their departmental
requirement of human resources to top management. Top management
ultimately forecasts and estimates the human resource requirement for the
overall organisation on the basis of prop osals of departmental heads.
Under the Top -down approach', top management forecasts and
estimatesthe human resource requirement for the entire organisation and
various departments. This information is supplied to various departmental
heads for their revie w and approval.
However, a combination of both the approaches i.e. 'Participative
Approach' should be applied for estimation of human resource
requirement. Under this approach, top management and departmental
heads meet and decide about the future human r esource requirement. So,
demand of human resources can be forecasted unanimously under this
approach.
2. Work -Study Technique –
This technique is also known as 'work -load analysis'. This technique is
suitable where the estimated work -load is easily measura ble. Under this
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121 period are predicted. This information is translated into number of man -
hours required to produce per units taking into consideration the capability
of the workforce. P ast-experience of the management can help in
translating the work -loads into number of man -hours required. Thus,
demand of human resources is forecasted on the basis of estimated total
production and contribution of each employee for producing each unit
item.
While estimating the future work hours needed, human resource
management professionals must take into consideration -
● Resignations
● Dismissals
● Strikes
● Technical difficulties
● Absenteeism
● Turnover rate
The following example gives clear idea about this te chnique.Let us
assume that the estimated production of an organisation is 3,00,000 units.
The standard man -hours required to produce each unit are 2 hours. The
past experiences show that the workability of each employee in man -hours
is 1,500 hours per annu m. The work -load and demand of human resources
can be calculated as under :
i) Estimated total annual production = 3,00,000 units
ii) Standard man -hours needed to produce each unit = 2 hrs
iii) Estimated man -hours needed to meet estimated annual production :
(i x i i) = 6,00,000 hrs
iv) Workability/contribution per employee in terms of man -hour
= 1,500 units
v) Estimated no. of workers needed (iii / iv) = 6,00,000/1,500 = 400 units
The above example clearly shows that 400 workers are needed for the
year. Fur ther, absenteeism rate, rate of labour turnover, resignations,
deaths, machine break -down, strikes, power -failure etc. should also be
taken into consideration while estimating future demand of human
resources/ manpower.
3. Ratio -Trend Analysis –
Demand for manpower/human resources is also estimated on the basis of
ratio of production level and number of workers available. This ratio will
be used to estimate requirement of human resources. The following
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122 i) Estimated production for next year = 3,00,000 units
ii) No. of man -hours required to produce 1 unit = 200
iii) Estimated no. of workers needed
(on the basis of ratio -trend of 1: 200) will be = 1500
4. Econometrics Models –
These models are based on mathem atical and statistical techniques for
estimating future requirement of human resources. Under these models
relationship is established between the dependent variable to be predicted
(e.g. manpower/human resources) and the independent variables (e.g.,
sales , total production, work -load, etc.). Using these models, estimated
demand of human resources can be predicted.
5. Delphi Technique -
Delphi technique is also very important technique used for estimating
demand of human resources. This technique takes into consideration
human resources requirements given by a group of experts i.e. managers.
The human resource experts collect the manpower needs, summarize the
various responses and prepare a report. This process is continued until all
experts agree on estimate d human resources requirement.
6. Mathemat ical Models -

Mathematical model shows the relationship between independent
variables and the dependent variables. These models express various
factors influencing manpower needs in the form of a formula.
There ar e several types of models, e.g., regression, optimization models,
probabilistic models, etc. These are complex and suitable only for large
organizations.
Future demand for human resources depends on several factors, some of
which are given below:
(a) Emplo yment Trends - By comparing and analyzing the staff during
the past five years, the company can judge its trends in the manpower.
(b) Replacement Needs - These depend on firstly retirement, and then on
death, resignation, and termination of employees. Its assessment is on the
basis of past experience and retirement situation in the future.
(c) Productivity - Improvements in productivity effects manpower needs
better utilization of existing manpower is one method of securing gains in
productivity. Automation and computerization is another method of
productivity improvement. It will affect both the quantity and quality of
manpower. Matching of skills with job requirements is the third method.
Hence, Job analysis techniques are helpful in such a matching.
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123 7. Other Techniq ues–
i) Following are the other techniques of estimation of Human Resources
requirement :
ii) Following the techniques of demand forecasting of human
resources used by other similar organisations,
iii) Organisation -cum-succession -charts,
iv) Estimation based on techniques of production,
v) Estimates based on historical records,
vi) Statistical techniques e.g. co -relation and regression analysis.
Check your Progress :
1. Econometrics models are based on: ---------- a n d -----------
techniques.
2. ------------ t e c h n i q u e takes into consideration human resources
requirements given by a group of managers.
Check your knowledge :
1. Guess the meaning of the term labour turnover.
2. Differenc between Work -Study technique and Ratio -Trend
analysis.
Explain :
1. The difference between ‘ Bottom -up’ and ‘Top -Down’ approach.
2. The essence of Econometrrics model.
4.4 HUMAN ASSETS ACCOUNTING
4.4.1 INTRODUCTION :
Human resources are considered as important assets and are different from
the physical assets.
Hence, the valuations of human re sources along with other assets are also
essential to find out the total cost of an organization. In 1960s, Rensis Likert
along with other social researchers made an attempt to define the concept of
human resource (assets) accounting (HRA). It’s also calle d as Human
Resource Accounting (HRA ).
4.4.2 MEANING :
Human Resource Accounting (HRA) is the process of identifying and
reporting investments made in the human resources of an organization that
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124 extension of standard accounting principles. Measuring the value of the
human resources can assist organizations in accurately documenting
their assets . Human Resource Accounting is a term applied by the
Accountancy Profession to quantify the cost and value of employees of their
employing organisation.
This implies that human resources or assets should be capitalized in the
financial statements. Conventionally, the costs of all human resources are
cumulated and charged against the income of the period in which they were
incurred. The reason for capitalizing these or some of these costs is that,
there could be benefits derived from these costs in future periods.
Human resource accounting is the accounting met hods, systems, and
techniques, which coupled with special knowledge and ability, assist
personnel management in the valuation of personnel in their knowledge,
ability and motivation in the same organization as well as from organization
to organization. It means that some employees become a liability instead of
becoming a human resource. HRA facilitates decision making about the
personnel, i.e. either to keep or to dispense wit h their services or to facilitate
them mega -training.
4.4.3 DEFINITION :
1. American Accounting Association defined Human Assets
Accounting as “ The process of identifying and measuring data about human
resources and communicating this information to interes ted parties”.
2. In the words of Flamhoitz , HRA as “ Accounting for people as an
organizational resource. It involves mea suring the costs incurred by
organizations to recruit, select, hire, train, and develop human assets. It also
involves measuring the econo mic value of people to the organization”.
3. According to Stephen Knauf , “HRA is the measurement and
quantification of human organiza tional inputs such as recruiting, training,
experience and commitment’.
4.4.4 OBJECTIVES OF HRA :
The objective of HRA is n ot merely the recognition of the value of all
resources used by the organisation, but it also includes the management of
human resources which will ultimately enhance the quantity and quality of
goods and services.
The main objectives of HR Accounting sy stem are as follows:
1. To furnish cost value information for the organisation for making
proper and effective management decisions about acquiring,
allocating, developing and maintaining human resources in order to
achieve cost effective organizational ob jectives.
2. To help the organisation to plan an estimated budget for human
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125 training cost, cost for expansion of the human assets, salaries and
wages etc.
3. To monitor effectively the use of human resources by the management.
4. To have an analysis of the human assets i.e. whether such assets are
conserved, depleted or appreciated.
5. To aid in the development of management principles and proper
decision making for the future by classifying financial consequence of
various practices.
6. To increase managerial awareness of the value of human resources.
7. To aid in better human resource planning.
8. To guide management for making proper and effective management
decisions about people based on an improved information system.
9. To assist the organization in effective utilization of manpower.
4.4.5 – BENEFITS OF HRA :
The main purpose of Human Resource Accounting is to help human
resource professionals and senior managers to use the human resour ces of
an organization efficiently and effectively.
Human Resource Accounting is intended to provide the users with
information to acquire, develop, allocate, conserve, reward and utilize
human resources.
Following are the merits of accounting of human ass ets :
1. The system of HRA discloses the value of human resources, which
helps in proper interpretation of return on capital employed.
2. Managerial decision -making can be improved with the help of HRA.
3. The implementation of human resource accounting clearly id entifies
human resources as valuable assets which help in preventing misuse of
human resources by the superiors as well as the management.
4. It helps in efficient utilization of human resources. It helps management
in planning and executing personnel policie s. The management will be
helped in making decisions regarding transfers, promotions, training,
retirement, retrenchment of human resources, etc.
5. This system can increase productivity because human talent, devotion,
and skills are considered valuable asset s, which can boost the morale of
the employees.
6. It can assist the management for implementing the best methods of
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126 7. Human resource accounting will give the cost of developing human
resources in the business. This will enable the management to ascertain
the cost of labour turnover also.
8. The investment on the development of human resources can be
compared with the benefits and results derived. Efforts should be made
to control avoidable expenditure on wasteful expenditure on hum an
beings.
9. The return on investment can realistically be calculated only when
investment on human resources is also taken into account.
10. With the help of HRA, it can be seen whether the business has made
proper investment in human resources in terms of mone y or not.
11. Human resources accounting also help in improving the efficiency
of employees. The employees come to know of the cost incurred on
them and the return given by them in the form of output, etc. It will
motivate employees to increase their worth.
4.4.6 – LIMITATIONS OF HRA :
HRA is yet to gain impetus in India due to some challenging situations; few
are mentioned below :
1. The theory of using HRA as a tool of management facilitating better
and effective management of human resources hasn’t yet found t he
support of empirical evidence .
2. There are no clear cut and specific procedures or guidelines or
universally accepted method for finding costs and value of human
resou rces of an organization.
3. Adopting of ideal method for valuation of Human assets creates
conflicts in the organisation as some have merits as well as demerits.
4. As the human resources are incapable of being owned, retained, and
utilized, unlike physical ass ets, this poses a problem to treat them as
assets in the real sense.
5. So far firms are providing only additional information since no
standardized procedures are developed yet.
6. Certain standards accepted commonly under conventional accounting
are not possib le under this method.
7. All the methods of accounting for human assets are based on certain
assumptions, which can get disproved at any moment. For example, it
is assumed that all workers continue to work with the same
organization till retirement, which doe sn’t stand true many times.
8. It is believed that human resources do not suffer depreciation, and in
fact they always appreciate, which can also stand wrong in certain
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127 9. The lifespan of human resources cannot be estimated as the period of
existence of h uman resources is uncertain. So, the valuation seems to
be unrealistic.
10. There is a constant fear of opposition from trade unions as valuation of
employees would make them claim rewar ds and compensations.
11. Nevertheless the importance and relevance of Human Assets
Accounting, the tax laws don't recognize human beings as assets.
Define :
1. Human Assets Accounting.
Explain :
1. What does system of HRA disclose ?
4.5 JOB ANALYSIS
4.5.1 – INTRODUCTION :
Job analysis is the starting point of recruitment and selection. It is a
systematic process of collecting and studying the information about the
various jobs in the organizati ons.
Job analysis refers to the systematic process of collecting all information
about a specific job including skill requirements, roles, responsibilities and
processes in order to create a valid job description.
Job analysis also gives an overview of th e physical, emotional and related
human qualities required to execute the job successfully. It is an important
step in ensuring that the right candidate is selected. It helps the employer to
have a clear picture of what is actually required of employees.
4.5.2 – DEFINITION :
1. Job analysis is the process of studying a job to determine which
activity and responsibility.

2. In the words of Edwin Flippo , “Job analysis is the process of
studying and collecting information relating to the operations and
responsibili ty of a specific job.”

3. According to De Cenzo and Steven P. Robbins , "Job analysis is a
systematic exploration of the activities within a job. It is a basic
technical procedure, one that is used to define the duties,
responsibilities and accountability of a job."

4. Holst and Pancoast says, "Job analysis is a detailed and systematic
study and prese ntation of information such as skills, knowledge,
abilities and responsibilities related to the operation of a specific job.
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128 4.5.3 – COMPONENTS OF JOB ANALYSIS :
Job analysis consists of two broad areas:
i. Job Description and
ii. Job Specification.
i. Job Description : Job Description gives details of the job in respect
of duties, responsibilities and other aspects.
ii. Job Specification : Job Specification gives details relati ng to the
candidate who is supposed to do the job, such as qualifications,
experience, etc.







● Job title ● Qualification
● Duties and responsibilities ● Qualities
● Working Condition ● Experience
● Working hours ● Family background
● Salary and incentive s ● Training
● Machines to be used, etc. ● Inter -personal Skills, etc.

4.5.4 – PURPOSE / IMPORTANCE OF JOB ANALYSIS :
1. It is the starting point of recruitment and selection. Properly analyzed
jobs can be advertised effectively. Only the suitable candidates appl y
for the job. This facilitates proper selection.
2. Job analysis facilitates proper placement. The selected
candidates can be placed at the right job depending upon their
qualities, qualification and experience.
3. The company can undertake performance apprai sal.The performance
appraisal of the employees can be compared to the duties and
responsibilities as stated in the job description. Accordingly, the
company can find out the strengths and weaknesses of its employees. Job Description JOB
ANALYSIS
Job
Specification
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129 4. Job analysis acts as a base for effecti ve training. Those employees
whose performance is weak can be identified and accordingly training
can be provided to correct their weaknesses.
5. Job analysis acts as a base for job evaluation. The relative worth of
each job can be found out by comparing the de tails provided by job
description and job specification. Thus employees may be
transferred from one department to another depending upon their
performance.
6. Job analysis is useful to the candidate regarding acceptance of the
job offer. The candidate can get clear and correct information
about the duties, salary, working conditions, promotion
opportunities, location of the job, etc. This facilitates the candidate’s
decision to accept or reject the job offer.
7. Job analysis facilitates promotion and transfers of employees. The
performance of employees is compared against the job duties and
responsibilities. Those employees may be transferred from one
department to another depending upon their performance.
4.5.5 - JOB DESCRIPTION V/S. JOB SPECIFICATION :
JOB DESCRIP TION JOB SPECIFICATION
Meaning :
Job description gives details of
the job in terms of duties,
responsibilities, salary and
incentives, etc. Job specification gives details
relating to the candidate who is
expected to do the job such as
qualities and qual ifications.
2. Order :
Job description proceeds job
specification. Job specification follows job description.
Job / Candidate Focus :
Job description focuses on job /
work related information. Job specification focuses
on
candidate related information.
Nature :
Job description is more complex
in nature as compared to job
specification as lot of work
related data need to be
generated. Job specification is simpler in
nature. If job description is done
properly, then it is easier to
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130 Contents :
It contains the following:
Job title
Dutiesand responsibilities.
Authority
Salary and Incentives
Working conditions
Working hours
Location of Job, etc.
It contains the following:
 Physical traits.
 Mental Qualities.
 Qualifications.
 Family Background.
 Inter -personal skills.
 Training.
 Experience, etc.
Use to Candidate:
It gives clear information about
the job done. A newly selected
candidate may accept or reject
the job depending upon the job
description.
It gives a clear idea about the
requirements of the candidate. It
helps the candidate to apply
forthe advertised job.

Check your Progress :
1. Job Analysis consists of ---------- and ----------- .
2. ------------ is useful to the cand idate regarding acceptance of the job
offer.
Define :
1. Job Analysis
2. Job Description
3. Job Specification
Answer the following :
1. What does Job description detail ?
2. Which functions are carried out in Performance Appraisal in Job
Analysis?
3. When employees are sent for effective training ?
4. How does Job Analysis invoke promotion and transfers ?
5. Which are the contents of Job Description and Job Specification ?
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131 4.6 RECRUITMENT AND SELECTION

4.6.1 – RECRUITMENT :
Recruitment and Selection are two of the m a j o r f u n c t i o n s o f personnel
management. Recruitment precedes selection and helps in selecting a
right candidate.
Recruitment is a process to discover the sources of man -power to meet the
requirements of the staffing schedule and to employ effective measur es
for attracting manpower in adequate numbers to facilitate effective selection
of efficient personnel.
In simple words, it is a process of attracting people to apply for jobs available
in the company.
A) Definition :
1. In the words of Edwin Flippo , “Recruitme nt is a process of
searching for prospective employees and stimulating them to apply for
jobs.”
2. According to DeCenzo and Robbins, "Recruitment is the process of
discovering the potential for actual or anticipated organizational
vacancies ."
3. William B. Werther and Keith wrote as "Recruitment can be looked at
the linking activity bringing together those with jobs and those seeking
jobs."
B) Sources of Recruitment of Managerial Personnel :
The sources of recruitment refer to the areas of recruitment from whi ch
the potential employees can be attracted to apply for the job and
accordingly selected. The sources of recruitment can be broadly divided
into two groups:





● Promotion ● Consultants.
● Internal Ads ● Advertisement.
● Retirees ● Recommendations.
● Transfers ● Campus Recruitment.
Internal Sources Sources of Recruitment
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132 I. Internal Sources :
The internal sources refer to sources from within the company. The various
internal sources are as follows:
1. Promotions -
When a vacancy arises at a higher level, qualified and experienced
employee from within the compa ny can be promoted at the higher level.
For instance, an understudy (deputy) candidate may be promoted to the
post of his superior who has retired or promoted or transferred.
2. Transfers -
The vacancy can also be filled through internal transfers. An existing
executive who is experienced and capable of handling duties in the
new department can be transferred.
3. Retired Managers -
At times, retired managers may be recalled, especially for a short duration,
when it is difficult to find a suitable candidate for the post from which the
manager has retired. Again, young mothers may retire early to take care
of their kids. Once the kids grow up, the company may recall back such
employees. For example, TCS’ latest drive to recall software engineer
ladies who had to leav e their job due to maternity leave and related issues.
a) Merits of Internal Sources :
1. It is time saving and economical as there is no need to advertise the
“jobs” in external media and also no need to conduct interviews of
several candidates.
2. There is no need for induction training, especially in terms of
company -related information.
3. It reduces executive turnover.
4. It develops loyalty and a sense of responsibility.
5. The internal candidate is well versed with company’s policies,
rules and regulations.
6. It impr oves morale of the company personnel.
b) Demerits of Internal Sources :
1. It prevents candidates from outside with innovative ideas, fresh
thinking and dynamism from entering the company.
2. It offers limited scope for selection and there is a possibility of not
finding the required executive within the company.
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133 4. There may be bias or partiality in promoting or transferring
personnel from within the company.
5. It may generate a feeling of discontent among t h o s e w h o a r e n o t
promoted.
6. It requires well maintained confidential reports of employees so
that the right executives is promoted or transferred.
II. External Sources :
It refers to sources from outside the company. It includes:
1) Management Consultants -
Some companies take the help of management consultants to select
executive personnel for their organization.
2) Advertisements -
This is one of the most popular source of recruitment. Advertisement of
the vacancy can be inserted in newspapers or business magazines. The ads
can also be placed on the job related websites on the internet.
3) Campus Recruitments -
The company may also inform management institutes to send candidates
studying courses in such institutes. At times the company recruitment
committee may person ally visit the institute campus and recruit the
candidates. There can be recruitment of summer trainees who are
presently studying in various institutes.
4) Recommendations -
The company may also recruit executives on the basis of
recommendations received from existing managers or from sister
concerns.
5) Other External Sources –
There can be various other external sources, such as head hunting,
deputation of personnel by parent company, etc.
a) Merits of External Sources :
1. It encourages new talent with innovative ide as, fresh thinking,
drive and dynamism to enter the company.
2. It offers wider scope in selection as there is a possibility of a large
number of candidates with the requisite qualifications and
experience appearing for the selection process.
3. There are less c hances of partiality, as outsiders have less chance
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134 4. It does not require well maintained confidential records.
b) Demerits of External Sources :
1. There are chances of existing executive turnover, as outsiders are
given a chan ce.
2. It may not develop loyalty among the existing executives.
3. It is time consuming as lengthy selection process is required.
4. It is also expensive as advertisements and various tests need to be
conducted.
Thus, it is clear that every concern has a number of alternative sources
for recruitment purpose. However, the best source is to tap the internal one
first and then external one. But in reality, the choice of internal or external
source depends upon a number of factors, such as the nature of the job,
time a vailable for selection, skills required, costs involved, policy of the
company, position of labour markets, and so on.
4.6.2 – SELECTION :
A) Meaning :
Selection is a process of selecting the right person for the right job.
Today, professionally managed compa nies seek to find the right job for
the right person.
The selection is the process of choosing the most suitable candidate for
the vacant position in the organisation. In the other words, selection
means weeding out unsuitable applicants and selecting tho se individuals
with pre -requisite qualifications and capabilities to fill in the jobs in the
organization.
It is the process of identifying an individual from a pool of job
applicants with the requisite qualifications and competencies to fill the
jobs in the organisation. It is an HR process that helps differentiate
between qualified and unqualified applicants by applying various
techniques.
B) Definition :
1. According to Heinz Weihrich and Herold Koontz, "Selection is the
process of choosing from the cand idates, from within the organisation
or from outside, the most suitable person for the current position or for
the future positions."
2. In the words of Dale Yoder , "Selection is the process by which
candidates for employment are divided into two classes those who will
be offered employment and those who will not."
3. M. J. Jucious has defined, "The selection procedure is the system of
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135 ascertaining whether or not candidate possesses the q ualifications
called for by a specific job."
4. Decenzo and Robbins say, "Selection activities follow a standard
pattern, beginning with an initial screening interview and concluding
with Final employment decision."
C) Steps of Selection process :
The select ion process consists of a series of steps or techniques as follows:
1. Job Analysis -
The first step in selection process is analyzing the job. Job analysis
consists of two parts:
a) Job Description and
b) Job Specification.
Job description provides information rela ting to the job. Job specification
provides candidate related information. Proper job analysis helps to
advertise the job properly. Accordingly, the right candidates may apply for
the job, thus saving a lot of time and effort of the selectors /recruiters.

JOB ANALYSIS

ADVERTISING THE JOB

EMPLOYMENT TESTS

INTERVIEWS

MEDICAL CHECKS

JOB OFFER

2. Advertising the Job -
The next step is to advertise the job. The job can be advertised through
various media. The right details about the job and the candid ate must be
given in the advertisement.
3. Initial Screening –
The initial screening can be done of the applications and of the
applicant. Applications which do not fulfill the basic
requirements are kept aside. A preliminary interview is conducted at
this sta ge to screen out the candidates so that only suitable candidates
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136 Usually, a junior executive does the screening work. At this stage, the
executives may check on the general personality, age, qualifications,
famil y background of the candidate. The candidate may also be informed
of salary, working conditions, etc.
4. Application Blank -
It is a prescribed form of the company which helps to obtain information
about candidate in respect of social, biographic, academic, wo rk
experience, references, etc.
The application blank helps to -
 Provide the input to the interviewer.
 Provide basis to reject candidates if they do not meet eligibility
criteria, such as experience, qualifications, etc.
5. Tests -
Various tests are conducted t o judge the ability and efficiency of the
candidates. The type of tests depends upon the nature of job and the
philosophy of the management. An important advantage of testing is that
it can be administered to a large group of candidates at a time and saves
time and cost.
The various tests are:
Intelligence Test To judge numerical, skills, reasoning, memory
and such other abilities.
Aptitude Test To judge specific talent or ability to acquire a
particular skill.
Personality Test To judge maturity, social relations, etc.
Interest Test To find out likes and dislikes of
Candidates towards occupations, hobbies, etc.
Performance Test To evaluate skills or acquired
knowledge and experience.

6. Interview –
It is face to face exchange of views, ideas and opinions between the
candidate and interviewer(s). Interview is an oral examination of
candidates.
 The interview can be group interview or individual interview.
 There can be a panel interview where several individuals
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137  There can be a stress interview to understand maturity, composure,
patience and other qualities of candidates. In such interviews,
candidates are subjected to stress and strain by asking irritating,
embarrassing, annoying and mind boggling quest ions.
7. Reference check -
A candidate may be asked to provide references (other than relations) from
those who are willing to supply or confirm about the applicant’s past life,
character and experience.
 Reference check helps to understand the personal charac ter and
family background of the candidate.
 It helps to guard against possible false information supplied by the
candidate.
 It also helps to ascertain the reported experience of the candidate by
contacting previous employers.
8. Medical Check -
Medical examin ation of the candidates is undertaken before they join the
firm in order to :
 Find out whether the candidate is physically fit to carry out duties
and responsibilities effectively.
 Ensure the health and safety of other employees. Fulfill legal
requirements .
 Find out whether the candidate is sensitive to certain work place
such as in a chemical factory.
 Find out whether the candidate has health problems which may
adversely affect his behaviour and performance on the job.
9. Final Interview -
Before making a job offer, the candidate may be subjected to one more oral
interview to find out their interest in the job and their expectations. At this
stage, salary and other work perks may be negotiated.
10. Job Offer -
This is the most crucial and final step in selection pro cess. A wrong
selection of a candidate may make the company to suffer for a good
number of years and the loss is incalculable. Company should make a
very important decision to offer the right job to the right person.

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138 11. Follow – up-
Once the candidate is selec ted, he is inducted and placed at the right
job. The selectors should try to find out whether they have made the right
choice in selecting the right candidate for the right job.
Check your Progress :
1. ---------- a n d ---------- a r e t w o o f t h e m a j o r f u n c t ions of personnel
management.
2. The sources of recruitment can be broadly divided into two groups: -
----------- and ------------ .
Check your knowledge :
1. Recall the companies which you have seen doing campus
recruitment.
2. Arrange the steps of Job Anal ysis in proper order.
Define :
1. Recruitment
2. Selection
Explain :
1. The criteria for promotion.
2. Interest Tests.
3. Difference between Group interview and Panel interview.
Answer the following :
1. How does campus recruitment take place ?
2. What is mean t by Application Blank ?
3. Which functions are carried out in Initial Screening ?
4.7 TRAINING AND DEVELOPMENT
4.7.1 - TRAINING :
Training is normally viewed as a short term educational process by
which non -managerial personnel acquire the technical know ledge and
skills necessary for increased effectiveness in achieving organizational
goals.
A) Definition :
1. In the words of Wayne Cascio , “Training consists of planned
programs undertaken to improve employee knowledge, skills,
attitudes, and social behaviou r so that the performance of the
organization improves considerably.”
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139 through modifying employees' skills and attitudes which r efers to
activities ranging from the acquisition of similar motor skills to the
development and change of complex socio -emotional attitudes."
3. Lynton and Pareek say, "Training is a well organized opportunity for
participants to acquire the necessary unde rstanding and skills.
4. Becker defines training as "Training is defined as a human capital
investment that raises the workers' productivity."

B) Importance / Advantages of Training :
Training serves various purposes. Training is, therefore, important not
only to the employees but also to the company:






I. Advantages to the Company :
1. Increased Efficiency and Productivity -
Trained employees perform with gr eater speed and accuracy. They work
with a feeling of commitment and dedication. This is because not only
knowledge and skills are developed but also positive attitudes. Training
leads to qualitative and quantitative performance on the part of employees.

2. Reduced Supervision -
Trained persons require less supervision because they know their job
better and commit fewer mistakes. The supervisor can concentrate on
more important activities such as planning and controlling.

3. Reduced Accidents and Wastages -
Trained employees develop positive attitude towards their job and
organization. They become more interested in their jobs and as such they
handle the machines and materials properly. This helps to reduce accidents
and wastages.  Higher Productivity  Confidence
 Reduced absenteeism  Rewards
 Assists new comers  Positive Attitude To the Company ADVANTAGES OF
TRAINING
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140 4. Reduced Absenteeism and Turnov er-
A trained person derives more job satisfaction. Morale of trained staff
is high. They do not remain absent without sufficient cause. There are
also less chances of labour turnover.

5. Assist New Comers -
Training develops confidence in new employees. Ne wly appointed
candidates feel sense of pride and belongingness towards the company.
They understand that the company is sincerely interested in them and as
such the firm would be in a position to obtain better services from new
employees.

6. Information abou t Firm’s Policies and Programs -
Training can be means to communicate firm’s policies and programs to
the employees. Effective communication helps to obtain acceptance
from the employees and they co -operate to achieve firm’s goals.

7. Other Benefits -
i) It deve lops better labour relations.
ii) It develops employees’ loyalty towards the firm.
iii) It facilitates introduction of new techniques.
iv) It reduces grievances on the part of the employees, etc.
II. Advantages to the candidates :
1. Knowledge and Skills -
Training helps to im prove knowledge and skills of the employees. Such
improvement in knowledge and skills helps to improve the overall
performance.
2. Confidence in Employees -
Training develops confidence of employees so that they can handle even
difficult situations with ease. Training helps the new comers to adjust
easily with their new job profile.
3. Positive Attitude -
Training develops positive attitude in the employees. Employees work
with a positive frame of mind. This results in higher efficiency.
4. Chances for Promotion -
Trained personnel stand a fair chance of being promoted. Instead of
selecting people from outside sources, a trained person can be promoted to
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141 5. Refreshing -
Training refreshes the employee. It not only provides information but als o
it is a short escape from rout ine work. Refresher training up dates
knowledge and skills of employees.
6. Higher Rewards -
Trained employees generate higher productivity. The fruits of higher
returns are shared between the company and the employees.
C) Types of Training :
1. Induction Training –
It refers to introduction of a person to the job and to the
organization. When a new employee joins the company, he is like a
stranger in the company. In the beginning, he may feel insecure, nervous
and isolated. The first few days are very vital to develop confidence in the
candidate and allow him to get adjusted to the new work environment.
Therefore, the supervisor or the departmental heads must introduce him to
the other members of the department. This may help him to a djust with his
work mates. The supervisor should also give a brief about the company.
The main purpose of induction is to make the employee more
comfortable so that he can easily adjust to the new environment.
Induction is provided in the following respect s:
1. Introduction to existing employees.
2. A brief can be given about special achievement of the new
employee to the other employees and also of the other
employees to the new employee.
3. Making the new employee aware of company background ,
history , branches, pr oducts, market -share, etc.
4. Information about the company’s policies that is applicable to
the new employee.
5. Providing on -the-job instruction and assisting or advising in any
work related matter.
6. Clarifying any doubt and answering any query that the new emp loyee
may have about the job and the organization.
Proper induction will enable the employee to start on a sound note
and work effectively for the organization.
2. Job Training –
It relates to a specific job and gives information about the machines used,
produ ction process, methods used, instruction to be followed, etc. This
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142 3. Training for Promotion -
Promotion involves vertical transfer of an employee, followed by a change
in authority, responsibili ty, status and pay. Therefore, training is required
before actually joining the new position so that the employee can
effectively and efficiently handle new tasks and challenges.
4. Refresher Training –
The purpose is to refresh professional skills, knowledg e and
experience of persons at higher executive positions. Refresher
training provides information about new developments, techniques, etc.
Such training is necessary practically in all areas but is very useful for up -
dating technical and specialized knowl edge.
5. Attitudinal Training –
This type of training is provided to develop positive attitude of the
employees towards:
i) Organization
ii) Job
iii) Colleagues
Research studies indicate that attitude is the vital factor that can affect
motivation to work. It is generally believed that those employees, whose
attitude is positive, are also highly motivated and therefore, performance
improves considerably.
D) Methods of Training :
Training and development methods for managerial personnel
can be divided into two groups as follow s:





 Job Rotation  Classroom Methods  Planned Progression  Simulation  Coaching and Counseling  Business Games
 Understudies  Committees
 Junior Boards  Conferences On-The-Job Methods METHODS O F MANAGERIAL TRAINING AND DEVELOPMEN Off-The-Job Methods munotes.in

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143 a) On-the-Job Methods :
i) Job Rotation -
Job rotation involves the transfer of trainees from one job to another and
sometimes from one branch to another. Job assignment under a rotation
system may last for a period of 3 months to 2 years. The trainee is given
full duties and responsibilities of the rotated position. It is more
suitable for lower leve l executives.
Advantages :
1. Job rotation promotes creative thinking and enables for executive
development.
2. It provides a rich experience to the candidate in a variety of matters.
3. It does away with the monotony of routine thinking.
4. It creates a second line o f competent executives to meet the
problems of transfers, turnover, etc.
5. It identifies the most suitable position for an executive. The position
in which the trainee performs better is generally offered to him.
ii) Planned Progression -
It is similar to job ro tation, except that every movement from one job to
another involves higher pay, position and duties. In job rotation, every
movement involves more or less same pay and position. Planned
progression is more likely to occur at higher managerial levels, where as,
job rotation occurs mainly at lower level positions.
iii) Coaching and Counseling -
Coaching : In coaching, the superior play an active role in training the
subordinate. The superior may assign challenging task to the
subordinate for the purpose of train ing. The superior may assist and
advice the subordinate to complete the assigned task. In this case, the
superior acts as a coach in training the subordinate.
Counseling : In this case, the superior plays a passive role in training the
subordinate. The sup erior may assign challenging task to the subordinate
for the purpose of training. The superior may provide advice to the
subordinate in the completion of task, if so required. In this case, the
superior acts as a guide rather than a coach in training the s ubordinate.
iv) Understudy Position -
The trainee is given an understudy position. The trainee handles some
important aspects of his superior’s job. The trainee, at a future date, is
likely to assume the duties and responsibilities of the position currently
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144 The understudy technique ensures a company that a fully qualified
person will be available to take over a present manager’s position
whenever he leaves the position through promotion, t ransfer, retirement or
resignation.
The understudy person is generally asked to do the following:
 He may be asked to investigate and make written recommendations
about problems and projects related to a unit or department.
 He may also supervise a small gr oup of employees to experience
leadership qualities.
 He may be called to attend executive meetings either with or in
place of the superiors.
 He may be called to assume superior’s position in his absence.
v) Junior Boards -
In western countries, junior board s are formed. It permits promising
young middle -level managers to experience problems and responsibilities
faced by top -level executives in their company. About 10 to 12
executives from diverse functions within the organization serve in the
board for a ter m of say 6 months or more.
In this way, he plays the role of ‘Delegate’ of his supervisor.
The board is allowed to study any problem faced by the organization in
respect of personnel policies, organizational design, interdepartmental
conflicts, etc. and to m a k e r e c o m m e n d a t i o n s t o t h e s e n i o r b o a r d o f
directors.
b) Off-the-Job Methods :
i) Classroom Methods -
Classroom methods for training managerial personnel include lectures,
discussion, role playing and case study.
Advantages :

1. Training can be given to a large group of trainees at a time,
especially in the case of lecture method.
2. Both theoretical and practical aspects are emphasized. Training can
be done in a short period of time. It is economical.
3. Senior and qualified experts can train the executives. At times, an
outside expert is invited to give a lecture or for conducting a
debating session.
4. It generates interaction among different executives belonging to
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145 ii) Simulation -
A simulated learning situation is an imitation of reality. It is a technique
wherein the training is organized in an environment that closely reflects
and represents actual work place. It tries to duplicate actual conditions
encountered on a job. Simulation is a very expensive training technique,
but it is useful or e v e n necessary, where actual on -the-job practice
could result in a serious injury, a costly error or the destruction of
valuable company materials or resources.
iii) Business or Management Games -
Business games are classroom simulations exercises in which team s of
individuals compete against each other to achieve given objectives.
For instance, teams may be asked to make decisions concerning
pricing, production volumes, research expenditure, advertising and sales
promotion plans, channels of distribution, etc. T eam actions and decisions
are fed into a computer that has been programmed according to a
particular model of the market. Business game participants learn
by analyzing problems and by making trial -and-error decisions.
iv) Committees and Conferences -
Committees : A committee can be a method of training. The junior
members of the committee can learn from the discussions and
interaction with the senior members of the committee. The senior
members also can learn from the opinions and views expressed by the
junior m embers.
Conferences : In the case of conferences, group discussion and
meetings are held to discuss various issues and to provide solutions to
various problems. The chairperson leads the discussion and then the
participants attempt to provide solutions. Th e conference acts as a
group interaction and exchange of views and ideas. It reshapes
thinking and attitudes of the participants.
v) Reading, Television and Video Instructions -
Planned reading of relevant and current management literature is one
of the best m ethods of management development. It is essentially a self -
development program. A manger may be aided by training department,
which often provides a list of valuable books. The manager can discuss
the relevant articles with the senior manager and get neces sary
clarifications.




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146 c) On-the-Job Training V/S Off -the-Job Training –
ON-THE -JOB TRAINING OFF-THE -JOB TRAINING
1. Meaning :
It is that type of training which is
imparted on the job, within the
company.

It is that type of training which is
provided off-the-job, normally at training centers. 2. Methods :
Understudies , Coaching Job
Rotation, etc.
Classroom Training ,
Business Games
Simulation, etc.
3. Training provider :
On-the-job training is
normally provided by the
immediate superior.

Off-the-job training is normally
provided by expert trainer.
4. Individual / Group :
It is generally provided
on individual basis.
It is generally provided
to a group.
5. Effect on Regular
Production :
Regular work is not affected as
the training is prov ided on the job.

Regular work is normally
affected as the employees are Off-
the-job, during training
period as they are required to leave
the company to get the training at
training center.
6. Practical / Theory :
Normally practical training is
provided.


Normally theoretical concepts are made clear. 7. Cost Factor :
Overall cost of training is less
because the training is of a
short period and is held within
the company premises.
Overall cost is more as it
involves payment to experts,
booking halls, refr eshment,
conveyance expenses, etc.
8. Suitability :
It is more suitable to
train lower level managerial
personnel.
It is more suitable to train higher
level managerial personnel.

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147 E) Principles of Training :
Training causes learning, therefore to make it mo re effective, the
following essentials or principles of a good training program must be
noted.
1. Motivation -
Regardless of the quality of instruction, an indifferent trainee will
learn little. Because human behaviour is goal-oriented, a trainee must
be motiv ated in order to learn. Employees can get motivated to learn as
learning results to increase in pay, promotion and position.
2. Active Involvement -
Learning is most efficient when the learner is actively involved in the
process rather than just listening to a lecture. The trainee’s learning is
more complex if he actually performs the task to be learned.
3. Progress Report -
Research has demonstrated that people learn faster when they are
informed of their progress by meansof an examination or through the
instructo r’s comments. Providing the trainee with progress reports by
tracking their growth facilitates the learning process.
4. Re- enforcement -
On completion of training, employee should either be promoted or
there should be increase in pay or statusotherwise he wil l lose faith in
training programs.
5. Instructions in Parts -
Rather than presenting the whole training program at one time, most
research indicates, it is better to break instructions down into parts, thus
creating a series of sub -goals for the learner.
6. Exper t Trainers -
Training must be provided by highly qualified, experienced and
matured persons with a balanced personality. Expert trainers command
lot of respect and attention from the learners.
7. Individual Differences -
It should be noted that there are indivi dual differences in terms of
experience, knowledge, grasping power, etc. Therefore, groups or
batches should be made taking into consideration their individual
differences or likings.

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148 8. System of Training -
Proper system of training should be ensured with f ollowing respects:
1. Training needs and objectives must be clearly defined.
2. There should be a proper balance between theory and practice.
3. Training material should be simple and meaningful.
4. Use of films, audio -visuals, etc. makes training more interesting
as well effective.
9. Ideal Place -
There must be an ideal place for training. However, the place of training
depends upon a number of factors. If it is on-the-job training then it has
to be within the factory premises. Off -the-job training should preferably
be provided outside the company premises.
10. Training Period -
It should neither be too long or too short. Too long period brings
monotony and affects the actual work. With too short period, the trainee
does not get a chance to learn much of the knowledge and skil ls required.
Check your Progress :
1. The Superior plays an active role in --------- whereas passive role in -
---------- in training the subordinate.
2. ------ learning method is an imitation of reality.
Explain :
1. Factors included in Induction Training .
2. Importance of Refresher Training.
Answer the following :
1. What is the difference in methods between Training and
Development ?
2. How does training help in reducing accidents and wastages ?
3. How does training lead to promotion of an employee ?
4.7.2 – DEVELOPMENT :
A) Meaning :
Development is viewed as a long term learning process by which
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149 Employee development is the proces s of developing employees with the
support of their employer to go through professional training or pursue
learning opportunities to improve their skills and grow their knowledge
and careers. It is viewed as a long term learning process by which
managerial personnel acquire conceptual and theoretical knowledge and
skills for enhancing general administrative abilities.
B) Definition :
1. According to Swanson and Hilton , "Development is defined as the
process of systematically developing work -related knowledge a nd
expertise in people for the purpose of improving performance."
2. In the words of Kremple and Pace, " Development is defined as
managing knowledge to develop the organisation's culture to enhance
individual performance and to strengthen the organisation' s capability".
3. Katz and Kahn define , "Development is a maintenance subsystem,
intended to improve organizational efficiency by increasing routinization
and predictability of behaviour."
4. McLagan says, "Development focuses on identifying, assuring and
helping develop, through planned learning, the key competencies that
enable individuals to perform current or future job."
4.7.3 -TRAINING V/S DEVELOPMENT :
TRAINING DEVELOPMENT
1. Meaning:
It refers to learning process of the
employees.
It refers to le arning process of
managers.
2. Managerial/Operative
Personnel:
Training is normally directed at
operative employees and relates
to technical aspects.

It is directed at managerial
personnel to acquire conceptual
and theoretical knowledge.
3. Specific / General :
Training is more specific to job
related information. It is more general in nature,
especially at top management
level.
4. Methods:
More emphasis is on the on -
the-job methods.
More emphasis is on the off -
the-job methods.
5. Cost Involved:
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150
6. Frequency:
Less frequent. Mostly at
induction and at every change in
job / process / implementing new
technology or method.
More frequent and
continuous in nature.
7. Training provider:
Training i s i m p a r t e d m o s t l y b y
the supervisors Development is undertaken by
superiors, outside experts,
consultants, motivational /
inspirational speakers or by
soft-skills trainers.
8. Theoretical / Practical
Aspects:
Emphasis is placed on practical
or technical aspects of work.
Emphasis is placed on
conceptual and theoretical
aspects.


Check your Progress :

1. The Superior plays an active role in --------- whereas passive role in -----
------ in training the subordinate.
2. ------ learning method is an imita tion of reality.
Explain :

1.Factors included in Induction Training.
2. Importance of Refresher Training.

Answer the following :

1. What is the difference in methods between Training and Development ?
2. How does training help in reducing accidents and wastages ?
3. How does training lead to promotion of an employee ?

4.8 PERFORMANCE APPRAISAL
4.8.1 - INTRODUCTION :
Performance appraisal can be defined as the process of evaluating the
performance of employees, sharing the information concerning perfor mance
evaluation with employees and searching for ways to improve an
employee’s performance.
Performance Appraisal is the process of measuring and evaluating the
actual behaviour of groups and individuals in the organization with the
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151 Performance appraisal is a technique, which assesses impartially and
objectively the strength and weaknesses of the individual employee in
relation to his job, so as to take certain relevant decisions about the
employee, about the job and provi ding him or her relevant feedback.
4.8.2 - NEED FOR PERFORMANCE APPRAISAL:
Performance appraisal is necessary for proper management and
employee development due to following reasons:
1. It helps to allocate organizational resources in a dynamic manner.
2. It hel ps to motivate and reward employees.
3. It is used to provide genuine feedback to employees concerning
their work.
4. It helps to build trust and maintain fair relationships within groups.
5. It is a technique through which employees can be coached and trained.
6. It helps to see that employees comply with regulations.
7. It provides an opportunity for the employers to express appreciation
for employee contribution.
4.8.3 – METHODS OF PERFORMANCE APPRAISAL :
The two broad methods of performance appraisal are as follows:
i. Judgmental Appraisal.
ii. Objective Measures of Performance Appraisal.
iii. We would discuss each of these briefly.
i) Judgmental Appraisal :
It is generally obtained either from an employee’s immediate supervisors or
his peers. Very often judgment about and employee is collected from a wide
variety of sources and combined together.
The three different types of judgmental appraisal are as follows:
1. Appraisal by Superiors -
Such type of appraisal is very common; especially in our country.In such a
method one’s superio r makes a rating about his/her employee on a given set
of criteria.
Appraisal by superior can be done on a specially chosen
occasion with the aim of either providing feedback to an employee or for
taking some important decision like promotion, demotion, in crement, bonus,
hike, perks, promotion, transfer, etc. or it can be a part of a routine ongoing
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152 Many firms maintain an ongoing appraisal system where periodic
evaluation of an employee is noted by a member of a Human Resource
Department o r personnel officer on a chart in a form of a summary which
constitutes what is commonly known as confidential report.
In another method of appraisal by superiors, a meeting of evaluators
is called. The evaluators can be many like immediate boss, superiors from
other departments, boss of the boss, etc.
These people are asked to give their judgments independently
and then discuss it with others in the meeting. A final appraisal report
for a particular employee is prepared after taking everybody’s judgment
into consideration.
Following are the important advantages of this method:
1. Influence of personal biases is removed as report is prepared on the
basis of discussion.
2. Group effect also does not take place as all members first give judgment
independently then t he discussion takes place.
3. No aspect of performance is overlooked.
2. Appraisal by peers or subordinates -
Very often, and in many cases one’s peers and one’s subordinates are a
better source of evaluating a given employee. Appraisal by peers or
subordinate s can take many forms.
A. Buddy rating : One common type of such a rating is called as
“buddy rating”. In such an appraisal rating, each member of a group rates
other members either in general or on some specific aspects of their work
performance. The average of all the individuals’ ratings is then calculated to
provide an index of an individual’s standing on a given trait. This method
is of much use in the evaluation of mangers. It is also called as ‘Peer
Rating’.
B. Subordinates rating : I n m a n y c a s e s s u b o r d i n a tes are told to
rate his superiors to get an indication of the leadership or
supervisory style and to determine how popular an individual is among
his subordinates. Peer rating is generally found to be more useful and less
resentful as compared to appraisa l by the subordinates.
C. Following are the important advantages of this method:
1. The evaluators are familiar with the ratee’s job.
2. They have better opportunity to observe the ratee for longer periods.
3. They observe the workers from close quarters and watch ov er
when he/she is off his/her guard.
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153 Following are certain disadvantages of this method:
1. Employees object to peer rating.
2. There is generally a positive bias, which can mislead
management.
3. Peer rating has also been found to result in conflict a nd
development of negative feelings among peers.
3. Appraisal from various alternative sources -
Some alternative sources of employee appraisal are shown in the
following diagram:












a. Field Review -
In this method an industrial psychologist co llects the relevant data orally
from the employees by interviewing their superiors by asking a set of
questions. The obtained answers to these questions are then converted to
written descriptions and presented to the superiors of the employee being
apprais ed. The superior then adds or modifies the report.
Following are the important advantages of this technique:
1. Since the interview is conducted orally the supervisor feels free to
express frank opinion about the subordinate’s performance.
2. Since an industrial psychologist spends a lot of time in conducting field
review, the supervisor answers the questions after considerable thought.
3. All supervisors are asked the same questions about their subordinates
so it becomes easy to compare one individual with another. .
Appraisal from Alternative
Sources Management by
Objectives. Field
Review
Assessment Centers.

Self-
Evaluation Psychological Appraisal.

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154 b. Psychological Appraisal -
In many companies Psychological Appraisal is a regular feature of periodic
appraisal program. This method makes use of interviews and psychological
tests. It also makes use of data from personal files of employees. On the
basis of these an extensive report is prepared by the psychologist which
help company’s management to obtain a clear understanding of an
individual’s behaviour, intelligence and other motivational factors
influencing his performance.
Psychological Appraisal he lps management team to predict the behaviour
of employees. Such appraisals are made while taking decisions regarding
promotion or transfer.
A large number of research studies have shown that
psychological descriptions are highly accurate and can be used to predict
success or failure on a job or a task of employees.
c. Self-Evaluation -
Self-evaluation is a process whereby individual employees rate performance
on a given set of criteria. It is a part of an appraisal system followed in
companies.
Following are t he limitations and biases of Self Evaluation :
1. Employees do not rate themselves on negative points. They often
exaggerate their performance.
2. An Individual and management may not agree on the areas of importance
in his job. So an individual may emphasize ce rtain area and
management may consider those areas as less important.
3. Self-rating can be useful if its findings are not related to administrative
uses like pay increase, promotion, transfer, confirmation, etc. But it is
useful if related to need for a personal development.
d. Assessment Centers -
Assessment centers make use of situational exercises such as special
questionnaire, management games, in -basket performance, leaderless
group discussion, case analysis, decision making exercises, etc. These
exercises g enerally tailor made (customized) for a particular company or
industry.
Assessment centers involve elements of peer rating; s up er i or appraisal and
psychological evaluation because even peers as well as superiors are rated
in these assessment centers and th eir views about an employee are also
taken into account.
Assessment centre as a judgmental appraisal technique was developed during
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155 Assessment centers are useful only for management level employees. It has
limitations on the part of workers. This method of performance appraisal
has been criticized for being extremely costly in terms of time and
money.
e. Management by Objectives (MBO) :
It is a motivational technique which helps to motivate em ployees to work as
employees set their objectives and are aware about their goals through this
process/technique.
MBO is a method of appraisal because the employees get to assess the
efforts put by him on his/her own performance through this through this
process/technique. MBO makes the employee goal orientated and sets
clear objectives in front of him. Hence, he/she is in a better position to
evaluate not only his performance but also group performance.
The ratings of superiors are generally not agreed by employees,
especially when they are of a critical nature. Employees in many cases
may dislike other evaluating them for the simple reason that the criteria used
by superiors may either be not known to them or may not be agreeable to
them.
MBO basically is an appraisal procedure which attempts to evaluate
employee’s performance by systematically and periodically guiding
him in a time bound programme.
This method basically emphasizes the value instead of past and emphasizes
on results than on method of achiev ing the goals.
Following are the important advantages of MBO technique :
1. It helps in increasing the motivation of the workers.
2. It can make sure that each and every person’s efforts
contribute to organizational goals.
3. It helps in reducing role ambiguity.
4. It helps in planning also.
Following are certaindisadvantages of MBO method :
1. It demands considerable time and energy on the part of the
managers.
2. Very often managers emphasize on goals that can be easily
measured though they may not be important.
3. Many time s there is a tussle between the supervisor and an employee
because the supervisor tries to set higher goals, whereas an employee
tends to set lower goals for himself.
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156 ii) Objective Measures of Performance Appraisal :
Objective measures are those measures that can be measured
directly from the actions or activities of the employees about job
behavior. Many activities can be studied by such objective measures
which are easily quantifiable. Industrial engineers have played an
important role in developing such objec tive measures.
Some of the objective measures of performance appraisal are as
follows :
(a) Quality and quantity of work as performance standards.
(b) Cost and profit.
(c) Productivity measurement.
(d) Measure of withdrawal.
(e) Measures of resistance.
(a) Quality and quantity o f work as performance standards -
Qualitative as well as quantitative measures of performance standards
have been developed to evaluate employees ’ performance.
A Production unit may use measure of the following:
 Number of units produced,
 The time taken to p roduce it,
 Number of rejections,
 Quantity of scrap,
 Faults in machines, etc.
A Sales Manager may use the performance criteria like:
 Number of clients satisfied,
 Amounts and volume of sales achieved,
 Ratio of clients served,
 Compliant received, etc.
An Admi nistrative Manager can evaluate the clerk’s performance on the
basis of criteria like:
 Numbers of errors in filing,
 Amounts of letters typed,
 Volume of data fed in computer,
 Time taken for the same, etc.
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157 Industrial engineers, especially in the area of prod uctivity, have set certain
such standards. The aim of a manager or supervisor is to achieve a given
level of minimum standard and then to set various levels of standards for
superior, good and excellent performance.
(b) Cost and Profit -
Cost and profit account s have also helped psychologists to develop certain
cost ad profit measures which are generally used in the process of
performance appraisal.
Among the cost measures would be cost incurred in wastage,
maintenance, labour, overheads, etc. Profit measures in clude savings in
time, income, etc.
Cost can be standardized on the basis of judgment. The superiors are
evaluated on the difference between standard costs decided upon and the
direction of these costs.
Another way of using cost and profit approach is usin g human
resource accounting method. This method evaluates the managers. If a
manager appoints and develops people with outstanding performance and
good potential for the future, he is given positive evaluation. On the
other hand if the turnover of talented people is high, the manager of
such department is given a negative evaluation and penalized. Similarly,
if there is distrust, conflicts, morale is low in a particular department; the
manager of such a department is given low ratings.
(c) Productivity Measurem ent-
Productivity measurement is another important criteria for measuring
performance appraisal. These measurements first originated in USA and
were then adopted by Japan and European countries. Productivity is
measured in terms of broad measures such as s ales per employee or
sales relative to cost.
Productivity measurement provides feedback to management and
employees. However, such feedback does not tell us why productivity is
high or low.
(d) Measures of Withdrawal -
These measures are used to evaluate the p erformance of managers.
Two important measures of withdrawal are as follows:
i. Absenteeism.
ii. Separation and turnover.
i) Absenteeism : High absenteeism is detrimental for the efficient
working of an organization. Company’s resources cannot be fully utilized
if more people remain absent. Increase in absenteeism is a sign of
dissatisfaction. Absenteeism can also drain an organization’s resources
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158 salary. Replaced employees, in place of those who ar e absent, may also not
be efficient as the regular employees.
ii) Separation and turnover : Separation and turnoverare another criteria
used to measure withdrawal. People may leave a company or a
particular department because the immediate superior in part icular or
company policy in general is not appropriate.
High turnover can affect business, customer relations and stability in
functioning. High turnover in a particular department of an
organization reflects poorly on the manager. It would indicate that
concerned manager either lack the necessary human relations skill or
something is wrong with his strategy that is the cause of high turnover in
his/her department.
(e) Measure of Resistance -
Another commonly used criteria of performance appraisal is the measure
of resistance. Conflict and grievance are a common phenomenon in Indian
industries. Number of complaints of dissatisfaction with one’s immediate
supervisor or boss would clearly indicate about the style of his
functioning.
Grievances can be concerning an approach to be followed at work or it can
be concerning certain personal matters unrelated to job. Two important
types of resistance are as follows:
i) Opposition Behaviour : Doing something undesirable or
unconventional to deliberately annoy the superior or management.
ii) Grievance : Grievance means complaints. Lodging complaints
against the manager will help us to know his efficiency and the amount of
dissatisfaction among his employees.
4.8.4 – USES OF PERFORMANCE APPRAISAL :
Performance appraisal is used for wide variety of purposes in an
industrial setup.
Some of the most important uses of performance appraisal are as
follows:
1. Performance appraisal is used to evaluate the performance of an
employee so as to provide him/her with the genuine feedback and
job counseling.
2. Performance appraisal also helps totake certain management
decisions regardingpromotion,transfer, demotions, etc.
3. Performance appraisal makes the supervisors more alert and
observant about their employees because they know that they will
be expected to fill out rating forms as well as justify their appraisal
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159 4. Performance appraisal helps to classify workers on the basis of
their performance into different categories such as “poor”
“average”, “good” and “excellent” so that later on thes e workers
can be motivated or punished accordingly.
5. Performance appraisal has also been used in many industries to fix
salary, rewards and incentives in proportion to performance.
6. Performance appraisal is also used to provide feedback to the
employee so as t o t e l l t h e m a s t o w h e r e t h e y s t a n d , w h a t i s
expected from them and what are their potentials, their lacings,
strength or weakness, etc.
7. Performance appraisal is also used to determine regarding what are
the training requirements, who are likely to benefi t from training.
Performance appraisal can also be used to measure the worth of a
training programme by determining how much the job
performance may have improved after the training has been
completed.
Check your knowledge :
1. How do you relate quality and q uantity of work as performance
standards ?
2. Recall the instances you have gone through the Performance
Appraisal.
Define :
1. Performance Appraisal.
2. Importance of Refresher Training.
4.9 SUMMARY
Staffing is the process of hiring eligible candidates in t he organisation for
specific positions. It is the managerial function of filling the vacant
positions by the right personnel at the right job at the right time through
recruitment, selection, training, developing, promotion and compensation
of personnel.
Human Resource (HR) plays an important role in developing positive
business culture and improving employee engagement and productivity. It
provides various services to employees as Strategic Management, Wages
and Salaries, Analysis Benefits, Safety and Ris k Management, Reduces
Legal issues, Training and Development, Employee Empowerment,
Recruitment and Selection, Hiring process, Maintaining Compliance.
Estimation of HR requirement is the forecasting technique of predicting
the organization's approximate fu ture needs for jobs and people based on
the company's strategic plans. Such estimation can be internal to the
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160 Internal factors to the organisation Recruitment needs, Budget,
Retre nchment Policies, Productivity of Employees, Organizational
changes. External factors as : Employment Opportunities, Technological
Changes, Demographic Changes, Multicultural Workforce, Pressure
Groups, Unforeseen conditions, Natural or Environmental con ditions.
Different techniques are opted by organizations for estimating HR
requirements as : Managerial Judgment, Work -Study techniques, Ratio -
Trend Analysis, Econometric Models, Delphi techniques, Mathematical
Models, etc.
Human Resource Accounting / Huma n Assets Accounting (HRA / HAA)
is the process of identifying and reporting investment made in the human
resource of an organisation. It facilitates decision making about the
personnel that is to keep or dispense with their services or to provide them
the required training. There are many benefits of HRA to the
organisation. HRA is intended to provide the users with information to
acquire, develop, allocate, conserve, reward and utilize human resources
of an organisation efficiently and effectively. Despi te the advantages of
HRA, it faces few challenges or limitations also.
Job Analysis (JA) is the systematic process of collecting all information
about a specific job including skill requirements, roles, responsibilities and
processes to create a valid job description. There are 2 components of Job
Analysis : Job Description and Job Specification. Job Description provides
information relating to the job. Job specification provides information
relating to the candidate. Job Analysis facilitates prope r select ion, proper
placement, base for training, job evaluation, promotion, transfer, base for
Performance Appraisal, etc.
Recruitment is a process to discover the sources of manpower to meet the
requirements of the staffing schedule and to employee effective me asures
for attracting manpower in adequate numbers to facilitate effective
selection of efficient personnel. There are mainly two sources of
recruitment as Internal and External. Internal sources are : Promotions,
Transfers, Retirees, etc. External sources are : Consultants,
Advertisement, Campus Recruitments, Recommendations, etc.
Selection is the process of choosing the most suitable candidate for the
right job in the vacant position. Selection process consist of steps as : Job
Analysis, Advertising t he job, Initial Screening, Application Blank, Tests,
Interview, Reference Check, Medical Check, Final Interview, Job offer
and Follow -up.
Training is a short -term educational process by which non -managerial
personnel acquire the technical knowledge and ski lls necessary for
increased effectiveness in achieving organizational goals.
Development is the process of developing employees with the support of
their employer to go through professional training or pursue learning
opportunities to improve their skills and grow their knowledge and
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161 employees. Types of training are : Induction Training, Job Training,
Training for Promotion, Refresher Training, Attitudinal Training.
Different methods of t raining are : On -the-job training and Off -the-job
training. On -the-job training includes : Job Rotation, Planned Progression,
Coaching and Counseling, Understudy Position, Junior Boards. Off -the-
job training methods include : Classroom methods, Simulation , Business
or Management Games, Committees and Conferences, Reading,
Television and Video Instructions.
There are various principles of training as : Motivation, Active
involvement, Report Progress, Reinforcement, Instructions in parts, Expert
trainers, In dividual differences, System of Training, Ideal Place, Training
Period.
Performance Appraisal is the process of measuring and evaluating the
actual behaviour of groups and individuals with the already established
expectations. Performance appraisal is nece ssary for many reasons. There
are two methods of Performance Appraisal as : Judgmental Appraisal and
Objective measures of Performance Appraisal. Performance Appraisal is
used for numerous in an industry.
4.10 EXCERCISES
State whether following statemen ts are True or False :
1. Promotion and transfer are dependent on staffing.
2. Advertising the job is followed by interview.
3. Ideal place is not mandatory for training.
4. Performance Appraisal de -motivate employees.
5. Subordinate rating is found to be more useful tha n Peer rating.
Select the most appropriate option from the given :
1. Which of the following test is not held during selection process ?
(a) Performance Test, (b) Qualification Test,
(c) Intelligence Test, (d) Interest Test
2. Which is the type of training ?
(a) Understudy position, (b) Classroom methods,
(c) Induction, (d) Simulation
3. A Production unit use the following measure for performance
standards :
(a) No. of satisfied clients, (b) No. of units produced,
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162 4. Following is the method of Judgmental Performance Appraisal :
(a) Cost and Profit, (b) Field Review,
(c) Productivity Measurement, (d) Measure of Resistance
5. Following is not the principle of training :
(a) Individual Differences, (b) Progress Report,
(c) De -Enforcement, (d) Training Period
Write short notes on :
1. Functions absorbed by Staffing function.
2. Relevance of Job Analysis in staffing.
3. The advantages of Internal sources of recruitment.
4. Factors deciding the sources of recruit ment.
5. Methods of appraisal by superiors.
Give brief answers :
1. When employees are sent for effective training ?
2. What is the benefits of conducting tests in Job Analysis ?
3. How does Committees and Conferences act as helpful tool in t h e
‘Off-the-job’ methods of training ?
4. Why employees dislike MBO ?
5. Which are the benefits of Performance Appraisal ?
Match the columns :
Column ‘A’ Column ‘B’
i) Job Rotation a) Group discussion are held
ii) Conferences b) Junior plays role of his supervisor
iii) Understudy position c) Last for 3 months to 2 years
iv) Simulation d) trainee handles important aspects
v) Junior Boards e) Imitation of reality
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