POM BOOK PUBLISHED COPYN.pdf HYAAENA PUB

1

2

Authors

Dr. J. Mexon M.Com., M.Phil., B.Ed.,Ph.D., NET
Faculty in Commerce and Management Studies,
PGP College of arts and science, Namakkal
Tamil Nadu, India.

Mr.B.Vignesh.
Assistant Professor,
Department of Commerce PA ,
NPR College of arts and science, Natham.
Tamil Nadu, India.

Legal Advisor
Mr. P. RAJENDRA CHOLAN
ADVOCATE, BAR ASSOCIATION
THIRUTHIRAIPOONDI,
THIRUVARUR

PRINCIPLES OF MANAGEMENT

3

Text ©AUTHOR, 2024

Cover page © HEDUNA PEER INTERNATIONAL RESEARCH AND REVIEWS

Author ©: Dr. J. Mexon, Mr.B.Vignesh.

Editors: Dr N Hariharan

Publisher: Heduna Peer International Research and Reviews

T. Vadipatty, M.P Nagar, Madurai, Tamilnadu, India Phone: + 91 9345020835

E-mail:[email protected]

Book: PRINCIPLES OF MANAGEMENT

ISBN - 978-81-969444-6-9

Edition: Feb – 2024 Price: Rs 449/
€ 5.02/-
Printed By: HYAENA PUBLISHERS INDIA
All rights are reserved. No part of this publication may be reproduced, stored in a retrieval
System, or transmitted in any form or by any means, electronic, mechanical, photocopying,
Recording, or otherwise, without the prior permission of the copyright holder.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

4

I realize that this book will create a great deal of controversy. It has never been easy to
challenge the consensus because the System – of any kind, in any context – will try
to preserve the status quo, by all means possible.
.Hopefully, this account will raise the level of awareness among the general public and
initiate the discussion that, in turn, may entail major cultural change, as well as a
revision of the consumer basket. This book can be read on two different levels. First, it
may be read by ordinary people with a limited, if any, scientific background.
Throughout, the book has been written with this audience in mind. I hope that you
won’t be easily discouraged. Even if the chemical content of a given chapter is hard to
understand, the scientific evidence presented, the citations from original documents,
conclusions drawn, and recommendations made can be easily comprehended.

Represented by professionals from academia, and government agencies, as well as
consumer protection and advocacy groups. I do not expect everybody in the scientific
community to agree with the content and ideas put forth in this book. But I do hope
that the information and knowledge presented will become a wake-up call for the
general public, regulatory agencies, legislators, business leaders, and scientists coming
to the realization.

Dr N HARIHARAN
Founder and chief Editor of Heduna Peer
International Research and Reviews

.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

5

Dr. J. MEXON, M.Com., M.Phil., B.Ed., Ph.D., (NET), currently is working as a
Assistant professor in the department of Commerce at PGP College of arts and
science He has 11 years of teaching experience at the college and university level
and published more than 10 research papers in the field of Commerce and
Management.He has experience in handling subjects related to Commerce
(Accounts and Finance) and Management. His area of specialization is Accounts.
Currently he is guiding a number of Post Graduate and Ph.D students in research.
As an experienced faculty, he would like to practice the unique methodology of
teaching that creates interest among the students. For further communications
kindly contact through email: [email protected]

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

6

Mr.B.Vignesh, M.Com., currently is working as a Assistant professor in the
Department of Commerce (PA) at NPR College of arts and science, Natham He
has 2.5 years of teaching experience at the college and university level and
published more than 10 research papers in the field of Commerce and
Management.He has experience in handling subjects related to Commerce
(Taxation and Finance) and Management. His area of specialization is Taxation.
As well he acted as an Resource Person for National level seminars, workshops
and Guest lecture programs. As well he is an motivational speaker delivered a
speech in various functions. He work and Get a Patent in the field of IOT. He
would like to practice the unique methodology of teaching that creates interest
among the students. For further communications kindly contact through email:
[email protected]

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

7

Sl.
N
o.
Chapter Particulars Page
No.
1 Chapter – I

Introduction to Management:
Introduction-Meaning-Definitions-Nature of
Management- Scope of Management- Objectives of
Management- Need and Importance of Management-
Levels of Management - Functions of Management-
Management as an Art- Management as a Science-
Management as Both science and Art- Management vs.
Administration – Qualities of a Good Manager- Major
roles and responsibilities Manager- Duties of Manager.

10 - 36

2 Chapter-II Planning:
Introduction- Definitions- Nature/Characteristics
Planning- Needs/Importance of Planning- Elements of
Fundamentals of planning- Planning Process (or) Steps
in planning- Types of Planning- Techniques and Tools
for planning.

37 – 53
3 Chapter-III Organizing:
Meaning – Definitions – Nature of Characteristics of
organizing – Needs (or) Importance of organizing –
Types of Organisations- Distinguish between Formal and
Informal Organisation- Organisation Structure- Types of
Organisation Structure- Organisation chart- Types of
Organisation chart -Advantages of Organisation Chart-
Limitations of Organisation Chart- Factors affecting
Organisational Chart-

54 – 71
4 Chapter –
IV
Departmentalisation
Departmentalisation – Objectives of
Departmentalisation- Processes of Departmentalisation –
Need and Importance of Departmentalisation – Types of
Departmentalisation – Factors to be considered in
Departmentalisation.

72 - 83

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

8

5 Chapter - V Authority & Responsibility and Centralisation &
Decentralisation:
Authority- Process of Delegation of Authority- Types of
Authority in Management – Responsibility- Features of
Responsibility – Centralization- Factors Determining
Centralization of Authority- Advantages of
Centralization- Disadvantages of Centralization-
Decentralization- Importance of Decentralisation-
Advantages of Decentralisation- Disadvantages of
Decentralisation – Difference between Centralization and
Decentralisation.

84 – 93
6 Chapter-VI Staffing:
Introduction- Definition- Needs and Importance of
staffing- Staffing Process- Benefits of staffing process-
Recruitment - Definitions – Sources of Recruitment –
Modern recruitment Methods.
Selection and Training:
Introduction- Selection Procedure- Training –
Definition- Need and Importance of Training – Types of
Training.

94 - 111
7 Chapter –
VII
Decision Making:
Meaning and Definition- Characteristics of Decision
Making- Steps in Decision Making – Types of Decision
Making- Forecasting Meaning – Importance of
Forecasting- Methods of forecasting.

112 -
124
8 Chapter –
VIII
Performance Appraisal and Promotion:
Performance appraisal - Process of Performance
appraisal- Methods of Performance appraisal –
Traditional Approach – Modern Approach.
Promotion:
Introduction- Features of Promotion- Purpose of
promotion – Types of promotion – Advantages of
Promotion – Disadvantages of Promotion .

125 -
134

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

9

9 Chapter –
IX
Work From Home:
Introduction- Advantages of work from Home -
Disadvantages of work from Home – Managing Work
from Home.

135 -
138
10 Chapter – X Management by Objectives and Span of
Management
Introduction – Meaning – Need for Management by
Objectives (MOB) – Features of MBO – Benefits of MBO
– Drawbacks of MBO – Process of MBO – Span of
Management – Importance of Span of Management –
Factors determining Span of Management – Types of
Span of Control .

139 -
151

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

10

CHAPTER – I : INTRODUCTION TO MANAGEMENT

INTRODUCTION
Management is a universal phenomenon. It is very popular and widely used term. All
organizations - business, political, educational, cultural or social are involved in management
because it is the management which helps and guides the various efforts towards a definite goal
or purpose. Management is the process of working with and through others to effectively achieve
the goals of the organization, by efficiently using limited resources in the changing world.
Management is a purposeful and definite activity. It is something that guides and directs group
efforts towards the achievement of certain well defined and pre-determined goals.
Management involves creating an internal environment which puts into use the various factors of
production. Therefore, it is the responsibility of management to create such conditions which are
conducive to maximum efforts so that people are able to perform their task efficiently and
effectively. Management is the process of designing & maintaining an environment in which
individuals working together in groups and working efficiently to achieve the goal of the
organization.
Generally, five managerial function like Planning, Organizing, Staffing, Leading & Controlling
which are generally carry out by all Managers but their time spent may be vary depending on
different function.
MEANING:
Management is the art of maximizing efficiency, as a social process, a method of getting things
done through others a plan of action and its direction by a co-operative group moving towards a
common goal. Effective utilisation of available resources to achieve same objective is
management. Management is a comprehensive function of Planning, Organising, Forecasting
Coordinating, Leading, Controlling, Motivating the efforts of others to achieve specific
objectives. Management can precisely be called the rule – making and rule – enforcing body.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

11

DEFINITIONS:
According to Taylor: - “Management is the art of knowing what you want to do and then seeing
that it is done in the best and cheapest way.”
According to Henry Fayol: - “To manage is to forecast and to plan, to organize, to co-ordinate
and to control.”
Harold Koontz says, “Management is the art of getting things done through and within formally
organized group.”
NATURE OF MANAGEMENT
The nature of management is not a simple aspect it has multiple parameters of its own. The
organization is been working on these multiple Parameters to achieve their predetermined goals
and objectives.
1) Multi-Disciplinary: Management is basically multi-disciplined. This implies that
management has developed from different disciplines like physiology, psychology, arts, science,
sociology, etc. Management integrates Knowledge, Skills, Idea & Concepts from the above
discipline & present a newer concept that can be put into practice for managing the business
operation. According to sociology human element plays a very important role in the
organization. So by using, this concept one can motivate & lead the human element in the
organization to achieve goals according to psychology make –up of humans plays important role
in productivity thus by understanding workers’ attitudes one can increase productivity in the
organization.
2) Vibrant and Energetic Nature of Principle: Management has certain principles that are
based on Practical evidence however these principles are flexible in nature & change according
to the changes in the environment. With the continuous development of the speed there in fields,
older principles are to be changed by a new principle. It always vibrant and energetic in
managing things in the business.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

12

3) Relative not fixed principle: Management principle is relative but not permanent means
these are applied according to the need of an organization. Each organization may be different
from others in a variety of aspects including the age of the organization, nature, type of product
or service, place, society, and cultural factors etc.
4) Management is both Art & Science: Still, there are differences of opinions about whether
management is science or art, however, management is both art & science.It is considered as a
science because it has an organized body of knowledge which contains certain universal truth. It
is called an art because managing requires certain skills which are personal possessions of
managers.
5) Management as a Profession: Management is the profession that deals with the
administration and operation of an organization, especially its human resources, finance,
marketing, and sales. It is a critical function of an organization.Management has been regarded
as a profession while many have suggested that it has not achieved the status of the profession
6) The Flexibility/Modification of Management Principles: Management is a universal
phenomenon. However, the management principle is not universally applicable to all
organization as same to everyone, but is to be modified according to the needs of the situation
and organization nature. The nature of management suggested that it is a multidisciplinary
phenomenon its principles are flexible, relative & absolute.So the management principles
flexible in nature and modified are according to the needs of the organization.
SCOPE OF MANAGEMENT:
The scope management is responsible to define responsibilities of project and control them
properly to attain the objectives. It determines the extent of vie, outlook, operation and
effectiveness of the organization. The scope of business organizations may be classified into the
following categories:
(1) Production Management: Production management is the process which combines and
transforms different resources used in the production system of the organization to add/increase

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

13

more values to the production a controlled and useful manner. It also implies different functions
like planning, organizing, directing and controlling so as to produce the right goods, in right
quantity, at the right time and at the right cost which fulfils goal or objectives of the
organization. The production management helps to increase the product acceptability. It includes
the following activities:
 Designing the Features and Characteristics of the Product.
 Managing purchasing policy or approach and systemize warehousing of production
materials.
 Location and layout of the Plant and building.
 Accessibility and Neighborhood of Plant and Building
 Managing factors of production and production process& operations.
 Maintenance and Repair which should be planned in such a way to achieve zero
breakdown hours.
 Implement and adopt proper Inventory cost and quality control programme.
 Avoid accidents in the production system/process and increase the level of Production.
 Investing and managing in research and development activities to introduce effective
production methodologies and system.
(2) Marketing Management: Marketing management is a managerial process that uses tactics,
ideas, channels and concepts that accelerate scope their products or service in the market. In the
marketing management organizations identify consumers’ needs and wants and supplying goods
and services which can satisfy these needs & wants. Product or services should meet the
expectation of consumers to attract them towards their product or service. It involves the
following activities:
 It involves convincing the prospective consumers to purchase the product or service.
 Setting standardized price for the products and services.
 It helps to delivery of finished products to the customer’s places (It makes sure wide
circulation of product all over the place).
 Holding of products in usable or saleable condition from the time they are produced until
they reach the customers.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

14

 Involves in research and development to determine the current needs and expectation of
consumers and design the future product to meet the customer expectation.
 Selecting the right channel of distribution to continuous flow of products and promotional
activities like proper advertising and sales promotion.
 Managing market information received from various sources to take correct and timely
decisions for the growth and development.
(3) Financial Management: Financial management is concerned with planning, monitoring,
directing, controlling, protecting and reporting financial sources to manage the organization
effectively to achieve its goals. It also ensures that right amount and type of funds invested in the
business at the right time and at reasonable cost. It is considered as the backbone of any business
organization. It includes the following activities:
 It involves Procurement of funds and effectively managing same in the business.
 Determine the revenue a company need to reach its objectives and determine how much
capital organization needs.
 Accessing the requirement of funds based on the nature and type of business.
 Selecting the appropriate source of funds that suits to the nature and size of business.
 Raising the funds at the right time with appropriate terms and conditions.
 Determine capital structure or composition which suitable to the type of business. It must
be assessed amount of capital needs to be invested.
 Ensuring proper utilization and allocation funds to maintain safety and liquidity of funds
and profitability of business.
 Making decisions on how to invest money in successful ventures and must aware be
aware of the financial management risk and projected return.
 Needs to develop tactics to control and manage funds and also develop strategies to raise,
allocate and spend funds.
(4) Personnel Management: Personnel management involves different management functions
like planning, organizing, staffing, controlling and directing that improve the involvement and
contribution of personnel in the business organisation. It helps to effective and efficient use of

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

15

human resources in the organisation to achieve its goals and objectives in proper way. Generally,
it consists of following activities:
 Planning and controlling Manpower need of the business organisation.
 Recruitment & Selection of deserving candidates according to the needs and objective of
the organisation.
 Provide necessary Training & Development for selected candidates.
 Motivate employees through it’s effective incentive plans so that employees provide
maximum contribution to the growth of the business organisation.
 Analyse performance of the personnel through proper Employee appraisal scheme.
 Provide Employee promotion and transfer according to their performance measured
through Employee Appraisal scheme.
 Provide Employee Compensation according to the need and necessity.,
 Introduce effective Employee welfare services to the benefit employees and also make
sure that it induces them contribute towards growth of the organisation.
(v) Office Management: Office Management includes planning, organising, controlling and
coordinating all office activities to achieve an organization’s goals and objectives and is
concerned with efficient performance of office related works. The success of a business
organisation also depends upon the efficiency of its office. For example, an administration’s
efficiency impacts a business significantly. The more organized the departments and
responsibilities are the more effective an organization is. It involves following major activities.
 Receive and collect the information for timely business decisions.
 Record the collected information in suitable form for future reference and uses.
 Covert the collected information in the form of notes, reports, graphs etc. depending upon
nature and importance of information.
 Supply the right information, at the right time, at the right mode to different departments
and outsiders for sound business decisions and management.
 Plan and set up suitable system and procedures for the effective and efficient
performance of the office.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

16

 Retain the records of those documents which serve as objective evidence of activities
performed, events occurred and results achieved.
 By adopting scientific methods in office management control over the cost office
management system.
OBJECTIVES OF MANAGEMENT
1. Maximum Utilisation of Resources – The primary objective of management is to use all
the available resources (like man, material, money etc.) to the maximum extent to provide
the optimum output. This objective creates the scope to increase the profits by reducing
the ratio of resources costs to profits.
2. Maximum Results with Minimum Efforts - The major objective of management is to
secure maximum outputs or result with minimum efforts & resources. Management is
basically concerned with thinking and utilizing human, material & financial resources in
such a manner that would result in best combination. These combinations results in
reduction of various costs and achieve organisation goals.
3. Increase the Competency of Production Factors- Through proper and effective
utilization of various factors involved in the production, the management efficiency can
be increased to a great extent which can be obtained by reducing spoilage, wastages and
breakage of all kinds, this in turn leads to saving of time, effort and money which is
essential for the growth & prosperity of the business organisation.
4. Increase Efficiency of Organisation – Through increasing the efficiency of different
operations, production system and services leads for the greater production, sales and
profit to the organisation. Management aims at improving work process, duration of work
and flow of work to increase efficiency of organisation.
5. Maximum Wealth or Benefit for Employer & Employees - Management ensures
smooth and coordinated functioning of the enterprise. This in turn helps in providing
maximum benefits to the employee in the shape of good working condition, suitable
wage system, incentive plans on the one hand and higher profits to the employer on the
other hand.
6. Managing Risks and Uncertainties – Management focus on forecasting and projecting
results and deviations of results. It tries to reduce opportunities and causes of risks and

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

17

losses. By reducing risk factors in inside and outside the organisation tries to eliminate
loss and accelerate profit of the business.
7. Human Improvement and Social Justice - Management serves as a tool for the
upliftment as well as betterment of the society. Through increased productivity and
employment, management ensures better standards of living for the human beings in the
society. It provides justice through its uniform policies and procedures.
NEED AND IMPORTANCE OF MANAGEMENT
1. It helps in Achieving Organisation Goals - It arranges the factors of production,
assembles and organizes the resources, integrates the resources in effective manner to
achieve goals. It directs group efforts towards achievement of pre-determined goals. By
defining objective of organization clearly there would be no wastage of time, money and
effort. Management converts disorganized resources of men, machines, money etc. into
useful enterprise. These resources are coordinated, directed and controlled in such a
manner that enterprise work towards attainment of goals.
2. Maximum Utilization of Resources - Management utilizes all the Non human& human
resources productively. This leads to efficacy in management. Management provides
maximum utilization of scarce resources by selecting its best possible alternate use in
industry from out of various uses. It makes use of experts, professional and these services
leads to use of their skills, knowledge, and proper utilization and avoids wastage. If
employees and machines are producing its maximum there is no under employment of
any resources.
3. Provide guidance and direction to the Employees – By adopting effective management
system guiding employees of the organisation in the right path in the right manner to
achieve organisation goals and objectives. Giving them a sense of direction by providing
regular updates on what is expected on them and employees also performing the role
according the necessity of the organisation.
4. Reduces Costs - It gets maximum results through minimum input by proper planning and
by using minimum input & getting maximum output. Management uses physical, human
and financial resources in such a manner which results in best combination. This helps in
cost reduction.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

18

5. Establishes Sound Organization - No overlapping of efforts (smooth and coordinated
functions). To establish sound organizational structure is one of the objective of
management which is in tune with objective of organization and for fulfilment of this, it
establishes effective authority & responsibility relationship i.e. who is accountable to
whom, who can give instructions to whom, who are superiors & who are subordinates.
Management fills up various positions with right persons, having right skills, training and
qualification. All jobs should be cleared to everyone.
6. Establishes Stability in the Organisation - It enables the organization to survive in
changing environment. It keeps in touch with the changing environment. With the change
is external environment, the initial co-ordination of organization must be changed. So it
adapts organization to changing demand of market / changing needs of societies. It is
responsible for growth and survival of organization.
7. Maximise Prosperity/Welfare of the Society - Efficient management leads to better
economical production which helps in turn to increase the welfare of people. Good
management makes a difficult task easier by avoiding wastage of scarce resource. It
improves standard of living. It increases the profit which is beneficial to business and
society will get maximum output at minimum cost by creating employment opportunities
which generate income in hands. Organization comes with new products and researches
beneficial for society.
LEVELS OF MANAGEMENT
The term “Levels of Management’ refers to a line of segregation that exists between various
managerial positions in an organization. The number of levels in management increases when the
size of the business and work force increases and vice versa. The level of management
determines a chain of command, the amount of authority & status enjoyed by any managerial
position. The levels of management can be classified in three broad categories:
1. Top Level Management/ Administrative level
2. Middle Level Management / Executory
3. Low Level Management / Supervisory / Operative

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

19

1. Administrative / Top Level of Management
It consists of board of directors, chairman, president, general manager, chief executive or
managing director. The top management is the ultimate source of authority and it
manages goals and policies for an enterprise. It devotes more time on planning and
coordinating functions. The top management of an organisation is responsible for its
survival and welfare.
The role of the top management can be summarized as follows -
 Top management determines the objectives and policies of the Organisation to
run the organization efficiently.
 Top management issues necessary instructions for preparation of department
budgets, procedures, schedules etc.
 It prepares strategic plans and policies for the effective functioning of
Organisation.
 It recruits the executive for middle level management i.e. departmental managers.
 It controls & coordinates the activities of different departments of the
Organisation.
 It is also responsible carefully analyzing the business environment and its
implications and take necessary decisions for better results.
 It provides guidance and direction to set up organizational framework to execute
its plan and policies.
 To level management needs to assemble different resources of organisation such
as material, machines, man and money to achieve organisation goals.
 The top management is also responsible towards the shareholders for the better
performance of the business organization.
2. Executory / Middle Level of Management
Middle level management serves as a bridge between Top level management and Lower-
level management. They are responsible to the top management for the functioning of
their department. They devote more time to organizational and directional functions. In

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

20

small organization, there is only one layer of middle level of management but in big
enterprises, there may be senior and junior middle level management. The middle level
management is superior to the lower-level management and sub ordinate to the top-level
management. Their roles are as follows -
 Middle level management executes the plans of the organization in accordance
with directions given by the top management.
 Middle level management participates in employment & training of lower level
management.
 They interpret and explain policies from top level management to lower level.
 They are responsible for coordinating the activities within the division or
department.
 They also send important reports and other important data to top level
management.
 They recruit and select suitable employees for different departments-based firm’s
requirement and necessity.
 They Assign duties and responsibilities of the lower-level management.
 They are also responsible for inspiring lower-level managers towards better
performance.
 Co-ordinating with top and lower-level management for smooth and effective
functioning of organisation.
3. Supervisory / Lower Level of Management
Lower level is also known as supervisory / operative level of management. It consists of
supervisors, foreman, section officers, superintendent etc. According to R.C. Davis,
“Supervisory management refers to those executives whose work has to be largely with
personal oversight and direction of operative employees”. The lower-level management
plays crucial role in the proper management of an Organisation, as they directly interact
with actual work force in day-to-day activities of the business organisation. In other
words, they are concerned with direction and controlling function of management. Their
activities include -

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

21

 Issuing orders to the workers and instruct them on their responsibility and
authority clearly.
 Assigning of jobs and duties to various workforces in the Organisation.
 Guide and instruct workers in day-to-day activities.
 They are responsible for the quality as well as quantity of production.
 They are also entrusted with the responsibility of maintaining good relation in the
organization.
 They communicate workers problems, suggestions, and recommendatory appeals
etc. to the higher level and higher-level goals and objectives to the workers.
 Listen to the grievances of the workers and report those issues to the middle level
management.
 Arrange necessary materials, machines, tools etc for getting the things done from
the workers.
 Ensure safe and proper work environment as it motivates employees to work
towards accomplishment of enterprise goals.
 Prepare periodical reports at the regular intervals about the performance of the
workers.
 They ensure discipline in the Organisation and motivate workers to perform
better.
FUNCTIONS OF MANAGEMENT
Management involves controlling and guiding human and non-humanresources within the
organisation to achieve organisation goals or objectives. It is a dynamic process consisting of
various elements and activities. These activities are different from operative functions like
marketing, finance, purchase etc. Rather these activities are common to each and every manger
irrespective of his level or status. Different experts have classified functions of management.
According to George & Jerry, “There are four fundamental functions of management i.e.
planning, organizing, actuating and controlling”.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

22

According to Henry Fayol, “To manage is to forecast and plan, to organize, to command, & to
control”. Whereas Luther Gullick has given a keyword ’POSDCORB’ where
 P stands for Planning
 O stands for Organizing
 S stands for Staffing
 D stands for Directing
 Co stands for Co-ordination
 R stands for Reporting
 B stands for Budgeting.
But the most widely accepted functions of management given by KOONTZ and O’DONNEL
i.e. Planning, Organizing, Staffing, Directing and Controlling.Each function creates its own
impacts on other performance or functions. All these management functions are interconnected
and plays key role in achieving objectives of organisation.
1. Planning
It is the primary function of management. It deals with working out a future course of
action & deciding in advance the most appropriate course of actions for achievement of
well-defined pre-determined goals. According to KOONTZ, “Planning is deciding in
advance - what to do, when to do & how to do. It bridges the gap from where we are
&where we want to be”. A plan is a future course of actions. It is an exercise in problem
solving & decision making. Planning is determination of courses of action to achieve
desired goals. Thus, planning is a systematic thinking about ways & means for
accomplishment of pre-determined goals. Planning is necessary to ensure proper
utilization of human & non-human resources. It is all pervasive, it is an intellectual
activity and it also helps in avoiding confusion, uncertainties, risks, wastages etc.
2. Organizing
It is the process of bringing together human and non-human resources and developing
productive relationship amongst them for achievement of organizational objectives and

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

23

goals. According to Henry Fayol, “To organize a business is to provide it with everything
useful for its functioning i.e. raw material, tools, capital and personnel’s”. To organize a
business involves determining & providing human and non-human resources to the
organizational structure. Organizing as a process involves:
 Identifying Major Activities of the business
 -Classification of Activities under different groups based on some major criteria.
 Assigning duties to all human resources in the organisation
 Proper Delegation of Authority to achieve goals
 Creation of Responsibility for effective functioning
3. Staffing
It is the function of recruiting qualified candidates for different positions in an
organisation. Staffing has greater importance in the recent years due to advancement of
technology, increase in size of business, complexity of human behaviour etc. The main
purpose of staffing is to put the right man on the right job at the right time at right cost .
According to Koontz & O’Donell, “Managerial function of staffing involves manning the
organization structure through proper and effective selection, appraisal & development of
personnel to fill the roles designed in the structure”. Staffing involves:
 Manpower Planning (Determining man power requirement of business
organisation for the effective functioning).
 Recruitment, Selection & Placement of Employees.
 Proper Training & Development Programmes.
 Employee Performance Appraisal or Assessment.
 Remuneration for employees based on Performance.
 Promotions, Demotion & Transfer of Employees.
4. Directing
Directing involves guiding, instructing and directing performance of employees towards
achievement of objectives of Organisation. It is considered life-spark of the enterprise
which sets it in motion the action of people because planning, organizing and staffing are
the mere preparations for doing the work. Directing is telling employees what to do and

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

24

seeing that they do it to the best of their ability. Direction is that inert-personnel aspect of
management which deals directly with influencing, guiding, supervising, motivating sub-
ordinate for the achievement of organizational goals. The following are major elements
of elements:
 Supervision
 Motivation
 Leadership
 Communication
 Supervision- It implies overseeing the work of subordinates by their superiors. It
is the direct control of and guidance of subordinates while doing their work. For
this supervisor needs technical, conceptual and human relations.
 Motivation- It means inspiring, stimulating or inducing the employees with aims
to accomplish the task with the help of them. Motivation may be Positive,
Negative, Monetary and Non-monetary. Motivation influences the employees to
perform their role effectively.
 Leadership- It may be defined as the action or an act of guidance of leading a
group of people in an organisation. It is a process by which manager guides and
influences the work of employees in a desired direction.Leaders’ individuality
creates major impact on the work performance of employees in an organisation.
 Communications- It is the process of passing ideas, knowledge, information,
experience, opinion etc., from one person to another person in an organisation. It
involves planning, execution, monitoring and improvement of communication. It
is interpersonal and organizational.
5. Controlling
It implies that deciding and defining pre-determined standards and making sure that
performance of the employees match with the standards set by the management and
ensuresthat achievement of organizational goals. The purpose of controlling is to ensure
that everything occurs in according with the pre-determined standards. An efficient

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

25

system of control helps to predict deviations before they actually occur. According to
Koontz &O’Donell “Controlling is the measurement & correction of performance of
subordinates in order to make sure that the organisation objectives and plans are being
accomplished as desired”. Therefore, controlling involves following steps:
 Establishment of Standard performance – (Standards are the targets needs to be
achieved).
 Measurement of Actual performance – (Measuring performance in terms of units,
cost, money, weekly, monthly yearly etc.).
 Comparison of Actual performance with the Standards- (Finding out deviation if
any, whether Positive or Negative).
 Remedial or Corrective Action – (Detect the errors and take remedial measures)

MANAGEMENT AS AN ART
Management applies knowledge, experience & skill to achieve desired results. An art may be
defined as personalized application of general theoretical principles for achieving best possible
results. Art is concerned with the understanding of how particular task can be accomplished.
Thus, we can say that management is an art therefore it requires application of certain principles
rather it is an art of highest order because it deals with moulding the attitude and behavior of
people at work towards desired goals. It is highly personalized activity to achieve desired goals.
Since, art varies from person to person it is prone to failure. It has the following characters -
1. Practical Knowledge: Every art requires practical knowledge therefore learning of
theory is not sufficient. It is very important to know practical application of theoretical
principles. E.g. to become a good painter, the person may not only be knowing different
colour and brushes but different designs, dimensions, situations etc. to use them
appropriately. A manager can never be successful just by obtaining degree or diploma in
management; he must have also knobn34yw how to apply various principles in real
situations by functioning in capacity of manager.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

26

2. Personal Skill: Although theoretical base may be same for every artist, but each one has
his own style and approach towards his job. That is why the level of success and quality
of performance differs from one person to another. Similarly, management as an art is
also personalized. Every manager has his own way of managing things based on his
knowledge, experience and personality, that is why some managers are known as good
managers whereas others as bad.
3. Creativity: Every artist has an element of creativity in line. That is why he aims at
producing something that has never existed before which requires combination of
intelligence & imagination. Management is also creative in nature like any other art. It
combines human and non-human resources in useful way so as to achieve desired results.
It tries to produce sweet music by combining chords in an efficient manner.
4. Perfection through practice: Practice makes a man perfect. Every artist becomes more
and more proficient through constant practice. Similarly, managers learn through an art of
trial and error initially but application of management principles over the years makes
them perfect in the job of managing.
5. Goal-Oriented: Every art is result oriented as it seeks to achieve concrete results. In the
same manner, management is also directed towards accomplishment of pre-determined
goals. Managers use various resources like men, money, material, machinery & methods
to promote growth of an organization.
Just like any other art:
i. Management is also application of knowledge in different situations.
ii. Management is a highly personalized activity and varies from manager to manager. Thus,
management is also prone to failure.
iii. Management is action-oriented to achieve organizational objectives.
Thus, management is a perfect art or rather a fine art.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

27

MANAGEMENT AS A SCIENCE
Science is a systematic body of knowledge pertaining to a specific field of study that contains
general facts which explains a phenomenon. It establishes cause and effect relationship between
two or more variables and underlines the principles governing their relationship. These principles
are developed through scientific method of observation and verification through testing.
Science is characterized by following main features:
1. Universally accepted principles - Scientific principles represents basic truth about a
particular field of enquiry. These principles may be applied in all situations, at all time &
at all places. E.g. - law of gravitation which can be applied in all countries irrespective of
the time. Management also contains some fundamental principles which can be applied
universally like the Principle of Unity of Command i.e. one man, one boss. This principle
is applicable to all type of organization - business or non-business.
2. Experimentation & Observation - Scientific principles are derived through scientific
investigation & researching i.e. they are based on logic. E.g. the principle that earth goes
round the sun has been scientifically proved.
Management principles are also based on scientific enquiry & observation and not only
on the opinion of Henry Fayol. They have been developed through experiments &
practical experiences of large no. of managers. E.g. it is observed that fair remuneration
to personal helps in creating a satisfied work force.
3. Cause & Effect Relationship - Principles of science lay down cause and effect
relationship between various variables. E.g. when metals are heated, they are expanded.
The cause is heating & result is expansion. The same is true for management, therefore it
also establishes cause and effect relationship. E.g. lack of parity (balance) between
authority & responsibility will lead to ineffectiveness. If you know the cause i.e. lack of
balance, the effect can be ascertained easily i.e. in effectiveness. Similarly, if workers are
given bonuses, fair wages they will work hard but when not treated in fair and just
manner, reduces productivity of organization.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

28

4. Test of Validity & Predictability - Validity of scientific principles can be tested at any
time or any number of times i.e. they stand the test of time. Each time these tests will
give same result. Moreover, future events can be predicted with reasonable accuracy by
using scientific principles. E.g. H2 & O2 will always give H2O.Principles of management
can also be tested for validity. E.g. principle of unity of command can be tested by
comparing two persons - one having single boss and one having 2 bosses. The
performance of 1st person will be better than 2nd.
Management satisfies these requirements to a certain extent:
i. Management is a systematic body of knowledge with its own theories and principles.
ii. The principles of management also evolved through repeated experimentation. But since
management deals with humans, the outcome of the experiments is significantly unpredictable.
iii. The principles of management do not have a universal applicability and need modification
under different circumstances.
It cannot be denied that management has a systematic body of knowledge but it is not as exact as
that of other physical sciences like biology, physics, and chemistry etc. The main reason for the
inexactness of science of management is that it deals with human beings and it is very difficult to
predict their behavior accurately. Since it is a social process, therefore it falls in the area of social
sciences. It is a flexible science & that is why its theories and principles may produce different
results at different times and therefore it is a behavior science. Ernest Dale has called it as a Soft
Science.

MANAGEMENT AS BOTH SCIENCE AND ART
Management is both an art and a science. The above-mentioned points clearly reveal that
management combines features of both science as well as art. It is considered as a science
because it has an organized body of knowledge which contains certain universal truth. It is called
an art because managing requires certain skills which are personal possessions of managers.
Science provides the knowledge & art deals with the application of knowledge and skills.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

29

A manager to be successful in his profession must acquire the knowledge of science & the art of
applying it. Therefore, management is a judicious blend of science as well as an art because it
proves the principles and the way these principles are applied is a matter of art. Science teaches
to ’know’ and art teaches to ’do’. E.g. a person cannot become a good singer unless he has
knowledge about various ragas & he also applies his personal skill in the art of singing. Same
way it is not sufficient for manager to first know the principles but he must also apply them in
solving various managerial problems that is why, science and art are not mutually exclusive but
they are complementary to each other (like tea and biscuit, bread and butter etc.).
The old saying that “Manager are Born” has been rejected in favour of “Managers are Made”. It
has been aptly remarked that management is the oldest of art and youngest of science. To
conclude, we can say that science is the root and art is the fruit.
MANAGEME NT VS ADMINISTRATION
Management is process it includes planning, organizing, directing and controlling. It can be
understood as the skill of getting the things done from others to accomplish desired goals. It is
not exactly same as administration, which alludes to a process of effectively administering the
entire organization. The most important point that differs management from the administration is
that the former is concerned with directing or guiding the operations of the organization, whereas
the latter stresses on laying down the policies and establishing the objectives of the organization.
Broadly speaking, management takes into account the directing and controlling functions of the
organization, whereas administration is related to planning and organizing function.
Management
Management is defined as an act of managing people and their work, for achieving a common
goal by using the organization’s resources. It creates an environment under which the manager
and his subordinates can work together for the attainment of group objective. Planning,
organizing, leading, motivating, controlling, coordination and decision making are the major
activities performed by the management. Management brings together 5M’s of the organization,
i.e. Men, Material, Machines, Methods, and Money. It is a result-oriented activity, which focuses
on achieving the desired output.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

30

Administration
The administration is a systematic process of administering the management of a business
organization, an educational institution like school or college, government office or any non-
profit organization. The main function of administration is the formation of plans, policies, and
procedures, setting up of goals and objectives, enforcing rules and regulations, etc.
Administration lay down the fundamental framework of an organization, within which the
management of the organization functions. Administration represents the top layer of the
management hierarchy of the organization. These top-level authorities are the either owners or
business partners who invest their capital in starting the business.
DISTINGUISH BETWEEN MANAGEMENT AND ADMINISTRATION
S. No. Basis Management Administration
1. Meaning Management is a
systematic way of
managing people and
things within the
organization.
The administration is defined as
an act of administering the whole
organization by a group of
people.
2. Activity Management is an activity
of business and functional
level
Administration is a Top or High-
level activity.
3. Policy Management focuses on
policy implementation to
achieve organisation goal
or objective.
Administration performs the task
of policy formulation or invention
of the Organisation.
4. Function Functions of management
are executive and
governing.
Functions of administration
include legislation and
determination.
5. Decision making Management decision
makings are subject to the
Administration takes all the major
or important decisions of the

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

31

limits or boundaries set by
the Administration.
organization.
6. Representation Employees represent the
Management and they are
part of it. A group of
persons, who are
employees of the
organization is collectively
known as management.
Administration represents
the owners or representatives of
the owner of the organization.

7. Work Management is all about
making plans and taking
actions according to the
plan to execute things
effectively.
Administration is concerned with
framing organisation strategies,
policies, procedures, guidelines
and objectives.

8. Role Management plays an
executive role in the
organization and Manager
looks after management of
the Organisation.
Administration plays a role of
Decisive in nature and
responsible for Administration of
Organisation.
9. Suitability Management is more
suitable for profit-making
organization like business
enterprises.
Administration suitable for
government and military offices,
clubs, hospitals, religious
organizations and all the non-
profit making enterprises.
10. Focus Management focuses on
managing employees and
their work.
Administration focuses on
making the best possible results
by utilising organization’s
resources effectively.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

32

QUALITIES OF A GOOD MANAGER
A manager has to undertake a number of functions from planning to controlling. He has to take
decisions for every type of activity in the business enterprise. The decisions of the manager
influence the performance of an organization. If the manager possess following qualities that
may contribute for the effective functioning of any organisation.
1. Proper Educational Background:
A manager must have proper educational background. These days managers are supposed to
have management education, besides other educational qualifications. Education not only widens
mental horizon but also helps in understanding the things and interpreting them properly. The
knowledge of business environment is also important for dealing with various problems the
organization may face.
2. Right Aptitude:
A manager has to perform more responsibilities than other persons in the organization. He
should have higher level of aptitude as compared to other persons. Right Aptitude will help a
manager in assessing the present and future possibilities for the business. He will be able to
foresee the things in advance and take necessary decisions at appropriate time.
3. Leadership Skills:
A manager has to direct and motivate persons working under him/her in the organization. He/she
provides leadership role to subordinates. The energies of the subordinates will have to be
channelize of properly for achieving organizational goals. If a manager has the leadership
qualities, then he can motivate subordinates in improving their performance and working to their
full capacity for the benefit of the organization.
4. Managerial Skills:
A manager has to acquire managerial skills. These skills consist of technical skills, human skills
and conceptual skills. These skills have to be acquired through education, guidance, experience
etc. These skills are needed for all levels of managers.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

33

5. Technical Knowledge:
A manager should have technical knowledge of production processes and other activities
undertaken in the enterprise. He will be in a better position to inspect and guide if he himself has
knowledge of those activities.
6. Mental Maturity:
A manager should have mental maturity for dealing with different situations. Heshould be
patient, good listener and quick to react to situations. He has to take many stubborn decisions
which may adversely affect the working if not taken properly. He should keep calm when
dealing with subordinates. All these qualities will come with mental maturity.
7. Positive Attitude:
Positive attitude is an asset for a manager. A manager has to deal with many people from inside
as well as from outside the organization. He should be sympathetic and positive to various
suggestions and taken humane decisions. He should not pre-judge the things and take sides. He
should try to develop good relations with various persons dealing with him. He should
understand their problems and try to extend a helping hand.
8. Self-confidence:
A manager should have self- confidence. He has to take many decisions daily, he may analyse
the things systematically before taking decisions. Once he takes decisions then he should stick to
them and try to implement them. A person who lacks self-confidence will always be unsure of
his decisions. This type of attitude will create more problems than solving them.
9. Foresight:
A manager has to decide not only for present but for future also. There are rapid changes in
technology, marketing, consumer behaviour, financial set up etc. The changes in economic
policies will have repercussions in the future. A manager should visualize what is going to
happen in future and prepare the organization for facing the situations. The quality of foresight
will help in taking right decisions and face the coming things in right perspective. In case the
things are not rightly assessed then the organization may face adverse situations.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

34

MAJOR ROLES AND RESPONSIBILITIES OF A MANAGER
A manager is an important asset to the organization. The primary role of the manager is to co-
ordinate the work of all the employees in the organization and to bring about the best results that
ensures the growth of the organization. There are various roles and responsibilities that managers
hold in order to bring about the best outcomes from the employees. Following are the major role
and responsibilities of a manger in all kind of organisations.
1. Envisage the Goals: The managers need to understand how the goals are being directed in the
organization. He/she should envision the mission and goals of the organisation which is
detrimental for the growth of the business. The managers need to communicate the goals
properly to the employees and map ways that help to achieve these goals in a strategic fashion.
2. Manage the growth: One of the most common roles and responsibilities of a manager is to
sustain the growth of the organization. The manager needs to scan and analyse the internal and
external environment that poses threat on the survival of the business.
3. Improve the competency of the firm: The manager needs to ensure that the resources are
properly utilised and not wasted. This can pave way for overall competency of the firm’s
resources. Managers need to improve and maintain the competency of the firm in order to reach
success.
4. Being Creative and Innovative: The manager needs to be creative and innovative in his
work. He needs to formulate strategies that would help find creative solutions to the problems
encountered in the organization. The manager must inculcate innovation in the employees and
encourage them to come up with innovative ways to achieve the goals faster and better.
5. Motivation and Leadership: The manager must be a good leader and a motivator. He/she
needs to inspire and motivate the employees working in the organization. A leader must ensure
that the goals of the company are achieved and the employees’ interests are protected at the same
time. The manager must possess superior leadership skills in order to lead the employees in a
better way.
DUTIES OF MANAGER
Managers are often met with a diverse, versatile workday. Their duties can include tasks that are
task or goal-based. They may be involved in the day-to-day operations of the business or

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

35

completing projects that meet the long-term goals of the company. Here are a few top duties of a
manager:
1. Leading the team members: One of the manager’s main duties is to lead the team
members. Managers will lead their team to complete tasks and meet goals. They may also
be in charge of maintaining the mission and values of the company, and leading team
members to complete tasks that bring them closer to the achievement of those goals.
2. Setting and Managing goals: Some managers may also be in charge of setting these
goals, and tracking progress toward them. They will do this by evaluating the long-term
goals of the business and then breaking them down into short-term tasks and projects.
Managers may need to share these goals or plans with their team members to ensure
everyone is aware of the expectations.
3. Maintain a harmless work environment: Managers are tasked with ensuring employees
have a safe work environment at all times. This means ensuring that all employees are
following regulations and workplace laws. It also means handling any safety concerns in
a timely manner.
4. Enforce better quality standards: Managers are responsible for enforcing quality
standards, usually set by the company. This might include ensuring specific customer
satisfaction ratings or evaluating the quality of products. Managers are in a good position
to provide valuable feedback to other team members and upper management on potential
improvements in duties.
5. Administrative duties: Managers may also often be in charge of certain administrative
duties. This could include making schedules, tracking pay, managing profits and losses
day-to-day and even managing budgets.
6. Delegate tasks according to employee skills: It is the manager’s role to understand the
strengths and weaknesses of each employee and to delegate tasks as needed. They may
need to motivate employees and keep them engaged in working toward company goals.
7. Manage employees: Managers may also need to manage certain aspects of their
employees. This could include recognizing obstacles toward progress or dealing with
conflict among team members.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

36

8. Hiring Potential employees: Managers may need to recruit new employees. This
includes evaluating the current tasks of the business and identifying what skills and
experience are needed. Then, they may be involved in reviewing resumes and
interviewing potential employees.
9. Train and development employee team: Managers may or may not be involved in the
selection of their team members, but they will almost always be a part of training and
developing their team. This includes implementing training programs that teach team
members the skills they need to complete their assigned tasks.
10. Develop current employees’ potentials: The manager is also responsible for developing
current team members to reach their full potential. This requires an evaluation of each
team member’s strengths and abilities.
11. Evaluate employee Progression: Managers may need to assess the progress and
development of their team members each year. This often requires an evaluation of
progress toward key performance indicators, as well as completing performance reviews.
12. Manage Budget and finances: Managers are also often involved in the budgeting and
finances of the business, including estimating and creating budgets and tracking
spending.
A manager’s duties may also vary, depending on the type of industry in which they work. For
example, an accounting manager will need to oversee the financial tasks of their team members.
A manager in a retail store will need to fill in for team members from time to time, while also
working closely with customers. In specialized industries, managers may need to complete duties
that are more related to their field.

************

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

37

CHAPTER – II: PLANNING
INTRODUCTION
Planning is the fundamental management function, which involves deciding beforehand, what is
to be done, when is it to be done, how it is to be done and who is going to do it. Planning bridges
the gap from where we are to where we want to go. It is an intellectual process which lays
down organization’s objectives and develops various courses of action, by which the
organization can achieve those objectives. It chalks out exactly, how to attain a specific goal.
Planning is nothing but thinking before the action takes place. It helps us to take a look into the
future and decide in advance the way to deal with the situations, which we are going to encounter
in future. It involves logical thinking and rational decision making.
DEFINITIONS
“Planning is deciding advance what to do, how to do it, when to do it, who is to do it. It bridges
the gap between where we are, where we want to go. It makes it possible for things to occur
which would not otherwise happen.” - Koontz and O’Donnel
“Planning is the selecting and relating of facts and the making and using of assumptions
regarding the future in the visualization to achieve desire results.” - George Terry
NATURE / CHARACTERISTICS OF PLANNING
1. Basic and Primary Managerial function: Planning is the primary function of the management
which provides base for other management functions, i.e. Organizing, Staffing, Directing, Co-
ordinating, Motivating and Controlling, as they are performed within the margin or limits of the
plans made.
2. Focus on Goal or Aim of the Organisation: It focuses on determining the aims or goals of the
organization, identifying alternative courses of action and deciding the appropriate action plan,
which is needs to be undertaken for achieving the goals effectively within the stipulated time
limit.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

38

3. Pervasiveness: It is pervasive in the sense that it is needed in all the categories and is required at
all the levels of the organisation. Although the scope of planning varies at different levels and
departments.
4. Continuous Process: Plans are made for a specific term, say for a day, week, month, quarter,
year and so on. Once that period is over, new plans are prepared after considering organisation’s
present and future requirements and situations. Therefore, it is an ongoing process, as the plans
are framed, executed and followed by another plan, it keeps going continuously.
5. Logical Process: It is a mental exercise at it involves the application of mind, to think, forecast,
imagine intelligently and innovate etc.So, it is a logical process to making preparations according
the scenarios.
6. Future Oriented: In the process of planning, we will make plans by forecasting the future with
the help of past and present scenarios. It encompasses looking into future, to analyse and predict
it, so that the organisation can face the future challenges effectively.
7. Decision making: Decisions are made regarding the choice of alternative courses of action that
can be undertaken to reach the goal. The alternative chosen should be best among all, with least
number of negative and highest number of positive outcomes.
8. Co-ordinate all major functions: Planning co-ordinates the what, who, how, where and why of
planning. Without co-ordination of all activities, we cannot have united efforts.It co-ordinates all
major functions of the organization to achieve the goals of the organization.
Planning is concerned with setting objectives, targets, and formulating plan to accomplish them.
The activity helps managers analyse the present condition to identify the ways of attaining the
desired position in future. It is both, the need of the organisation and the responsibility of
managers.
NEEDS / IMPORTANCE OF PLANNING
i. Planning guides to right Path: Planning leads to right direction to managers and
non- managers alike. When employees know what their organization or work unit is
trying to accomplish and what they must contribute in order to reach goals, they can
coordinate their activities, cooperate with each other and do what it takes to

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

39

accomplish those goals. Without planning, department and individuals might work at
cross-purpose and prevent the organization from efficiently achieving goals.
ii. Planning anticipate changes and reduces uncertainty: Planning reduces
uncertainty by forcing managers to look ahead, anticipate change, consider the impact
of change, and develop appropriate response. Although planning won’t eliminate
uncertainty, managers plan so they can respond efficiently. Future is always full of
uncertainties and changes. Planning foresees the future and makes the necessary
provisions for it.
iii. Planning Minimizes wastages and Idleness: Planning Minimizes unnecessary
wastages in terms of everything in the organisation andalso reduce idle time with
proper planning. When work activity is coordinated around plans, inefficiency
becomes noticeable and can be corrected and eliminated.
iv. Planning establishes the Standard or Basefor effective controlling: When
management plan, they develop standards and base for controlling mechanism. When
they control, they see whether the plans have been carried out and the goals met.
Without planning there would be no goals against which to measure or evaluate work
effort. The controlling function of management relates to the comparison of the
planned performance with the actual performance. In the absence of plans, a
management will have no standards for controlling other's performance.
v. Planning gives more attention on objectives of the Organisation: All the activities
of an organization are designed to achieve certain specified objectives. However,
planning makes the objectives more concrete by focusing attention on them.
vi. Planning assist for co-ordination: Co-ordination is, indeed, the essence of
management, the planning is the base of it. Without planning it is not possible to co-
ordinate the different activities of an organization.
vii. Planning control Cost (Economical): Planning involves, the selection of most
profitable course of action or activity that would lead to the best result at the
minimum costs. It makes sure that cost is under control to accelerate profit margin of
the business.
viii. Planning accelerates overall effectiveness of organization: Mere efficiency in the
organization is not important; it should also lead to productivity and effectiveness.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

40

Planning enables the manager to measure the organizational effectiveness in the
framework of the primary or major objectivesof the organisation and take further
actions in this direction.

ELEMENTS OR FUNDAMENTALS OF PLANNING:

1. Objectives:
The important task of planning is to determine the objectives of the business organisation.
Objectives are the goals towards which all managerial activities of the business enterprise aim.
All planning work must spell out in clear terms the objectives to be realised from the proposed
business activities. When planning action is taken, these objectives are made more concrete and
meaningful. For example, if the organisational objective is maximising sales, planning activity
have to specify how much Sales to be achieved within the stipulated period of time and also look
into all facilitating and constraining factors of the organisation.
2. Foretelling:
It is the analysis and interpretation of future in relation to the activities and working of an
enterprise. Business foretelling refers to tell beforehand the statistical data and other economic,
political and market information for the purpose of reducing the amount of risks involved in
making business decisions. Foretelling provides a logical basis for anticipating the shape of the
future business transactions and their requirements as to man and material.
3. Policies:
Planning also requires laying down of policies for the easy functioning of business. Policies are
statements or principles that guide and direct different managers at various levels in making
decisions. Policies provide the necessary basis for executive operation. They set forth overall
boundaries within which the decision-makers are expected to operate while making decisions.
Policies act as guidelines for taking administrative decisions.
In a big enterprise, various policies are formulated for guiding and directing the subordinates in
different areas of management. They may be Production policy, Sales policy, Human resource
policy, Promotion policy, Financial policyetc. But these different policies are co-ordinated and

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

41

integrated in such a way that they ensure easy realisation of the ultimate objectives of business.
Policies should be consistent and must not be changed frequently.
4. Procedures:
The manner in which each work has to be done is indicated by the procedures laid down.
Procedures outline a series of tasks to be performed in the specified course of action. There may
be some confusion between policies and procedures. Policies provide guidelines to thinking and
action, but procedures are definite and specific steps to thinking and action. For example, the
policy may be the recruitment of personnel from all parts of the country; but procedures may be
to advertise and invite applications, to take interviews and offer appointment to the selected
personnel.
Thus, procedures mean definite steps in a chronological sequence within the area chalked out by
the policies. In other words, procedures are the methods by means of which policies are
enforced. Different procedures are adopted in different areas of business activities. There may be
production procedure, sales procedure, purchase procedure, personnel procedure etc.
5. Guidelines:
Guidelines or Rules acts as a guide which helps the management authority to take proper
decisions to run the organisation effectively. This decision signifies that a definite action must be
taken in respect of a specific situation. The guidelines prescribe a definite and stiff course of
action to be followed in different business activities without any scope for deviation or
discretion.
Any deviation of rule entails penalty. Rule is related to parts of a procedure. Thus, a rule may be
incorporated in respect of purchase procedure that all purchases must be made after inviting
tenders. Similarly, in respect of sales procedure, rule may be enforced that all orders should be
confirmed the very next day.
6. Programmes:
Programmes are precise plans of action followed in proper sequence in accordance with the
objectives, policies and procedures. Programmes, thus, lead to a concrete course of inter-related
actions for the accomplishment of a purpose. Thus, a company may have a programme for the

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

42

establishment of schools, colleges and hospitals near about its premises along with its expanding
business activities.
Programmes must be closely integrated with the objectives. Programming involves dividing into
steps the activities necessary to achieve the objectives, determining the sequence between
different steps, fixing up performance responsibility for each step, determining the requirements
of resources, time, finance etc. and assigning definite duties to each part.
7. Budgets:
Budget means an estimate of men, money, materials and equipment in numerical terms required
for implementation of plans and programmes. Thus, planning and budgeting are inter-linked.
Budget indicates the size of the programme and involves income and outgo, input and output. It
also serves as a very important control device by measuring the performance in relation to the set
goals. There may be several departmental budgets which are again integrated into the master
budget.
8. Strategies:
Strategies are the devices formulated and adopted from the competitive standpoint as well as
from the point of view of the employees, customers, suppliers and government. Strategies thus
may be internal and external. Whether internal or external, the success of the plans demands that
it should be strategy-oriented.
The best strategy of planning from the competitive standpoint is to be fully informed somehow
about the planning ‘secrets’ of the competitors and to prepare its own plan accordingly.
Strategies act as reserve forces to overcome resistances and reactions according to
circumstances. They are applied as and when required.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

43

PLANNING PROCESS [OR] STEPS IN PLANNING
The planning is one of the major and primary function of management. It involves setting the
objectives or goals of the business enterprise and then managing the resources to achieve such
goals. The following are the major steps involved in the overall planning process.
1] Perception or Awareness of Opportunities
The primary part of planning process is to be aware business opportunities available in internal and
external environment of the business enterprise. Once such opportunities get recognized the
managers can recognize the actions that need to be taken to realize them. Perception of
opportunities includes a preliminary look at possible opportunities and the ability to see them clearly
and completely, a knowledge of where the organization stands in the light of its strengths and
weaknesses and a vision of what it expects to gain. A realistic look must be taken at the prospect of
these new opportunities and a SWOT (Strength, Weakness, Opportunities and Threat) analysis
should be done.
2] Setting/Establishing Objectives
This is the second and perhaps the most important step of the planning process. Objectives specify
the results expected and indicate the end points of what is to be done in key areas. Here we establish
the objectives for the whole organization and also individual departments. Organizational objectives
provide a general direction, objectives of departments will be more planned and detailed.
Objectives can be long term and short term as well. They indicate the end result the company
wishes to achieve. So, objectives will percolate down from the managers and will also guide and
push the employees in the correct direction.
3] Planning and Awareness of Premises
Planning is always done keeping the future in mind and it always makes predictions on future
events; however, the future is always uncertain. So, in the function of management certain

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

44

assumptions will have to be made. These assumptions are the premises. Such assumptions are made
in form of forecasts, existing plans, past policies etc.
These planning premises are also of two types – internal and external. External assumptions deal
with factors such as political environment, social environment, advancement of technology,
competition, market environment, government policies etc. Internal assumptions deal with policies,
procedures, strategies, personnel, availability of resources, work environment, quality of
management, leadership etc. These assumptions being made should be uniform across the
organization. All managers should be aware of these premises and should agree with them.
4] Identifying Multiple Alternatives
The fourth step of the planning process is to identify the alternatives available to the managers.
There is no one way to achieve the objectives of the firm, there is a multitude of choices. All of
these alternative courses should be identified. There must be options available to the manager.
Maybe he chooses an innovative alternative hoping for more efficient results. If he does not want to
experiment, he will stick to the more routine course of action. The problem with this step is not
finding the alternatives but narrowing them down to a reasonable number of choices so all of them
can be thoroughly evaluated.
5] Examining Alternative Course of Action
The next step of the planning process is to evaluate and closely examine each of the alternative
plans. Every option will go through an examination where all their pros and cons will be weighed.
The alternative plans need to be evaluated in the light of the organizational objectives.
For example, if it is a financial plan. Then it that case its risk-return evaluation will be done.
Detailed calculation and analysis are done to ensure that the plan is capable of achieving the
objectives in the best and most efficient manner possible.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

45

6] Selecting the Right Alternative
Finally, we reach the decision-making stage of the planning process. Now the profitableand most
feasible plan will be chosen to be implemented in the organisation. The ideal plan is the most
profitable one with the least number of negative consequences and is also adaptable to dynamic
situations.
The choice is obviously based on scientific analysis and mathematical equations. But a manager’s
perception and experience should also play a big part in this decision. Sometimes a few different
aspects of different plans are combined to come up with the one ideal and effective plan.
7] Formulating Supporting or Secondary Plan
Once you have chosen the plan to be implemented, managers will have to come up with one or
more supporting plans. These secondary plans help with the implementation of the main plan. For
example, plans to hire more people, train personnel, expand the office etc are supporting plans for
the main plan of launching a new product. So, all these secondary plans are in fact part of the main
plan.
8] Implementation of the Effective Plan
And finally, we come to the final step of the planning process, implementation of the plan. This is
when all the other functions of management come into play and the plan is put into action to achieve
the objectives and goals of the organization. The tools required for such implementation involve the
types of plans- procedures, policies, budgets, rules, standards etc.
TYPES OF PLANNING
1. On the basis of Coverage of activities
i.) Corporate Planning: David has defined corporate planning as follows: "Corporate planning
includes the setting of objectives, organising the work, people, and systems to enable those

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

46

objectives to be attained, motivating through the planning process and through the plans,
measuring performance and so control- ling progress of the plan and developing people through
better decision making, clearer objectives, more involvement, and awareness of progress.The
term corporate planning denotes planning activities at the top level, also known as corporate
level, which cover the entire organisational activities. The basic focus of corporate planning is to
determine the long-term objectives of the organisation as a whole and then to generate plans to
achieve these objectives bearing in mind the probable changes in environment.
ii.) Functional Planning: As against corporate planning which is integrative, functional
planning is segmental and it is undertaken for each major function of the organisation like
production/operation, marketing, finance, human resource/personnel, etc. At the second level
functional planning is undertaken for sub functions within each major function. For example,
marketing planning is undertaken at the level of marketing department and to put marketing plan
in action, planning at sub functions of marketing like sales, sales promotion, marketing research,
etc., is undertaken. A basic feature of functional planning is that it is derived out of corporate
planning and, therefore, it should contribute to the latter.

2. On the basis of Importance of Contents
i.) Strategic Planning: Strategic planning sets the long-term direction of the organisation in
which it wants to proceed in future. Anthony has defined strategic planning as follows: "Strategic
planning is the process of deciding on objectives of the organisation, on changes on these
objectives, on the resources used to attain these objectives and on the policies that are to govern
the acquisition, use and disposition of these resources”. Examples of strategic planning in an
organisation may be planned growth rate in sales, diversification of business into new lines, type
of products to be offered, and so on.
ii.) Operational Planning: Operational planning, also known as tactical or short-term planning,
usually covers one year or so. It is aimed at sustaining the organisation in its production and
distribution of current products or services to the existing markets. Operational planning can be
defined as follows: "Operational planning is the process of deciding the most effective use of the

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

47

resources already allocated and to develop a control mechanism to assure effective
implementation of the actions so that organisational objectives are achieved. Operational
planning taken in this way answers the questions about a particular function as follows:
Operational planning is undertaken out of the strategic planning. The various examples of
operational planning may be adjustment of production within given capacity, increasing the
efficiency of operating activities through analysing past performance, budgeting future costs,
programming the comprehensive and specific details of future short-term operations, and so on.
3. On the basis of Time Period involved
i.) Long-term Planning: Long-term planning, is of strategic nature and, involves more than one-
year period extending to twenty years or so. However, more common long-term period is 3 to 5
years. The long-term plans usually encompass all the functional areas of the business and are
affected within the existing and long-term framework of economic, social and technological
factors. Long-term plans also involve the analysis of environmental factors, particularly with
respect to how the organisation relates to its competition and environment. Sometimes, basic
changes in organisation structure and activities become the real output of such plans. Examples
of such changes may be new product, product diversification, individuals in the organisation,
development of new markets, etc.
ii.) Short-term Planning: Short-term planning, also known as operational or tactical planning,
usually covers one year. These are aimed at sustaining organisation in its production and
distribution of current products or services to the existing markets. These plans directly affect
functional groups-production, marketing, finance, etc. Within its time dimension they pertinent
questions about a particular function as follows:
4. On the basis of Approach adopted
i.) Proactive Planning: Proactive planning involves designing suitable courses of action in
anticipation of likely changes in the relevant environment. Organisations that use proactive
planning use broad planning approaches, broad environmental scanning, decentralised control,
and reserve some resources to be utilised for their future use. These organisations do not wait for

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

48

environment to change but take actions in advance of environmental change. Most of the
successful organisations, generally, adopt proactive approach in planning. In India, companies
like Reliance Industries, Hindustan Lever, etc., have adopted this approach and their growth rate
has been much faster than others.
ii.) Reactive Planning: In reactive planning, organisations' responses come after the
environmental changes have taken place. After the changes take place, these organisations start
planning. In such a situation, the organisations lose opportunities to those organisations which
adopt proactive approach because, by the time, reactors are ready with their plans, the contextual
variables of planning show further changes. Therefore, their plans do not remain valid in the
changed situations. This approach of planning is useful in a environment which is fairly stable
over a long period of time.
5. On the basis of Formalisation
i.) Formal Planning: Formal planning is in the form of well-structured process involving
different steps. Generally, large organisations undertake planning in formal way in which they
create separate corporate planning cell placed at sufficiently high level in the organisation.
Generally, such cells are staffed by people with different backgrounds like engineers,
statisticians, MBAs, economists, etc., depending on the nature of organisation's business. These
cells monitor the external environment on continuous basis. When any event in the environment
shows some change, the cells go for the detailed study of the impact of the event and suggest
suitable measures to take the advantages of the changing environment. The planning process that
is adopted is rational, systematic, well-documented, and regular.
ii.)Informal Planning: As against formal planning, informal planning is undertaken, generally,
by smaller organisations. The planning process is based on managers' memory of events,
intuitions and gut-feelings rather than based on systematic evaluation of environmental
happenings. Usually, the corporate planning affairs are not entrusted to any single cell or
department but become the part of managers' regular activities. Since the environment for
smaller organisations is not complex, they do reasonably well with informal planning process.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

49

TECHNIQUES AND TOOLS FOR PLANNING
There are different analytical techniques at their disposal that companies use to prepare an
effective plan. Management wants a plan which incorporates market fluctuations, internal and
external trends, and competitors’ threats. Moreover, it should also achieve the goals with
minimum resources. The management planning techniques help in deciding the course of action
and assessing the effects of those actions on the business.
1. Forecasting
In the planning process, management has to make predictions about future events before they
actually occur. This prediction of future affairs is called forecasting. Forecasting is a systematic
process of calculating the probability of relevant future events. The estimation is based on the
interpretation of past and present events. However, the predictions are not 100% correct, and
there is a possibility of deviation from actual future events. Thus, past and present data help to
forecast because one cannot predict the future without knowing its past. Forecasting takes into
account the current trends, past performances, and anticipated changes in behaviour.
Long-term planning also involves forecasting political, social, and economic conditions.
Organizations need to predict their business operations, personnel needed, the budget required,
and other managerial operations. Though managers have done their part in forecasting, they
cannot relax completely. They must monitor and review the forecasts. Another critical point is to
reduce the guesswork and use analytical tools and techniques for accurate forecasts.
Forecasting is a vital planning technique in management as no plan is prepared without
anticipating future events. Therefore, you can consider forecasting the baseline of the planning
process.
 Predicts / Forecast future events and actions
 Devises the future course of action
 Consider past and present behaviours at different scenarios
 Valid to a certain extent

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

50

 Needs analytical and mathematical tools

2. SWOT analysis
SWOT is the abbreviation of strengths, weaknesses, opportunities, and threats. This analysis is a
mechanism to analyse a company’s competitive positive. It examines internal and external
factors and also determines current and future potential.
 Strengths: The strengths of a company describe what that company is good at. It also
describes what separates that organization from others. It could be anything like its
product quality, low prices, customer service, strong brand, hefty exports, special
features, long last usage, flexibility etc. A company should use its strengths to its benefit
and exploit them to their fullest. Because these strengths make your company and
products stand out from other and give individual identity in the market.
 Weaknesses: Weaknesses are the company’s weak points that stop the organization from
reaching its maximum potential and become hurdle achieve its objectives. Hence,
businesses need to improve those areas to be more successful. It can be high turnover,
lack of resources, high price, low quality, bad brand value etc.Strengths and weaknesses
are the companies inside factors, while opportunities and threats are external factors.
 Opportunities: Opportunities are external factors that a company can use for its benefit
and make its actions better. A business should use its strengths to make use of
opportunities. The best business organisation always utilises the opportunities by make
use of their strengths. For example, technological advancement, new potential markets, or
subsidies from the government are some great opportunities.
 Threats: Threats are those factors that can harm the production, sales, profitand overall
benefits of a company and it also affect performance of a business enterprise. Anything
capable of breaking a business growth and development is a threat. It can be a natural
calamity, increased taxes, economic slowdown, high competition, lack of demand
inflation, etc. They can also be referred to as obstacles that a business needs to overcome.

An organization should use this SWOT analysis in its planning process, so the business knows
where it stands. Also, this analysis can help you move forward, taking advantage of the strengths

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

51

and opportunities and reducing weaknesses and threats. Mostly Strength and Weakness are
internal factors of the organisation that they can manage easily with proper planning. But Threats
and Opportunities are totally beyond organisations control, it is purely external factors.

3. Scenario planning
Scenario planning is a mechanism in which different scenarios are built based on the projected
forecasts. Then management decides how they would act if a particular scenario arise in the
future.
A set of two to five scenarios is a good number. It enables the professionals to think in advance
about how they would react if the future unfolds a certain way. Hence, scenario planning helps
make a plan adaptable to external and internal changes. Planning meetings are held to brainstorm
and devise a plan. Therefore, businesses should make scenarios that incorporate market changes,
environmental events, supply-chain problems, shortage of capital, etc. So, when any such
scenario plays out in the future, the company already has a plan to respond effectively and
quickly.

Scenario planning helps avoid problems and creates more opportunities to manage the situations.
Management has to face all scenarios to determine the success of the plan. The following are the
major steps involved in the scenario planning. The following are the major steps involved in the
scenario planning.
 Brainstorm future situations and circumstances of business
 Identify key driving forces of business development
 Develop a suitable scenario
 Evaluate a scenario of business
 Make strategies for business

4. Benchmarking
Benchmarking is a procedure in which one company measures its success against companies in
the same field. The products, services, and processes are estimated compared to the leading

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

52

companies to determine any gap. Therefore, benchmarking identifies the performance gaps,
which are reduced by improving our performance. Benchmarking gives insight into how
organisation can improve the processes or products. It can identify areas of improvement by
setting the leading companies as a benchmark. Organisation may need minor improvements or
dramatic improvements depending on your performance.
If a company uses benchmarking as their planning technique, they have to figure out the leading
company against which they will measure their performance. After setting the benchmark, set
new and competitive goals. Goals have to be achievable; unrealistic goals demotivate the
employees.
Once you set realistic goals, collect all the information about how your competitors execute
processes. Then analyse the data and determine where your business is lacking. How can your
business reach to competitor’s level? But remember, no company is perfect, so keep your mind
open while analysing data. Take action to improve your performance and monitor and review the
plan for successful execution.
5. Contingency planning
Contingency planning can also be referred to as plan B. We usually associate contingency
planning with big disasters like earthquakes or floods. But contingency planning isn’t all about
major crises; it also deals with common workplace problems—for example, loss of data, website
server down, employee strike, etc.
As contingency planning deals with day-to-day problems of an organization, it is essential to
make it a part of your every plan. For this purpose, you must conduct a risk assessment because
every business poses a different risk.
First, you need to determine the most important procedures without which your company cannot
operate—for example, your internet connection, your supply chain, and so on. Then determine
the threats and the factors that can harm those important procedures—for example, technical

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

53

failure, loss of staff, etc. Once you have a list of threats, you need to figure out a contingency
plan for those threats. It would be unwise to prepare a contingency plan for all hazards, so you
got to prioritize. Contingency planning is a way to respond to risk. A good contingency plan
prevents your business from facing unexpected scenarios or threats.

************

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

54

CHAPTER- III: ORGANISING

MEANING
Organising or Organising in management refers to the relationship between people, work and
resources used to achieve the common objectives (goals). Organising is the process of defining
and grouping the activities of the enterprise and establishing the authority relationships among
them."
Organising refers to a process consisting of a series of steps to identify and group various
activities, collect or assemble various resources and establish authority relationships with
responsibility amongst job positions. It can be mentioned as collecting and utilizing human
and non-human resources to implement plans in a highly effective and efficient manner. It is
to achieve the overall plan of the organisation. In other words, it refers to the process of
arranging people to work together and accomplish a common goal. It is a process of
identifying activities to be performed, grouping these activities into work units, assembling
tasks for the various job positions, defining rules, and establishing the authority,
responsibility, and relationship amongst them.
DEFINITIONS
According to Louis Allen "Organising is the process of identifying and grouping the work to be
performed, defining and delegating responsibility and authority and establishing relationships for
the purpose of enabling people to work most effectively together in accomplishing objectives."
Organising is a process of defining and grouping the activities of the enterprise and
establishing the authority relationships among them. In performing the organising function, the
manager defines, departmentalizes, and assigns activities so that they can be most effectively
executed. -Theo Haimann
Mooney and Reiley “Organisation is the form of every human association for the attainment of
common purpose.”

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

55

NATURE OR CHARACTERISTICS OF ORGANISING

1. Process:
Organisation is a process of defining, arranging and grouping the activities of an enterprise and
establishing the authority relationships among the persons performing these activities. It is the
framework within which people associate for the attainment of an objective.The framework
provides the means for assigning activities to various parts and identifying the relative authorities
and responsibilities of those parts. In simple term, organisation is the process by which the chief
executive, as a leader, groups his men in order to get the work done.
2. Structure:
The function of organising is the creation of a structural framework of duties and responsibilities
to be performed by a group of people for the attainment of the objectives of the concern. The
organisation structure consists of a series of relationships at all levels of authority. An
organisation as a structure contains an “identifiable group of people contributing their efforts
towards the attainment of goals.” It is an important function of management to organise the
enterprise by grouping the activities necessary to carry out the plans into administrative units,
and defining the relationships among the executives and workers in such units.
3. Dividing and Grouping the Activities:
Organising means the way in which the parts of an enterprise are put into working order. In
doing such, it calls for the determination of parts and integration of one complete whole on the
other. In fact, organisation is a process of dividing and combining the activities of an enterprise.
Activities of an enterprise are required to be distributed between the departments, units or
sections as well as between the persons for securing the benefits of division of labour and
specialisation, and are to be integrated or combined for giving them a commonness of purpose.
L.Urwick defines organisation as: ‘determining what activities are necessary to any purpose and
arranging them as groups which may be assigned to individual.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

56

4. Accomplishment of Goals or Objectives:
An organisation structure has no meaning or purpose unless it is built around certain clear-cut
goals or objectives. In fact, an organisation structure is built-up precisely because it is the ideal
way of making a rational pursuit of objectives. Haney defines organisation as: “a harmonious
adjustment of specialised parts for the accomplishment of some common purpose or purposes”.

5. Authority-Responsibility Relationship:
An organisation structure consists of various positions arranged in a hierarchy with a clear
definition of the authority and responsibility associated with each of these. An enterprise cannot
serve the specific purposes or goals unless some positions are placed above others and given
authority to bind them by their decisions. In fact, organisation is quite often defined as a structure
of authority-responsibility relationships.
6. Human and Material Aspects:
Organisation deals with the human and material factors in business. Human element is the most
important element in an organisation. To accomplish the task of building up a sound
organisation, it is essential to prepare an outline of the organisation which is logical and simple.
The manager should then try to fit in suitable men. Henry Fayol says in this connection: “see that
human and material organisations are suitable” and “ensure material and human order”.

From these features of organisation, it emerges that, an organisation is essentially an
administrative ‘process’ of determining what activities are necessary to be performed for the
achievement of objectives of an enterprise, dividing and grouping the work into individual jobs
and, a ‘structure’ of positions arranged in a hierarchy with defined relationships of authority and
responsibility among the executives and workers performing these tasks for the most effective
pursuit of common goals of the enterprise.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

57

NEEDS [OR] IMPORTANCE OF ORGANISING
(1) Increase Managerial Efficiency: A good and balanced organization helps the managers to
increase their efficiency. Managers, through the medium of organization, make a proper
distribution of the whole work among different people according to their ability.
(2) Better Utilization of Resources: Through the medium of organization optimum utilization
of all the available human and material resources of an enterprise becomes possible. Work is
allotted to every individual according to his ability and capacity and conditions ant created to
enable him to utilize his ability to the maximum extent. For example, if an employee possesses
the knowledge of modem machinery but the modem machinery is not available in the
organization, in that case, efforts are made to make available the modem machinery.
(3) Sound Communication Possible: Communication is essential for taking the right decision at
the right time. However, the establishment of a good communication system is possible only
through an organization. In an organization the time of communication is decided so that all the
useful information reaches the officers concerned which in turn, helps the decision-making.
(4) Facilitates Coordination: In order to attain successfully the objectives of the organization,
coordination among various activities in the organization is essential. Organization is the only
medium which makes coordination possible. Under organization the division of work is made in
such a manner as to make all the activities complementary to each other increasing their
interdependence. Inter-dependence gives rise to the establishment of relations which, in turn,
increases coordination.
(5) Increase in Specialization: Under organization the whole work is divided into different
parts. Competent persons are appointed to handle all the sub-works and by handling a particular
work repeatedly they become specialists. This enables them to have maximum work
performance in the minimum time while the organization gets the benefit of specialization.
(6) Helpful in Expansion: A good organization helps the enterprise in facing competition. When
an enterprise starts making available good quality product at cheap rates, it increases the demand
for its products. In order to meet the increasing demand for its products an organization has to
expand its business. On the other hand, a good organization has an element of flexibility which
far from impeding the expansion work encourages it.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

58

TYPES OF ORGANISATIONS
There are two broad categories of organisation, which are:
1. Formal Organisation
2. Informal Organisation
1. Formal Organisation: Formal organisation is that type of organisation structure where the
authority and responsibility are clearly defined. The organisation structure has a defined
delegation of authority and roles and responsibilities for the members.
The formal organisation has predefined policies, rules, schedules, procedures and programs. The
decision-making activity in a formal organisation is mostly based on predefined policies.
Formal organisation structure is created by the management with the objective of attaining the
organisational goals. Again, the management builds the formal organisation. It ensures smooth
functioning of the enterprise as it defines the nature of interrelationships among the diverse job
positions. Additionally, these ensure that the organizational goals are collectively achieved. Also,
formal organisation facilitates coordination, interlinking and integration of the diverse departments
within an enterprise. Lastly, it lays more emphasis on the work to be done without stressing much on
interpersonal relationships.

Features of Formal organisation:
 The formal organisational structure is created intentionally by the process of organising.
 The purpose of formal organisation structure is achievement of organisational goal.
 In formal organisational structure each individual is assigned a specific job.
 In formal organisation every individual is assigned a fixed authority or decision-making
power.
 Formal organisational structure results in creation of superior-subordinate relations.
 Formal organisational structure creates a scalar chain of communication in the
organisation.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

59

Advantages of Formal Organisation:
 Systematic Working: Formal organisation structure results in systematic and smooth
functioning of an organisation.
 Achievement of Organisational Objectives: Formal organisational structure is
established to achieve organisational objectives.
 No Overlapping of Work: In formal organisation structure work is systematically
divided among various departments and employees. So there is no chance of duplication
or overlapping of work.
 Co-ordination: Formal organisational structure results in coordinating the activities of
various departments.
 Creation of Chain of Command: Formal organisational structure clearly defines
superior subordinate relationship, i.e., who reports to whom.
 More Emphasis on Work: Formal organisational structure lays more emphasis on work
than interpersonal relations.

Disadvantages of Formal Organisation:
 Delay in Action: While following scalar chain and chain of command actions get
delayed in formal structure.
 Ignores Social Needs of Employees: Formal organisational structure does not give
importance to psychological and social need of employees which may lead to
demotivation of employees.
 Emphasis on Work Only: Formal organisational structure gives importance to work
only; it ignores human relations, creativity, talents, etc.
2. Informal Organisation: Informal organisations are those types of organisations which do not
have a defined hierarchy of authority and responsibility. In such organisations, the relationship
between employees is formed based on common interests, preferences and prejudices.
Unlike formal organisation, informal organisation is fluid and there are no written or predefined
rules for it. Essentially, it is a complex web of social relationships among members which are born
spontaneously. Further, unlike the formal organisation, it cannot be forced or controlled by the
management.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

60

Also, the standards of behaviour evolve from group norms and not predefined rules and norms.
Lastly, as there are no defined structures or lines of communication, the interactions can be
completely random and independent lines of communication tend to emerge in informal
organisation.
Features of informal organisation:
 Informal organisational structure gets created automatically without any intended efforts
of managers.
 Informal organisational structure is formed by the employees to get psychological
satisfaction.
 Informal organisational structure does not follow any fixed path of flow of authority or
communication.
 Source of information cannot be known under informal structure as any person can
communicate with anyone in the organisation.
 The existence of informal organisational structure depends on the formal organisation
structure.
Advantages of Informal Organisation:
 Fast Communication: Informal structure does not follow scalar chain so there can be
faster spread of communication.
 Fulfils Social Needs: Informal communication gives due importance to psychological
and social need of employees which motivate the employees.
 Correct Feedback: Through informal structure the top level managers can know the real
feedback of employees on various policies and plans. Strategic Use of Informal
Organisation. Informal organisation can be used to get benefits in the formal organisation
in the following way:
The knowledge of informal group can be used to gather support of employees and
improve their performance.
Through grapevine important information can be transmitted quickly.
By cooperating with the informal groups, the managers can skilfully take the advantage
of both formal and informal organisations.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

61

Disadvantages of Informal organisation:
 Spread Rumours: According to a survey 70% of information spread through informal
organisational structure are rumours which may mislead the employees.
 No Systematic Working: Informal structure does not form a structure for smooth
working of an organisation.
 May Bring Negative Results: If informal organisation opposes the policies and changes
of management, then it becomes very difficult to implement them in organisation.
 More Emphasis to Individual Interest: Informal structure gives more importance to
satisfaction of individual interest as compared to organisational interest.
DISTINGUISH BETWEEN FORMAL AND INFORMAL ORGANISATION
S. NO. BASIS FORMAL
ORGANISATION
INFORMATION
ORGANISATION
1. Meaning A formal organization is
defined as an organization
that has set rules and
regulations to be followed
by the employees.
Informal organization is defined
as an organization that focuses
on building social relationships
and networks.
1. Aim The main aim of a formal
organization is to achieve
the long-term and short-
term goals of the
organization.
The main purpose of the
informal organization is to build
social networks and create a
positive work environment.
2. Structure The formal organization has
a hierarchical structure.
An informal organization does
not have a hierarchical structure.
3. Creation The formal organization is
created by the management.
Informal organization is created
spontaneously by the members.
The organization is made based
on personal interactions.
4. Priority Achievement of goal is the
priority of a formal
Fulfilling the psychological and
social needs of the employees is

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

62

organization. the priority of the informal
organization.
5. Stability A formal organization is
stable, i.e., it continues for a
long time.
An informal organization is
spontaneously made and is not
stable.
6. Communication Formal organization follows
official communication.
An informal organization has a
grapevine communication.
7. Controllability The employees are
controlled by rules,
regulations, and protocols.
The employees are controlled
by values, morals, norms, and
beliefs.
8. Focus In a formal organization, the
main focus is on work
performance.
In an informal organization, the
main focus is on building
interpersonal relationships.
9. Employee
relationship
There are different levels of
authority in a formal
organization. The
employees’ relationships are
bounded by the hierarchical
structure.
All the members relationships in
the informal organization are
equal.
10. Hierarchy Vertical hierarchy is seen in
a formal organization.
Lateral hierarchy is seen in an
informal organization.
11. Size The size of the formal
organization is large.
The size of an informal
organization is small.
12. Leadership The group leadership of a
formal organization is
explicit.
The group leadership of an
informal organization is
implicit.
13. Emphasis In a formal organization, the
emphasis is made on
efficiency, discipline,
consistency, etc.
In an informal organization, the
emphasis is made on
spontaneity, freedom, and
building relationships.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

63

ORGANISATION STRUCTURE
Organizational structure (OS) is the systematic arrangement of human resources in an
organization so as to achieve common business objectives. It outlines the roles and
responsibilities of every member of the organization so that work and information flow
seamlessly, ensuring the smooth functioning of an organization. The organizational
structure also determines how information flows from level to level within the company.
An organization structure is a framework that allots a particular space for a particular department
or an individual and shows its relationship to the other. An organization structure shows the
authority and responsibility relationships between the various positions in the organization by
showing who reports to whom. It is an established pattern of relationship among the components
of the organization.

Significance of Organization Structure
 Properly designed organization can help improve teamwork and productivity by
providing a framework within which the people can work together most effectively.
 Organization structure determines the location of decision-making in the organization.
 Sound organization structure stimulates creative thinking and initiative among
organizational members by providing well defined patterns of authority.
 A sound organization structure facilitates growth of enterprise by increasing its capacity
to handle increased level of authority.
 Organization structure provides the pattern of communication and coordination.
 The organization structure helps a member to know what his role is and how it relates to
other roles.

TYPES OF ORGANISATION STRUCTURE
There are various types of organisational structures that an organisation can adopt, each with
its advantages and characteristics. The six main types of organisation structure are given
below:

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

64

1. Line Organisation
Line organisation, also known as a scalar or military organisation, is the simplest and oldest
form of organisational structure. It is characterised by a clear and direct chain of command,
where authority flows vertically from top to bottom. Each employee has a single supervisor to
whom they report, creating a clear line of responsibility and accountability. Decision-making is
typically centralised at the top of the hierarchy, with limited delegation. This structure is
suitable for small organisations with a straightforward hierarchy, where decision-making needs
to be efficient and communication is direct. However, it can lead to delays in decision-making
as all decisions must pass through the hierarchy, and communication can be limited to the
immediate supervisor. No staff specialists are available in line organisation and all the persons
at the same level are independent of each other.
2. Functional Organisation
Functional organisation is a common structure where departments are organised based on
specialised functions or tasks. For example, there might be separate departments for marketing,
finance, operations, human resources, and so on. Each department is headed by a functional
manager who has expertise in that particular area. This structure allows for the efficient
utilisation of specialised skills and knowledge, as employees within each department can focus
on their areas of expertise. It also enables clear career paths within each function. Specialists
operate here with considerable independence. However, functional organisations can create
silos, where departments become inwardly focused, and communication and collaboration
between departments may be limited. Coordination across functions can also be challenging.
3. Line and Staff Organisation
In a line and staff organisation structure, line positions focus on core operations, while staff
positions provide specialised support and guidance. Staff roles, like human resources or legal,
offer expertise and advice to line managers. This structure balances operational responsibilities
with specialised support, enabling better decision-making and problem-solving. Specialists in
such organisations have advisory nature as they do not have the power of command over
subordinates in other departments. However, clarifying roles and coordination between line

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

65

and staff functions is important to avoid conflicts. This can also lead to confusion and can be
quite expensive for small firms.
4. Project Organisation
A project organisation is a temporary structure formed specifically for a particular project or
initiative. It is characterised by a project team that is assembled to achieve specific goals
within a defined timeframe. The project team is led by a project manager who has authority
over team members and resources. This structure allows for a dedicated and focused approach
to project management, with team members working together to accomplish project objectives.
It facilitates effective coordination, communication, and collaboration within the project team.
Once the project is completed, the team is disbanded. Project organisation is particularly useful
when organisations need to manage complex, time-limited projects that require cross-
functional collaboration and a dedicated team focus. In a Project organisation, unity of
command is followed.
5. Matrix Organisation
A hybrid grid structure wherein pure project organisation is superimposed on a functional
structure is known as Matrix Organisation. It combines elements of both functional and project
structures. It involves dual reporting lines, where employees have both a functional manager
and a project manager. The functional manager oversees employees’ functional
responsibilities, while the project manager manages their involvement in specific projects. This
structure allows for flexible resource allocation, as employees can be assigned to different
projects based on their skills and availability. There is always a permanent functional setup and
temporary cross-functional teams are created to handle short-term projects, which are
infrequent in nature.
It also promotes effective sharing of expertise and knowledge across projects and functional
areas. Communication is typically multi-directional, as employees interact with both their
functional and project managers. However, a matrix organisation can be complex to manage,

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

66

as employees have multiple reporting relationships, and conflicts can arise due to competing
priorities and demands from different managers.
6. Committee Organisation
The committee organisation structure distributes decision-making and authority across
committees or groups. These committees are formed to address specific areas or functions
within the organisation, bringing together individuals from different departments and levels.
Decisions are made collectively through discussions and consensus-building, ensuring diverse
perspectives and expertise are considered. The scope of its activities is limited and it cannot
handle problems assigned to it. According to Allen,” A committee is a body of persons
appointed or elected to meet on an organised basis for the consideration of matters brought
before it.” Committee organisation promotes collaboration and participation in decision-
making processes. It gives secure viewpoints and consultations of various persons in the
organisation.
ORGANIZATION CHART
An organizational chart, often referred to as an org chart, is a valuable management tool that
visually represents the hierarchical structure and relationships within an organization. It offers
a clear and organized depiction of roles, positions, and reporting lines. The primary purpose of
an organizational chart is to enhance understanding of the organization’s structure, including
levels of authority, communication channels, and functional divisions. Providing a visual
overview enables employees, managers, and stakeholders to grasp the interconnections
between different parts of the organization and identify who holds responsibility for specific
tasks and decisions.

Typically, an organizational chart employs boxes or rectangles to represent positions or job
titles, interconnected by lines that illustrate the reporting relationships. At the top of the chart,
the highest level of authority, such as the CEO or president, is positioned, followed by various
departments, teams, or divisions below. This hierarchical structure then extends downward,
with lower-level positions reporting to those at higher levels. The organizational chart serves

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

67

as an invaluable tool for promoting clarity, effective communication, and understanding of the
organizational structure, thereby facilitating smooth operations and decision-making within the
organization.

ORGANISATION CHART

TYPES OF ORGANISATION CHART
There are various types of organizational charts available to suit different organizational needs
and preferences. These chart types provide a visual representation of the structure and
relationships within an organization. Let’s explore some of the commonly used types:
1. Hierarchical or Traditional Organizational Chart: This is the classic and widely used
type of org chart. It represents the organization’s vertical hierarchy, showcasing positions
of authority at the top and lower-level positions below.
2. Matrix Organizational Chart: The matrix structure combines functional departments and
project teams. It displays both vertical reporting lines within departments and horizontal
reporting lines across projects, reflecting dual reporting relationships.
CEO
MANAGER
(PRODUCTION)
MANAGER
(HUMAN RESOURCE)
MANAGER
(SALES)

Plant
Supervisor
Accountant
Maintenance
Supervisor
Marketing
Supervisor
Distribution
Supervisor
Training
Specialist

Performance
Administrator

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

68

3. Flat Organizational Chart: Flat organizations have a decentralized approach with fewer
hierarchical levels. This chart type promotes collaboration, open communication, and a
more agile decision-making process.
4. Divisional Organizational Chart: Organizations with multiple divisions or business units
often utilize this chart. Each division is presented as a separate entity with its hierarchical
structure, allowing for focused management within each division while maintaining overall
coordination.
5. Team-based Organizational Chart: This chart highlights the importance of cross-
functional teams or self-managed teams. It illustrates the collaboration and
interdependencies among teams from different departments or functional areas.
6. Virtual Organizational Chart: With the increasing prevalence of remote work and virtual
teams, virtual org charts have gained relevance. These charts represent the structure and
connections of geographically dispersed or remote team members, enabling effective
collaboration despite physical distances.
ADVANTAGES OF ORGANIZATION CHART
1. Visual Clarity: One of the primary advantages of organizational charts is their ability to
present a clear and visually appealing representation of an organization’s structure. By
visually illustrating the relationships between positions, departments, and teams, org charts
help employees and stakeholders easily grasp the overall hierarchy and interconnections
within the organization.
2. Role Definition and Accountability: Organizational charts play a crucial role in defining
and communicating the roles and responsibilities of individuals within the organization. By
outlining reporting lines and position titles, org charts provide employees with a clear
understanding of their roles as well as those of their colleagues. This clarity enhances
accountability as individuals are aware of their specific responsibilities and who they are
accountable to.
3. Improved Communication and Collaboration: With their visual depiction of reporting
relationships, organizational charts facilitate efficient communication and collaboration.
Employees can quickly identify the appropriate channels for communication, ensuring

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

69

smooth information flow within the organization. Additionally, org charts help identify key
decision-makers, enabling effective coordination and collaboration among teams and
departments.
4. Adaptability and Growth: Organizational charts are valuable tools for managing
organizational growth and change. As organizations evolve, the charts can be easily
updated and modified to reflect new positions, departments, or reporting relationships. This
adaptability ensures that the org chart remains an accurate representation of the
organization’s structure, supporting smooth transitions and accommodating growth.
5. Empowered Decision-Making and Delegation: Clear decision-making authority is a
significant advantage provided by organizational charts. By visually representing authority
levels, org charts help employees understand who has decision-making power at each level
of the organization. This clarity promotes efficient decision-making by ensuring that
decisions are made by the appropriate individuals or teams. Additionally, org charts aid in
delegation by providing a framework for assigning tasks and empowering employees
within the established structure.
6. Talent Management and Succession Planning: Organizational charts play a vital role in
talent management and succession planning. By visually mapping the hierarchy, leaders
can identify potential successors for key positions. This enables organizations to develop
and groom employees for future leadership roles, ensuring a smooth transition of
responsibilities. Org charts also help identify talent gaps, allowing organizations to
proactively address skill development and recruitment strategies.

LIMITATIONS OF ORGANIS ATION CHART
1. Simplification of Complexity: Organizational charts provide a simplified representation of
complex organizational structures. They may not capture the intricate informal networks,
cross-functional collaborations, and dynamic nature of relationships within the
organization. It’s important to recognize that the chart’s static nature might overlook
important informal lines of communication and relationships that play a significant role in
decision-making and problem-solving.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

70

2. Lack of Contextual Information: Organizational charts primarily focus on the formal
structure and reporting relationships, often neglecting the broader context in which the
organization operates. Factors such as organizational culture, power dynamics, and
informal hierarchies are not adequately reflected in the chart. This limitation can hinder a
comprehensive understanding of how the organization functions and how decisions are
made.
3. Incomplete Representation of Roles: Org charts may not fully capture the diverse
responsibilities and duties associated with each position. Job roles can vary significantly
within the same title, and an org chart might not provide a comprehensive understanding of
the tasks and functions performed by individuals or teams. It is important to supplement the
org chart with detailed job descriptions to avoid confusion and misinterpretation of roles
within the organization.
4. Complexity of Representing Large Organizations: For large organizations or those with
complex structures, accurately representing the intricacies of reporting lines, divisions, and
teams in a single org chart can be challenging. The chart may become cluttered and
difficult to interpret, diminishing its usefulness as a communication and reference tool.
5. Lack of Flexibility and Timeliness: Organizational charts are often static and may not
keep up with the rapid changes that organizations undergo. Restructuring, mergers, or
evolving roles can quickly render the org chart outdated, reducing its relevance and
reliability as a representation of the current organization. Regular updates and a clear
communication process for changes are necessary to address this limitation.
6. Perception of Rigidity: Employees may view organizational charts as rigid hierarchies
that discourage creativity, collaboration, and flexibility. This perception can hinder
innovation, teamwork, and cross-functional initiatives, as individuals may feel constrained
by their designated roles and hesitant to communicate with colleagues outside their
immediate reporting lines.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

71

FACTORS AFFECTING ORGANISATIONAL CHART
1. Environment: An organisation is a system, which operates within a broader framework of
an environment. Though the periphery between the organisation and its environment cannot
be exact and definite, for all practical purposes, such boundary can be identified. The
organisation interacts incessantly with its environment. It is influenced by the environment
and in turn it influences the environment. In this interaction, the environment determines the
various organisational processes including its structure. The environmental system concept
regards the organisation as a part of the environment- the environmental system.
2. Strategy: An organisation’s strategy and its structure are closely intertwined. The
understanding of this relationship is important so that in implementing the strategy, the
organisation structure is planned according to the requirements of the strategy. The
relationship between strategy and structure can be thought in terms of utilising structure for
strategy implementation because structure is a means to an end and not an end in itself.
3. Technology: Technology is another factor affecting organisation structure. Though
technology is one of the components of organisational environment, it should be studied
separately because technology directly affects the task structure. Before analysing the impact
of technology on the organisational functioning, it is imperative to understand the nature of
technology as relevant to the organisations.
4. Size: The subject of organisational size has been a compelling one in organisational
analysis, though most organisation theorists have hardly envisaged size as an important
factor. This is so since there are diverse research findings on the relationship between an
organisation’s size and its structure. Theoretical proposition suggests that size of an
organisation influences its coordination, direction, control and reporting systems and, hence,
the organisation structure. When an organisation is small, interaction is confined to a
relatively small group, communication is simpler, less information is required for decision-
making and there is less need for formal structure.
5. People: The organisational structure is the result of conscious actions on the part of people
engaged in the organisation. As such, the form of organisation structure is expected to reflect
the thinking and way of working of its framers and participants. Thus, to arrive at appropriate
structure, the forces in people may be analysed. Such analysis may be in two ways: people in
superior capacity and people in subordinate capacity.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

72

CHAPTER- IV: DEPARTMENTALISATION

DEPARTMENTALISATION

‘Departmentation’ or ‘Departmentalisation’ is the process of grouping the activities of an
enterprise into several units for the purpose of administration at all levels.
Departmentalisation or Departmentation is a process wherein jobs/teams are combined together
into functional units called as departments on the basis of their area of specialization, to achieve
the goals of the organization. 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 of similar
nature.
It determines the functions/activities which are to be housed together and coordinated at the same
place. Further, it groups the personnel, who will undertake the delegated functions/tasks. The
top-level executives, groups activities in various departments, such as production, marketing,
finance, human resource, research and development, etc. These departments are headed by senior
executives, called as managers of the respective department. The departmental managers can
delegate tasks and duties to the subordinates, and they are accountable to the chief executive for
the performance of the department.
Objectives of Departmentalisation
 To specialize activities.
 To simplify the process and operations of the organization
 To maintain control
Departmentalisation of activities results in the increase in efficiency of the management and
ultimately the enterprise. It is helpful in fixing responsibilities and accountability.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

73

Processes of Departmentalisation
Departmentation is done through the following processes:
 Identification of tasks or duties.
 Analysis of details of each task.
 Description of the functions.
 Entrusting the groups of functions to separate specialist heads and providing them
with suitable staff.
 Delineation of scope of authority and responsibility of departmental heads.

NEED AND IMPORTANCE OF DEPARTMENTALISATION
The basic need for departmentation is to make the size of each departmental unit manageable and
secure the advantages of specialisation. Grouping of activities and, consequently, of personnel,
into departments makes it possible to expand an enterprise to any extent.
1. Advantages of Specialisation:
Departmentation enables an enterprise to avail of the benefits of specialisation. When every
department looks after one major function, the enterprise is developed and efficiency of
operations is increased.
2. Feeling of Autonomy:
Normally departments are created in the enterprise with certain degree of autonomy and
freedom. The manager in charge of a department can take independent decisions within the
overall framework of the organisation. The feeling of autonomy provides job satisfaction and
motivation which lead to higher efficiency of operations.
3. Expansion:
One manager can supervise and direct only a few subordinates. Grouping of activities and
personnel into departmentation makes it possible for the enterprise to expand and grow.
4. Fixation of Responsibility:

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

74

Departmentation enables each person to know the specific role he is to play in the total
organisation. The responsibility for results can be defined more clearly, precisely and accurately
and an individual can be held accountable for the performance of his responsibility.
5. Upliftment of Managerial Skill:
Departmentation helps in the development of managerial skill. Development is possible due to
two factors. Firstly, the managers focus their attention on some specific problems which provide
them effective on-the-job training. Secondly, managerial need for further training can be
identified easily because the managers’ role is prescribed and training can provide them
opportunity to work better in their area of specialisation.
6. Facility in Appraisal:
Appraisal of managerial performance becomes easier when specific tasks are assigned to
departmental personnel. Managerial performance can be measured when the areas of activities
are specified and the standards of performance are fixed. Departmentation provides help in both
these areas.
When a broader function is divided into small segments and a particular segment is assigned to
each manager, the area to be appraised is clearly known; and the factors affecting the
performance can be pointed out more easily. Thus, performance appraisal becomes more
effective.
7. Administrative Control:
Departmentation is a means of dividing the large and complex organisation into small
administrative units. Grouping of activities and personnel into manageable units facilitates
administrative control. Standards of performance for each and every department can be precisely
determined.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

75

TYPES OF DEPARTMENTALISATION
(A) Departmentation by Functions
The enterprise may be divided into departments on the basis of functions like production,
purchasing, sales, financing, personnel etc. This is the most popular basis of departmentation. If
necessary, a major function may be divided into sub-functions. For example, the activities in the
production department may be classified into quality control, processing of materials, and repairs
and maintenance.

DEPARTMENT BY FUNCTION

Advantages

 It is the most logical and natural form of departmentation.
 It ensures the performance of all activities necessary for achieving the organisational
objectives.
 It provides occupational specialisation which makes optimum utilisation of manpower.
 It facilitates delegation of authority.
CEO
MANAGER
(MANUFACTURING)
MANAGER
(ACCOUNTS & FINANCE)
MANAGER
(SALES)

Purchase
Supervisor
Production
Supervisor
Marketing
Supervisor
Distribution
Supervisor
Accounts
Head
Finance
Head

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

76

 It enables the top managers to exercise effective control over a limited number of
functions.
 It eliminates duplication of activities.
 It simplifies training because the managers are experts only in a narrow range of skills.

Disadvantages:
 There may be conflicts between departments.
 The scope for management development is limited. Functional managers do not get
training for top management positions. The responsibility for results cannot be fixed on
any one functional head.
 There is too much emphasis on specialization.
 There may be difficulties in coordinating the activities of different departments.
 There may be inflexibility and complexity of operations.

(B) Departmentation by Products
In product departmentation, every major product is organized as a separate department. Each
department looks after the production, sales and financing of one product. Product
departmentation is useful when the expansion, diversification, manufacturing and marketing
characteristics of each product are primarily significant. In fact, many large companies are
diversifying in different fields and they prefer product departmentation.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

77

DEPARTMENT BY PRODUCTS

Advantages:
 Product departmentation focuses individual attention to each product line which
facilitates the expansion and diversification of the products.
 It ensures full use of specialized production facilities. Personal skill and specialized
knowledge of the production managers can be fully utilized.
 The production managers can be held accountable for the profitability of each product.
Each product division is semi-autonomous and contains different functions. So, product
departmentation provides an excellent training facility for the top managers.
 The performance of each product division and its contribution to total results can be
easily evaluated.
 It is more flexible and adaptable to change.

Disadvantages
 It creates the problem of effective control over the product divisions by the top managers.
 Each production manager asserts his autonomy disregarding the interests of the
organisation.
GENERAL MANAGER
ELECTRONICS AND MOBILES GROCERIES AND NUTRITIONS HOME APPLIANCES
Production
Department
HR
Department
Finance &
Accounts
Department
Sales
Department

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

78

 The advantages of CENTRALISATION of certain activities like financing, and
accounting are not available.
 There is duplication of physical facilities and functions. Each product division maintains
its own specialized personnel due to which operating costs may be high.
 There may be under-utilization of plant capacity when the demand for a particular
product is not adequate.

(C) Departmentation by Territory or Area
Territorial or geographical departmentation is especially useful to large -scale enterprises whose
activities are widely dispersed. Banks, insurance companies, transport companies, distribution
agencies etc, are some examples of such enterprises, where all the activities of a given area of
operations are grouped into zones, branches, divisions etc. It is obviously not possible for one
functional manager to manage efficiently such widely spread activities. This makes it necessary
to appoint regional managers for different regions.

DEPARTMENT BY TERRITORY (OR) AREA

Advantages
 Every regional manager can specialize himself in the peculiar problems of his region.
 It facilitates the expansion of business to various regions.
GENERAL MANAGER
Manager –
South Zone
Manager –
West Zone
Manager –
East Zone
Manager –
North Zone

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

79

 It helps in achieving the benefits of local operations. The local managers are more
familiar with the local customs, preferences, styles, fashion, etc. The enterprise can gain
intimate knowledge of the conditions in the local markets.
 It results in savings in freight, rents, and labour costs. It also saves time.
 There is better co-ordination of activities in a locality through setting up regional
divisions.
 It provides adequate autonomy to each regional manager and opportunity to train him as
he looks after the entire operation of a unit.

Disadvantages
 There is the problem of communication.
 It requires more managers with general managerial abilities. Such managers may not be
always available.
 There may be conflict between the regional managers.
 Co-ordination and control of different branches from the head office become less
effective.
 Owing to duplication of physical facilities, costs of operation are usually high.
 There is multiplication of personnel, accounting and other services at the regional level.

(D) Departmentation by Customers

In such method of departmentation, the activities are grouped according to the type of customers.
For example, a large cloth store may be divided into wholesale, retail, and export divisions. This
type of departmentation is useful for the enterprises which sell a product or service to a number
of clearly defined customer groups. For instance, a large readymade garment store may have a
separate department each for men, women, and children. A bank may have separate loan
departments for large-scale and small- scale businessmen.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

80

DEPARTMENT BY CUSTOMERS

Advan

Advantages
 Special attention can be given to the particular tastes and preferences of each type of
customer.
 Different types of customers can be satisfied, easily through specialized staff. Customers’
satisfaction enhances the goodwill and sale of the enterprise.
 The benefits of specialization can be gained.
 The enterprise may acquire intimate knowledge of the needs of each category of
customers.

Disadvantages:
 Co-ordination between sales and other functions becomes difficult because this method
can be followed only in marketing division.
 There may be under-utilization of facilities and manpower in some departments,
particularly during the period of low demand.
 It may lead to duplication of activities and heavy overheads,
 The managers of customer departments may put pressures for special benefits and
facilities.

GENERAL MANAGER

Manager –
Women Garments
Manager –
Teenage Garments
Manager –
Children Garments
Manager –
Men Garments

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

81

(E) Departmentation by Process or Equipment

In such type or departmentation the activities are grouped on the basis of production processes
involved or equipment used. This is generally used in manufacturing and distribution enterprises
and at lower levels of organisation. For instance, a textile mill may be organised into ginning,
spinning, weaving, dyeing and finishing departments. Similarly, a printing press may have
composing, proof reading, printing and binding departments. Such departmentation may also be
employed in engineering and oil industries.

DEPARTMENT BY PROCESS OR EQUIPMENT

Advantages:
 The basic object of such departmentation is to achieve efficiency and economy of
operations. Efficiency can be achieved if departments are created for each process as each
one has its peculiarities.
 It provides the advantages of specialization required at each level of the total processes.
 The maintenance of plant can be done in better way and manpower can be utilized
effectively.
Disadvantages
 There may be difficulty in coordinating the different process- departments, because the
work of each process depends fully on the preceding process.
 It cannot be used where manufacturing activity does not involve distinct processes.
GENERAL MANAGER
Manager – Proof Reading Manager - Binding Manager - Printing

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

82

(F) Departmentation by Time and Numbers
Under this method of departmentation the activities are grouped on the basis of the time of their
performance. For instance, a factory operating 24 hours may have three departments for three
shifts—one for the morning, the second for the day, and the third for the night.
In the case of departmentation by numbers, the activities are grouped on the basis of their
performance by a certain number of persons. Such type of departmentation is useful where the
work is repetitive, manpower is an important factor, group efforts are more significant than
individual efforts, and group performance can be measured. It is used at the lowest level of
organisation.

DEPARTMENT BY TIME

FACTORS TO BE CONSIDERED IN DEPARTMENTATION:
A suitable basis of departmentation is one which facilitates the performance of organisational
functions efficiently and effectively so that the objectives of the organisation are achieved. Since
each basis is suitable to a particular type of organisation, often a combination of various basis is
adopted. So, the determination of suitability of departmentation basis should be considered in the
light of various principles or factors affecting the functioning of an organisation.
1. Specialisation:
The activities of an organisation should be grouped in such a way that it leads to specialisation of
work. Specialisation helps to improve efficiency and ensure economy of operations. It enables
the personnel to become experts.
GENERAL MANAGER
Manager – Morning Shift Manager –Night Shift Manager –Evening Shift

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

83

2. Co-ordination:
Quite different activities may be grouped together under one executive because they need to be
co-ordinated. So, the basis of departmentation should ensure that the dissimilar activities are put
together in one department.
3. Control:
Departmentation should be such that it facilitates the measurement of performance and adoption
of timely corrective action. It should enable the managers to hold the employees accountable for
results. Effective control helps to achieve organisational objectives economically and efficiently.
4. Proper Attention:
All the activities which contribute to the achievement of subordinate results should be given
adequate attention. This will ensure that all necessary activities are performed and there is no
unnecessary duplication of activities. Key areas should be given special attention.
5. Economy:
Creation of departments involves extra cost of additional space, equipment and personnel. So,
the pattern and number of departments should be so decided that maximum possible economy is
achieved in the utilisation of physical facilities and personnel.
6. Local Condition:
While forming departments adequate attention to the local conditions should be given. This is
more important to the organisation which operates in different geographical areas.
Departmentation should be adjusted according to the available resources. It should aim at full
utilisation of resources.
7. Human Consideration:
Departmentation should also consider the human aspect in the organisation. So, along with the
technical factors discussed above, departments should be created on the basis of availability of
personnel, their attitude, aspiration and value systems, informal work groups, cultural patterns,
etc. Due attention to the human factors will make departmentation more effective and more
efficient.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

84

CHAPTER – V : AUTHORITY & RESPONSIBILITY AND CENTRALISATION &
DECENTRALISATION
AUTHORITY
Authority is defined as the right to give orders, supervise the work of others & make certain
decisions. It is linked with the managerial position to give orders & expect to follow the orders.
The authority was delegated from top to bottom of the organizational hierarchy. Every manager
possessed some Types of Authority according to his designated position. It is related to a specific
position a person holds and his personal characteristics are ignored against his authority, even if
a position becomes vacant in the organization, but still it remains attached to that position.
Authority is the right to give commands, orders and get the things done. The top level
management has greatest authority.

PROCESS OF DELEGATION OF AUTHORITY
1. Allocation of duties – The delegator first tries to define the task and duties to the subordinate.
He also has to define the result expected from the subordinates. Clarity of duty as well as result
expected has to be the first step in delegation.
2. Granting of authority – Subdivision of authority takes place when a superior divides and
shares his authority with the subordinate. It is for this reason; every subordinate should be given
enough independence to carry the task given to him by his superiors. The managers at all levels
delegate authority and power which is attached to their job positions. The subdivision of powers
is very important to get effective results.
3. Assigning of Responsibility and Accountability – The delegation process does not end once
powers are granted to the subordinates. They at the same time have to be obligatory towards the
duties assigned to them. Responsibility is said to be the factor or obligation of an individual to
carry out his duties in best of his ability as per the directions of superior. Therefore, it is that
which gives effectiveness to authority. At the same time, responsibility is absolute and cannot be
shifted.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

85

4. Creation of accountability – Accountability, on the others hand, is the obligation of the
individual to carry out his duties as per the standards of performance. Therefore, it is said that
authority is delegated, responsibility is created and accountability is imposed. Accountability
arises out of responsibility and responsibility arises out of authority. Therefore, it becomes
important that with every authority position an equal and opposite responsibility should be
attached. Therefore every manager, i.e., the delegator has to follow a system to finish up the
delegation process. Equally important is the delegate’s role which means his responsibility and
accountability is attached with the authority over to here.

TYPES OF AUTHORITY IN MANAGEMENT
1. Line Authority: The work of an employee is directed with the help of line authority. It
takes the form of employer-employee relationship that moves from top to bottom. Certain
decisions are made by the line manager without consulting any other person. In some
cases line managers are differentiated from the staff managers by using the word “line”.
The manager whose functions are linked directly with the achievement of organizational
objectives is called line manager in simpler terms.
2. Staff Authority: Staff authority is possessed by the staff managers. The objectives of the
organization determine the line & staff nature of the functions of any manager. When the size of
organization becomes larger & larger, the line mangers feel that they cannot complete their jobs
by the existing skills, experience & knowledge which are not updated accordingly. Therefore
staff authority is generated for the staff whose main purpose is to assist, support, advice &
decrease the work burden of the line managers.
3. Functional Authority: Functional authority that is also known as functional control, and
is included in the area of line & staff aspects of HRM as it is the special authority that is
exercised by the personnel manager in coordinating the personnel activities. The HR manager
here performs his functions as right arm of the supreme executive.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

86

RESPONSIBILITY
Responsibility is the duty of the person to complete the task assigned to him. A person who is
given the responsibility should ensure that he accomplishes the tasks assigned to him. If the tasks
for which he was held responsible are not completed, then he should not give explanations or
excuses. Responsibility without adequate authority leads to discontent and dissatisfaction among
the person. Responsibility flows from bottom to top. The middle level and lower level
management holds more responsibility. The person held responsible for a job is answerable for
it. If he performs the tasks assigned as expected, he is bound for praises. While if he doesn’t
accomplish tasks assigned as expected, then also he is answerable for that. Responsibility refers
to an obligation to do something.
Definition:
“Responsibility is the obligation of a subordinate to carry out the duties assigned to him.”—
Knootz and O’Donnel
“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 person who performs any kind of mental or physical effort
as an assigned task has responsibility. —Allen
“Responsibility is the obligation to carry out assigned activities to the best of his abilities.” —
George Terry
Features of Responsibility:
The following are the characteristics or features of responsibility:
(i) Responsibility comes from superior-subordinate relationship.
(ii) It always flows upward from juniors to seniors.
(iii) It arises from duty assigned.
(iv) It cannot be delegated.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

87

(v) It is the obligation to complete the job as per instructions. Responsibility may be continuing
obligation or it may be discharged by accomplishing single task. Responsibility is a personal
attribute. No person can shift his responsibility by delegating his authority to others.
Whether an individual exercises the authority himself or gets it exercised through others, he
remains responsible to his own superior for proper performance. Thus, responsibility is absolute
and can never be delegated or shifted to others.
CENTRALISATION
CENTRALISATION refers to the process in which activities involving planning and decision-
making within an organization. In a centralized organization, the decision-making powers are
retained in the head office, and all other offices receive commands from the main office.
CENTRALISATION refers to that organizational structure where decision-making power is
confined to the top management, and the subordinates need to follow the instructions of their
seniors. CENTRALISATION of authority is essential for the small-scale organizations which
lack resources and finance.

CENTRALISATION is said to be a process where the concentration of decision making is in a
few hands. All the important decision and actions at the lower level, all subjects and actions at
the lower level are subject to the approval of top management.

According to Allen, “CENTRALISATION” is the systematic and consistent reservation of
authority at central points in the organization.

FACTORS DETERMINING CENTRALISATION OF AUTHORITY
1. Nature of Organization: When the organization is generally a sole proprietorship or
partnership entity with less number of employees to be managed, it can have a centralized
system.
2. Size of the Organization: The organization which are small in size and operating on a
small scale can be efficiently managed by the top management hence following a
centralized system.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

88

3. Nature of Task: The organizations engaged in business operations which does not
require much expertise or specialization, can be managed through CENTRALISATION.
4. Delegation Ability: The capability of the management to delegate the responsibilities to
the subordinates while keeping the charge in their hand is another factor determining the
organizational structure.
5. Employee’s Efficiency: If the employees lack skills and efficiency to take up the
responsibility and accountability of the work to be performed, the management will go
for CENTRALISATION of the organization.

ADVANTAGES OF CENTRALISATION
1. Cost Efficient: The management need not spend much on the office and administrative
expenses in a centralized organization. Even the cost of hiring experts and highly
experienced personnel at each level is saved due to the centralized decision-making
process.
2. Better Command: The management can hold a better command over the subordinates
and the subordinates also clearly know whom to follow. There is proper control over the
subordinate actions, and the management is well aware of the strengths and weaknesses
of the subordinates.
3. Enhances Work Quality: The subordinates are answerable directly to the top
management, and therefore they continuously aim at improving the work quality. It also
leads to standardization of the process and reduces the wastage.
4. Uniformity in Action: When the control lies in the hands of few, the methods and
techniques used are usually the same throughout all the levels and departments, thus
encouraging the subordinates to perform uniformly.
5. Focus on Vision: The top management clearly defines and better understand the
organizational vision. Therefore, it aligns all the resources, subordinates, activities and
strategies towards the achievement of the vision.
6. Proper Coordination: The top management frames a uniform policy for subordinates at
different levels, integrate their course of action and ensures coordination among all the
subordinates.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

89

DISADVANTAGES OF CENTRALISATION
1. Slows Down Operations: The top management directs the day-to-day operations, and
the subordinates have to report directly to the senior management. At times when there is
no managerial staff, the subordinates are unable to take immediate decisions. Thus,
resulting in slowing down of business operations.
2. Delays Decision Making: In CENTRALISATION, the decision-making process slows
down since all the decisions are to be taken by the top management. It is not suitable for
handling emergencies or unexpected circumstances.
3. Reduces Scope for Specialization: A person cannot specialize in all the activities alone.
Therefore, in a centralized structure where all decisions are taken by the top management,
the organization lacks specialized supervision and management.
4. Discourages Initiative: The subordinates are given instructions which they need to
follow without questioning the decisions of the top management. In
CENTRALISATION, the subordinates are intimidated from giving their input or
suggestions.
5. Lacks Adaptability to Change: The centralized organization runs in a conventional
manner where the top management is somewhat rigid with its policies, methods and
techniques. Thus, it creates a barrier to adopting modern and improved practices for
organizational growth.
6. Overburden on Top Management: All the planning and decision-making work is done
at the topmost level of management; they control even the day-to-day operations. Due to
this reason, management becomes overburdened and is unable to concentrate on business
expansion and growth.
7. Bureaucratic Leadership: CENTRALISATION can be seen as a dictatorship by some,
where the top management plans every course of action and the subordinates follow the
instructions. Problem-solving becomes quite difficult in such circumstances since the
decision-maker, and the implementer is two different individuals.
8. Poor Upward Communication: The subordinates are supposed to follow instructions
while the least attention is paid towards their suggestions and feedback. All this hinders
the upward communication in the organization.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

90

DECENTRALISATION
DECENTRALISATION refers to a specific form of organizational structure where the top
management delegates decision-making responsibilities and daily operations to middle and lower
subordinates. The top management can thus concentrate on taking major decisions with greater
time abundance.
In a decentralized organization, lower-level managers are given decision-making authority and
the power to run their own departments. DECENTRALISATION includes better, more timely
decisions and increased motivation. Decentralisation implies the dispersal of decision-making
power at lower levels of management. When the power to take decisions and formulate policies
does not lie with one person at the top but is passed on to different persons at various levels, it
will be a case of decentralisation.
“Decentralisation refers to tire systematic effort to delegate to the lowest levels all authority
except that which can only be exercised at central points.” —Louis A. Allen
“Decentralisation means the division of a group of functions and activities into relatively
autonomous units with overall authority and responsibility for their operation delegate to time of
cacti unit.’—Earl. P. Strong

IMPORTANCE OF DECENTRALISATION
1. Rapid decision making – Most of the decisions are taken on the spot, and approval from the
higher authority is not required. The ability to make a prompt decision allows an organisation to
function its operation quickly and effectively.
2. Administrative development – The decentralisation process questions the manager’s
judgement and techniques, when responsibility and challenges to develop solutions are given to
them. This questioning method grows confidence, encourages self-reliance, and make them a
good decision-maker resulting in the development of the organisation.
3. Development of executive skills – It allows the employee to perform task individually, giving
them invaluable exposure. This individual performance creates an environment where an
individual can enhance their expertise, take ownership & more significant responsibilities, and be
suitable for promotion.
4. Promotes growth – Decentralisation also allows the heads of the department to work
independently. This independence helps the department to grow, have a healthy competition

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

91

between other departments. Ultimately, the competition will lead to an improvement and
enhancement in productivity.
5. Higher control – It also evaluates and reviews the performances of each department and gives
them a comprehensive perspective of their work. However, controlling is the biggest challenge
of decentralisation and stabilised management and scorecard are being developed.

ADVANTAGES OF DECENTRALISATION:

1. Reduces the burden on top executives:
DECENTRALISATION relieves the top executives of the burden of performing various
functions. CENTRALISATION of authority puts the whole responsibility on the shoulders of an
executive and his immediate group. This reduces the time at the disposal of top executives who
should concentrate on other important managerial functions. So, the only way to lessen their
burden is to decentralize the decision-making power to the subordinates.
2. Facilitates diversification:
Under DECENTRALISATION, the diversification of products, activities and markets etc., is
facilitated. A centralized enterprise with the concentration of authority at the top will find it
difficult and complex to diversify its activities and start the additional lines of manufacture or
distribution.
3. To provide product and market emphasis:
A product loses its market when new products appear in the market on account of innovations or
changes in the customers demand. In such cases authority is decentralized to the regional units to
render instant service taking into account the price, quality, delivery, novelty, etc.
4. Executive Development:
When the authority is decentralised, executives in the organisation will get the opportunity to
develop their talents by taking initiative which will also make them ready for managerial
positions. The growth of the company greatly depends on the talented executives.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

92

5. It promotes motivation:
To quote Louis A. Allen, “Decentralisation stimulates the formation of small cohesive groups.
Since local managers are given a large degree of authority and local autonomy, they tend to weld
their people into closely knit integrated groups.” This improves the morale of employees as they
get involved in decision-making process.
6. Better control and supervision:
Decentralisation ensures better control and supervision as the subordinates at the lowest levels
will have the authority to make independent decisions. As a result, they have thorough
knowledge of every assignment under their control and are in a position to make amendments
and take corrective action.
7. Quick Decision-Making:
Decentralisation brings decision making process closer to the scene of action. This leads to
quicker decision-making of lower level since decisions do not have to be referred up through the
hierarchy.
DISADVANTAGES OF DECENTRALISATION:

1. Uniform policies not Followed:
Under decentralisation, it is not possible* to follow uniform policies and standardised
procedures. Each manager will work and frame policies according to his talent.
2. Problem of Co-Ordination:
Decentralisation of authority creates problems of co-ordination as authority lies dispersed widely
throughout the organisation.
3. More Financial Burden:
Decentralisation requires the employment of trained personnel to accept authority, it involves
more financial burden and a small enterprise cannot afford to appoint experts in various fields.
4. Require Qualified Personnel:
Decentralisation becomes useless when there are no qualified and competent personnel.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

93

5. Conflict:
Decentralisation puts more pressure on divisional heads to realize profits at any cost. Often in
meeting their new profit plans, bring conflicts among managers
DIFFERENCE BETWEEN CENTRALISATION AND DECENTRALISATION
S. No. Centralisation Decentralisation
1. The unification of powers and
authorities, in the hands of high-level
management, is known as
CENTRALISATION.
DECENTRALISATION means
dispersal of powers and authorities by
the top level to the functional level
management.

2. CENTRALISATION is the systematic
and consistent concentration of
authority at central points.
Unlike, DECENTRALISATION is the
systematic delegation of authority in an
organization.
3. CENTRALISATION is best for a small
sized organization
Large sized organization should
practice DECENTRALISATION.
4. Formal communication exists in the
centralized organization. Conversely
In DE CENTRALISATION,
communication stretches in all
directions.
5. In CENTRALISATION due to the
concentration of powers in the hands of
a single person, the decision takes time.
On the contrary,
DECENTRALISATION proves better
regarding decision making as the
decisions are taken much closer to the
actions.
6. There are full leadership and
coordination in CENTRALISATION.
DECENTRALISATION shares the
burden of the top-level managers.
7. When the organization has inadequate
control over the management, then
CENTRALISATION is implemented,
When the organization has full control
over its management,
DECENTRALISATION is
implemented.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

94

CHAPTER – VI :STAFFING
INTRODUCTION
Staffing is the managerial function of recruitment, selection, training, developing, promotion and
compensation of personnel. Staffing may be defined as the process of hiring and developing the
required personnel to fill in the various positions in the organization. It involves estimating the
number and type of personnel required. It involves estimating the number and type of personnel
required, recruiting and developing them, maintaining and improving their competence and
performance. Staffing is the process of identifying, assessing, placing, developing and evaluating
individuals at work.
This function is sometimes handled outside of an organization by using contractors at various
levels of the staffing process. Small organizations may handle staffing on a case-by-case basis,
while larger organizations may go through multiple staffing cycles during a single year.
Organizations of any size may use staffing to acquire temporary or permanent employees. Some
related terms and departments include human resources, personnel management and hiring.
DEFINITIONS:
According to Koontz and O’Donnell, “The managerial function of staffing involves
managing the organisation structure through proper and effective selection, appraisal and
development of personnel to fill the roles designed into the structure.”
S. Benjamin has defined staffing as – “The process involved in identifying, assessing,
placing, evaluating and directing individuals at work.”
According to Theo Hainmann, “Staffing function is concerned with the placement, growth
and development of all those members of the organisation whose function is to get things
done through the efforts of other individuals.”

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

95

NEEDS AND IMPORTANCE OF STAFFING
(i) Facilitates control – Well trained staff works according to plans and helps in the
achievement of the organisational goals. They help in reducing the deviations in
performance. This helps the managers in controlling various organisational functions.
(ii) Optimum Utilisation of Human Resources – In order to get the optimum output from
the personnel, the staffing function should be performed in an efficient manner because a
huge cost is involved in the selection and training of staff.
(iii) Long-term implications – Investment in human resources has long-term effects. Since
staffing function has long-term implications, these decisions should be taken with utmost
care. The decisions are crucial for the efficiency of the staff in the organisation.
(iv) Increase Efficiency – Since staffing helps to place the right person, with the right
knowledge, at the right place and the right time to perform the organisational activities,
efficiency of the organisation increases.
(v) Motivation – The workers can be motivated through financial and non-financial
incentives. Financial rewards are important but acceptance and recognition by managers are
also strong forces of motivation for the employees. There should be a balance between
financial and non-financial incentives to motivate the employees.
(vi) Support to other functions – Staffing is the key to efficient performance of other
functions of management. If an organisation does not have competent personnel, it can’t
perform planning, organisation and control functions properly. Staffing supports other
functions of management.
STAFFING PROCESS
Staffing is a very important part of running a business or an organisation. It is referred to as the
process of obtaining and hiring of manpower for the various business requirements. Staffing is
regarded as an essential managerial function.An enterprise is unable to run its operations without

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

96

the help of human resources. Therefore, human resources play an important role in the
functioning of an organisation. Staffing process consists of the following steps:
1. Manpower Planning: Manpower planning is the quantitative and qualitative
measurement of the manpower that is required in an organisation. It involves evaluation
and creation of the manpower inventory and also to develop the necessary talents among
the employees that are selected for obtaining promotion.
2. Recruitment: Recruitment is the process of finding the potential employees of an
organisation and persuading them to apply for the available positions in the organisation.
If the recruitment process is followed scientifically, then it will result in better wages,
high morale and higher productivity among the employees.
3. Selection: Selection is the process of short listing of potential candidates and eliminating
the candidates that are not suitable for the positions available in the organisation. The
purpose of selection is to hire the right candidate for the right position, which will lead to
efficient running of operations for the organisation.
4. Placement: Placement refers to the process of introducing an employee to the job for
which he was hired in the organisation. The employee will be provided with a basic
orientation about the company and its work areas.
5. Training: Training is the process of providing the newly recruited employees an idea
about the type of work that they are going to do and how to do that. This falls under the
training department. Training is an essential part of hiring as it helps keep the employees
updated on the way of work in an organisation. Also due to advances in technology,
newer technologies will evolve, that makes it necessary for employees to be updated with
the latest development.
6. Development: Development refers to the opportunity of growth of the employees in the
organisation. The organisation must provide ample opportunities for the development of
the employees, without which the employees may become frustrated.
7. Promotion: Promotion is referred to as the process of giving the employees a raise in
salary, designation or both. The raise in designation is associated with a raise in wages or
bonus or incentives. There can be some instances where the change in designation does
not result in increase in pay.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

97

8. Transfer: Transfer is the process of shifting of an employee from one position to another
in the organisation without any monetary benefit, or any increase in the responsibilities.
This function needs to be evaluated from time to time.
9. Performance Appraisal: Appraisal is the process of checking the progress of the work
done by the subordinates. It also studies human behaviour and also the attitude and
aptitude of the employee towards performing the job.
10. Determination of Remuneration: The remuneration of an employee is very important
for sustenance. It is regarded as one of the difficult functions to perform as there exists no
tools which can accurately determine wages.
BENEFITS OF STAFFING PROCESS
Following are some of the benefits of the staffing processes:
1. It helps in getting the right person for the right position in an organization.
2. It helps in improving the organisational productivity as proper selection process, increases the
quality of employees, which coupled with training results in better productivity.
3. It keeps employee morale high and also provides them job satisfaction.
4. It helps in maintaining a harmonious working environment inside the organisation.
RECRUITMENT
Recruiting involves attracting candidate to fill the positions in the organization structure. Before
recruiting, the requirement of positions must be cleared identified. It makes easier to recruit the
candidates from the outside. Enterprises with a favourable public image find it easier to attract
qualified candidates.
Definitions:
Mc Fariand, “The term recruitment applies to the process of attracting potential employees of the
company.”

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

98

Flippo, “Recruitment is the process of searching prospective employees and stimulating them to
apply for the jobs in the organization.” Thus, recruitment may be considered as a positive action
as it involves attracting the people towards organization.
SOURCES OF RECRUITMENT
The candidates may be available inside or outside the organisation. Basically, there are two
sources of recruitment i.e., internal and external sources.
I. INTERNAL SOURCES
1. Transfers
2. Promotions
3. Present Employees
II. EXTERNAL SOURCES
1. Advertisement
2. Employment Exchange
3. Educational Institutions
4. Recommendations of Existing Employees
5. Factory Gates
6. Casual Callers
7. Central Application Files
8. Labour Unions
9. Labour Contractors
10. Former Employees

(I) INTERNAL SOURCES:
Best employees can be found within the organization. When a vacancy arises in the organisation,
it may be given to an employee who is already on the pay-roll. Internal sources include
promotion, transfer and in certain cases demotion. When a higher post is given to a deserving
employee, it motivates all other employees of the organisation to work hard. The employees can
be informed of such a vacancy by internal advertisement.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

99

Methods of Internal Sources:
1. Transfers:
Transfer involves shifting of persons from present jobs to other similar jobs. These do not
involve any change in rank, responsibility or prestige. The numbers of persons do not increase
with transfers.
2. Promotions:
Promotions refer to shifting of persons to positions carrying better prestige, higher
responsibilities and more pay. The higher positions falling vacant may be filled up from within
the organisation. A promotion does not increase the number of persons in the organisation.
A person going to get a higher position will vacate his present position. Promotion will motivate
employees to improve their performance so that they can also get promotion.
3. Present Employees:
The present employees of a concern are informed about likely vacant positions. The employees
recommend their relations or persons intimately known to them. Management is relieved of
looking out prospective candidates. The persons recommended by the employees may be
generally suitable for the jobs because they know the requirements of various positions. The
existing employees take full responsibility of those recommended by them and also ensure of
their proper behaviour and performance.
(II) EXTERNAL SOURCES:
All organisations have to use external sources for recruitment to higher positions when existing
employees are not suitable. More persons are needed when expansions are undertaken.
Methods of External Sources:
1. Advertisement:
It is a method of recruitment frequently used for skilled workers, clerical and higher staff.
Advertisement can be given in newspapers and professional journals. These advertisements
attract applicants in large number of highly variable quality.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

100

Preparing good advertisement is a specialised task. If a company wants to conceal its name, a
‘blind advertisement’ may be given asking the applicants to apply to Post Bag or Box Number or
to some advertising agency.
2. Employment Exchanges:
Employment exchanges in India are run by the Government. For unskilled, semi-skilled, skilled,
clerical posts etc., it is often used as a source of recruitment. In certain cases it has been made
obligatory for the business concerns to notify their vacancies to the employment exchange. In the
past, employers used to turn to these agencies only as a last resort. The job-seekers and job-
givers are brought into contact by the employment exchanges.
3. Schools, Colleges and Universities:
Direct recruitment from educational institutions for certain jobs (i.e. placement) which require
technical or professional qualification has become a common practice. A close liaison between
the company and educational institutions helps in getting suitable candidates. The students are
spotted during the course of their studies. Junior level executives or managerial trainees may be
recruited in this way.
4. Recommendation of Existing Employees:
The present employees know both the company and the candidate being recommended. Hence
some companies encourage their existing employees to assist them in getting applications from
persons who are known to them.
In certain cases rewards may also be given if candidates recommended by them are actually
selected by the company. If recommendation leads to favouritism, it will impair the morale of
employees.
5. Factory Gates:
Certain workers present themselves at the factory gate every day for employment. This method
of recruitment is very popular in India for unskilled or semi-skilled labour. The desirable
candidates are selected by the first line supervisors. The major disadvantage of this system is that
the person selected may not be suitable for the vacancy.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

101

6. Casual Callers:
Those personnel who casually come to the company for employment may also be considered for
the vacant post. It is most economical method of recruitment. In the advanced countries, this
method of recruitment is very popular.
7. Central Application File:
A file of past applicants who were not selected earlier may be maintained. In order to keep the
file alive, applications in the files must be checked at periodical intervals.
8. Labour Unions:
In certain occupations like construction, hotels, maritime industry etc., (i.e., industries where
there is instability of employment) all recruits usually come from unions. It is advantageous from
the management point of view because it saves expenses of recruitment. However, in other
industries, unions may be asked to recommend candidates either as a goodwill gesture or as a
courtesy towards the union.
9. Labour Contractors:
This method of recruitment is still prevalent in India for hiring unskilled and semi-skilled
workers in brick kiln industry. The contractors keep themselves in touch with the labour and
bring the workers at the places where they are required. They get commission for the number of
persons supplied by them.
10. Former Employees:
In case employees have been laid off or have left the factory at their own, they may be taken
back if they are interested in joining the concern (provided their record is good).
11. Other Sources:
Apart from these major sources of external recruitment, there are certain other sources which are
exploited by companies from time to time.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

102

MODERN RECRUITMENT METHODS
Modern recruitment is a hiring strategy that harnesses the power of technology to find the best
candidates. Typically, it involves using online job boards, social media platforms, channels, etc.
You will also use recruitment software to streamline various tasks, including sorting resumes and
cover letters, candidate screening, and communication. With modern recruitment, it’s easy to
market your employer’s brand and attract the right candidates. You also get to save money and
time, thus improving your business performance and growth. Overall, modern recruitment is
taking over the job industry by storm, and here are the top techniques of recruitment and
selection every employer needs to know.
1. Applicant Tracking Systems (ATS)
ATS are software systems that continue to be useful in the hiring process. Using them means
streamlining various tasks, including collecting resumes and cover letters, sorting candidates
based on the required keywords, screening job applicants based on their level of experience and
skills, etc.
The best element about using applicant tracking systems in your hiring process is that you get to
save time. ATS are also efficient since you have all candidates’ data on a single platform.
Moreover, they improve the overall hiring experience since communication is simplified, thus
speeding up the hiring process. Most importantly, ATS eliminates the need of filing hard copy
documents, which are usually hard to arrange and locate when need be.
2. Artificial Intelligence (AI)
Like ATS, AI systems streamline the recruitment process by filtering applicants’ resumes based
on the required keywords. They also scan job descriptions to ensure your language is up to par
and candidates can understand the type of talent you are looking for. With artificial intelligence
systems, it’s easy to access candidates through chatbots or other suitable automated software that
is powered by machine learning.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

103

Additionally, AI systems quickly scan data records to find suitable talent. As a result, you get to
save time and money, thus focusing on other essential business growth matters. Note that there
are different types of artificial intelligence systems in the market. As a recruiting/hiring
professional, consider your business and hiring needs to find the best.
3. Social Media Platforms
Social media platforms like Facebook, Twitter, LinkedIn, etc, can be excellent platforms to meet
suitable candidates for your job position. With new technology, many job seekers use internet-
enabled devices to seek jobs and social media platforms are one of the places to meet them.
Besides, social media platforms can help you meet passive candidates. However, ensure you are
clear about the requirements you are looking for to find suitable ones. Overall, social media
recruiting can only work in your favor if you are reputable. Therefore, before posting job
advertisements, take advantage of them to market your brand.
4. Virtual Reality Communication
This modern recruiting technique guarantees excellent candidate experience, especially during
the interview process. With virtual reality communications, you get to meet job applicants
virtually. It is also easy to introduce them to your company without the need for them to
commute and participate in the process in person. Since you want candidates that fit your
business culture, this modern hiring strategy will help you to effectively showcase workplace
culture.
5. Digital Job Posting
The advancing technology came with the invention of digital platforms where job seekers find
new opportunities. Besides the social media platforms, you should take advantage of job boards
to post your openings to attract many candidates to apply. Remember, you need the right
applicants that fit your business. Therefore, ensure your job description targets the right audience
to successfully complete your hiring process.
6. Passive Candidate Sourcing

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

104

Sourcing passive candidates has become popular in recent years and has proven more beneficial
than hiring active job seekers. You see, passive candidates are already familiar with the work
requirements and your expectations. They also do not jump from one role to another,
guaranteeing a peaceful working relationship. Overall, we advise you to consider passive
candidate recruiting when looking to fill senior or executive positions. After all, such positions
are challenging to fill since you require a candidate with the right knowledge and experience.
7. Search Engine Optimization (SEO) Tools
SEO tools are an essential part of creating a detailed job description to attract the right
applicants. With the tools, it will also be easier for your target audience to find your job
advertising post regardless of the digital platform they use. Simply put, Using SEO tools help
you apply the right keywords that job seekers use when searching for new job opportunities. As a
result, only the most suitable candidates will apply, thus saving you time for resume screening,
interviews, and more.
8. Mobile Application
In this new era of technology, almost if not all job seekers have access to smart phones and they
carry them everywhere they go. You can take advantage of this situation to optimize the use of
mobile-friendly recruitment software. Also, allow applications and all the hiring procedures to be
conducted through all types of devices. This enables convenience and accessibility to job
applicants. Besides, some candidates, especially passive have limited time to access the desktop
and meet your job advertisements. By allowing the use of mobile devices, they can easily bump
into your job offer during breaks at work or while commuting home.
9. Video Interviews
Recently, especially after the 2020 COVID-19 pandemic, most employers realized that remote
working is more flexible and contributes to increased productivity. This is because you will work
with a diverse group of talent, leading to different ideas and work strategies. If you want to hire
candidates remotely, video conference interviews can help you meet the best candidates. Instead
of having them commute and spend a lot of money, you will schedule meetings through online

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

105

software. The best element about video interviews is that you can still study a candidate’s body
language, test their communications skills, and more, hence making the best hiring decision.
10. Business Reviewing Platforms
Technology has brought the rise of online business reviewing platforms where former employees
leave their reviews regarding their experiences in various companies. Note that the best job
seekers usually conduct research to gain insight into your company. They will also visit such
sites to see whether you are an employee any worker might admire.
For instance, Glass door is a popular platform job seekers visit for reviews. While it is crucial to
treat your workers and clients well, consider analysing reviews on such platforms to see what
employees have to say. Note the negative comments and work on improving to attract top talent.
SELECTION - INTRODUCTION
Selection means the taking up the different workers by various acts from the application forms
invited through different sources of internal and externals. The selection process can be defined as
the process of selection and short listing of the right candidates with the necessary qualifications and
skill set to fill the vacancies in an organisation. The selection process varies from industry to
industry, company to company and even amongst departments of the same company. Every
organisation creates a selection process because they have their own requirements. Although, the
main steps remain the same.

According to Dale Yoder, “Selection is the process in which candidates by employment are
divided into two classes those who are to be offered employment and those who are not.”

SELECTION PROCEDURE:
Selection of workers is regarded as a policy matter. Every enterprise has its own policy for
recruitment. The following procedure is adopted.
1) Receiving and screening the application:Potential employees apply for a job by sending
applications to the organisation. The application gives the interviewers information about the
candidates like their bio-data, work experience, hobbies and interests. After receiving the
applications have to be screened. Once the applications are received, they are screened by a

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

106

special screening committee who choose candidates from the applications to call for an
interview. Applicants may be selected on special criteria like qualifications, work experience etc.
In this process the applications of candidates without the requisite qualification are rejected.
2) Sending the Blank application form: After preparing the list of candidates suitable for job,
blank application forms will be sent to the candidates. In this application form information
should be given about the name and address of the candidate, educational qualification,
experience, salary expected etc.
3) Preliminary Interview: The interviewer has to decide whether the applicant is fit for job or
not. By this interview the appearance, attitudes, behaviour of the candidate can be known easily.
This is a very general and basic interview conducted so as to eliminate the candidates who are
completely unfit to work in the organisation. This leaves the organisation with a pool of
potentially fit employees to fill their vacancies.
4) Administering Tests: Before an organisation decides a suitable job for any individual, they
have to gauge their talents and skills. This is done through various employment tests like
intelligence tests, aptitude tests, proficiency tests, personality tests etc.Tests are conducted for the
knowledge of personal behaviour, efficiency of work and interest. Generally, following types of
tests are conducted.
 Achievement Test
 Aptitude test
 Trade Test
 Interest Test
 Intelligence Test etc.
5) Checking References on Investigation of Previous History: Applicants are generally asked
to give names of at least two persons to whom the firm may make a reference. The person who
gives the reference of a potential employee is also a very important source of information. The
referee can provide info about the person’s capabilities, experience in the previous companies
and leadership and managerial skills. The information provided by the referee is meant to kept
confidential with the HR department.
6) Interviewing: Interview is the most important step in the selection procedure. In interview,
the intimation given in the application form is checked. Interview helps in finding out the
physical appearance and mental alertness of the candidate and whether he possesses the required

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

107

qualities. Purpose of an employment interview is to find out the suitability of the candidate and
to give him an idea about the work profile and what is expected of the potential employee. An
employment interview is critical for the selection of the right people for the right jobs.
Interviews may be of various kinds these are
 Direct Interview
 Indirect Interview
 Patterned Interview
 Stress interview
 Systematic in – depth interview
 Board of panel interview
 Group interview
7) Final Selection: This is the final step in the selection process. After the candidate has
successfully passed all written tests, interviews and medical examination, the employee is sent or
emailed an appointment letter, confirming his selection to the job. The appointment letter
contains all the details of the job like working hours, salary, leave allowance etc. Often,
employees are hired on a conditional basis where they are hired permanently after the employees
are satisfied with their performance. On the basic of results of previous interview the candidate is
informed whether he/she is selected for the said post or not.

TRAINING
Training is an instrument of developing the employees by increasing their skills and improving
their behavior. Technical, managerial skills are needed by the employees for performing the jobs
assigned to the. Training is required to be given to new employees as well as existing employees.
The methods to be used for training and the duration for which training should be given is
decided by the management according to the objectives of the training, the number of persons to
be trained and the amount of training needed by the employees.
Training leads to overall personal development. The major outcome of training is learning.
Trainees learn new habits, new skills, useful information that helps to improve their
performance.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

108

Definition:
According to Flippo: “Training is an act of increasing the knowledge and skill of an employee
for doing a particular job.”

NEEDS AND IMPORTANCE OF TRAINING
(i) Higher Productivity:
It is essential to increase productivity and reduce cost of production for meeting competition in
the market. Effective training can help increase productivity of workers by imparting the
required skills.
(ii) Quality Improvement:
The customers have become quality conscious and their requirement keep on changing. To
satisfy the customers, quality of products must be continuously improved through training of
workers.
(iii) Reduction of Learning Time:
Systematic training through trained instructors is essential to reduce the training period. If the
workers learn through trial and error, they will take a longer time and even may not be able to
learn right methods of doing work.
(iv) Industrial Safety:
Trained workers can handle the machines safely. They also know the use of various safety
devices in the factory. Thus, they are less prone to industrial accidents.
(iv) Reduction of Turnover and Absenteeism:
Training creates a feeling of confidence in the minds of the workers. It gives them a security at
the workplace. As a result, labour turnover and absenteeism rates are reduced.
(vi) Technology Update:
Technology is changing at a fast pace. The workers must learn new techniques to make use of
advance technology. Thus, training should be treated as a continuous process to update the
employees in the new methods and procedures.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

109

(vii) Effective Management:
Training can be used as an effective tool of planning and control. It develops skills among
workers and prepares them for handling present and future jobs. It helps in reducing the costs of
supervision, wastages and industrial accidents. It also helps increase productivity and quality
which are the cherished goals of any modern organization.
TYPES OF TRAINING
As a result of research in the field of training, a number of programs are available in some of
these are new methods while others are improvements over the traditional methods.

TRAINING METHODS
ON THE JOB TRAINING
Vestibule Training
Role Playing
Lecture Method
Conference
Programme Instructions
Job Rotation
Coaching
Job Instruction
Committee Assignment

OFF THE JOB TRAINING

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

110

I. On-the-job training methods
This type of training also known as job instruction training is most commonly used as a method.
Under this method, the individual is placed on a regular job & taught the skills necessary to
perform the job. Following are the job training methods.
1. Job Rotation: It involves the movement of the trainee from one job to another. The trainee
receives job knowledge & gains experience from his supervisor or trainer. This type of training
gives an opportunity to the trainee to understand the problem of employees on other jobs &
respect them.
2. Coaching: The trainee is placed under a particular supervisor who functions as a coach in
training the individual. The supervisor provides feedback to the trainee on his performance &
offers him some suggestions for improvement.
3. Job Instruction: This method is also known as step-by-step training. Under this method, the
trainer explains to the trainee the way of doing the jobs, knowledge & skill and allows him to do
the job. The trainer appraises the performance, provides information & corrects the trainees.
4. Committee Assignment: Under this method, a group of trainees is given and asked to solve
an actual organizational problem. The trainees solve the problem jointly and develop teamwork.
II. Off-the-Job training Methods
Under this method of training, the trainee is separated from the job situation and his attention is
focused on learning the material related to his future job performance.
1. Vestibule training: In this method, actual work conditions are simulated in a classroom.
Material files and needed equipment are also used in training. This type is used for training
personnel for clerical and semi-skilled jobs.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

111

2 Role-Playing: It is defined as a method of human interaction that involves realistic behavior in
an imaginary situation. This method of training involves action doing the practice. This method
is mostly used for developing interpersonal interaction and relations.
3. Lecture Method: The lecture is a traditional & direct method of instruction. The instructor
organizes the material & gives it to a group of trainees in the form of a talk. This is beneficial to
train a large group of trainees.
4. Conference: It is a method for clerical, professional & supervisory personnel. This involves a
group of people who put forth ideas, examine & share facts, ideas assumptions & draw a
conclusion. The success of this method depends on the leadership qualities of the person who
leads the group.
5. Programmed Instructions: In recent years this method has become popular the subject
matter to be learned is presented in a series of carefully planned sequential. This method is
expensive & time-consuming.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

112

CHAPTER – VII : DECISION MAKING
MEANING AND DEFINITION
Decision Making is an important function in management, since decision-making is related to
problem, an effective decision-making helps to achieve the desired goals or objectives by solving
such problems. Thus the decision-making lies all over the enterprise and covers all the areas of
the enterprise. Scientific decision-making is well-tried process of arriving at the best possible
choice for a solution with a reasonable period of time.
Decision means to cut off deliberations and to come to a conclusion. Decision-making involves
two or more alternatives because if there is only one alternative there is no decision to be made.
R.S. Davar defined decision-making as “the election based on some criteria of one behavior
alternative hum two or more possible alternatives. To decide means ‘to cut off’ or in practical
content to come to a conclusion.”
According to McFarland “A decision is an act of choice where in an executive form a
conclusion about what must done in a given situation. A decision represents behavior ‘chosen
from a number of possible alternatives.”

Henry Sisk and Cliffton Williams defined “A decision is the election of a course of action
from two or more alternatives; the decision-making process is a sequence of steps leading lo I hat
selection.”

CHARACTERISTICS OF DECISION MAKING
1. It is a process of making a choice from alternative course of action.
2. Decision is the end process preceded by deliberation and reasoning.
3. Decision-making is a focal point at which plans, policies, and objectives are translated into
concrete actions.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

113

4. Rationality is another characteristic of decision-making. The human brain with its ability to
learn to remember and to relate many complex factors makes this rationality possible.
5. Decision-making involves commitment. The management is committed to decision for two
reasons. Firstly it leads to the stability of the concern and secondly, every decision taken
becomes part of the expectations of the people involved in the organization.
6. The purpose of decision-making is to select the best alternative, which can significantly
contribute towards organizational aims.

STEPS IN DECISION MAKING / DECISION MAKING PROCESS

When a manager makes a decision, it is in effect the organization’s response to a problem. As
such, decisions should be thought of as means rather than ends. Every decision is the outcome of
a dynamic process which is influenced by multiple forces. Therefore, the decision-making
process should be seen as sequential process rather than a series of steps to enable the decision
maker to examine each element in the progression that leads to a decision.
1. Specific Goal or Objective
The need for decision making arises in order to achieve certain specific objectives. Every action
of human being is goal directed. This is true for decision making also which is an action.
Therefore, the starting point in any analysis of decision making involves the determination of
whether a decision needs to be made. In fact, setting of specific objective itself is an outcome of
an earlier decision. However, since the objective setting is an outcome of earlier decision, this
may not be considered truly as the first step of decision process but provides framework for
further decisions.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

114

2. Problem Identification
Since a particular decision is made in the context of certain given objectives, identification of
problem is the real beginning of decision-making process. A problem is a felt need, a question
thrown forward for solution. When a doctor makes a diagnosis, he has a normal, healthy person
and he also has a fairly clear concept of what a healthy person is. With this model as the desired
result, he looks for disparities in the patient's actual state of health or factors which indicate that
his future health will fall short of normal. In the case of management decision, however, a
manager cannot rely on a commonly accepted norm such as healthy person. The objectives, if set
precisely and specifically on the subject-matter of decision, will provide clue in identifying the
problem and its possible solution. Further in management, a problem exists whenever one faces a
question whose answer involves doubt and uncertainty. If there is no solution to the problem, it
cannot be treated as problem from decision point of view, though the consequences of not
solving this problem may be terrible. A problem can be identified much clearly, if managers go
through diagnosis and analysis of the problem.
 Diagnosis: The term diagnosis has come from Medical Science where it is used as the
process of identifying a disease from its signs and symptoms. Symptoms occupy an
essential place in the problem-solving process for they signal the existence of problem
and guide the search for the underlying problem. For example, if an organisation has high
turnover of its employees, it indicates that something is wrong with the organisation. The
symptom of high turnover may provide the clue to the real problem and managers can
overcome the problem by taking appropriate action (decision making involves in taking
action). Diagnosing the real problem implies knowing the gap between what is and what
ought to be, identifying the reasons for the gap, and understanding the problem in relation
to higher objectives of the organisation.
 Analysis: While the diagnosis of problem gives the understanding of what should be
done in terms of decision making, analysis of problem takes it a step further. The analysis
of the problem requires to find out who would make decision, what information would be
needed, and from where the information is available. This analysis may provide managers
with revealing circumstances that help them to gain an insight into the problem. The
whole approach of analysis of problem should. however, be based around critical factors

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

115

like the availability of information for making decision, criticality of decision, and the
time available for making decision.
3. Search for Alternatives
A problem can be solved in several ways, however, all the ways cannot be equally satisfying.
Further, if there is only one way of solving a problem, no question of decision arises. Therefore,
the decision maker must try to find out the various alternatives available in order to get the most
satisfactory result of a decision. Identification of various alternatives not only serves the
purpose of selecting the most satisfactory one, but it also avoids bottlenecks in operation as
alternatives are avail- able if a particular decision goes wrong. However, it should be borne in
mind that it may not be possible to consider all alternatives either because some of the
alternatives cannot be considered for selection because of obvious limitations of the decision
maker or information about all alternatives may not be available. Therefore, while generating
alternatives, the concept of limiting factor should be applied. A limiting factor is one which
stands in the way of accomplishing a desired objective. If these factors are identified, managers
will confine their search for alternatives to those which will overcome the limiting factors. For
example, if an organisation has limitation in raising sizable finances, it cannot consider projects
involving high investment.
4. Evaluation of Alternatives
After the various alternatives are identified, the next step is to evaluate them and select the one
that will meet the choice criteria. However, all alternatives available for decision making will not
be taken for detailed evaluation because of the obvious limitations of managers in evaluating all
alternatives. The energy of managers is limited and psychologically most of them prefer to work
on plans that have good prospect of being carried out. In narrowing down the number of
alternatives, two approaches can be followed: constraint on alternatives and grouping of
alternatives of similar nature. Having narrowed down the alternatives which require serious
consideration, the decision will go for evaluating how each alternative may contribute towards
the objectives supposed to be achieved by implementing the decision. Evaluation of various

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

116

alternatives dissects an alternative into various tangible and intangible factors. In evaluating an
alternative, both these factors have to be taken into account.
5. Choice of Alternative:
The evaluation of various alternatives presents a clear picture as to how each one of them
contributes to the objectives under question. A comparison is made among the likely outcomes
of various alternatives and the best one is chosen. Choice aspect of decision making is related to
deciding the most acceptable alternative which fits with the organisational objectives. It may be
seen that the chosen alternative should be acceptable in the light of the organisational objectives.
Thus, it is not necessary that the chosen alternative is the best one. This concept is based on the
satisficing approach rather than the maximising approach of decision making, to be discussed
later in detail. In choosing an alternative, the decision maker can go through three approaches:
experience, experimentation, and research and analysis.
 Experience: Managers can choose an alternative based on their past experience if they
have solved similar problems earlier. Reliance on past experience plays a larger part than
it deserves in decision making. Managers rely more on experience than alternative
methods of choice. Past experience has some benefits but it has certain limitation that it
blocks making correct choice specially when the environmental factors are more flexible.
 Experimentation: Experimentation which is generally used in scientific enquiry
involves that a particular alternative is put in practice, result is observed, and the
alternative giving the best result is selected. For example, many organisations go for test
marketing of their products before the products are really introduced in the market.
During test marketing, the actions can be taken to change product features which are not
acceptable.
 Research and Analysis: Research and analysis is the most certain method of selecting an
alternative, specially when major decisions are involved. This involves a search for
relationships between the more critical variables, constraints, and planning premises that
bear the objectives sought. In the second stage, the alternative is broken into various
components. Their individual impact on objective is evaluated and the impact of all

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

117

factors of an alternative is combined to find out the total impact of the particular
alternative. The one having the most positive impact is chosen.
6. Action
Once the alternative is selected, it is put into action. Truly speaking, the actual process of
decision-making ends with the choice of an alternative through which the objectives can be
achieved. However, decision making, being a continuous and ongoing process, must ensure that
the objectives have been achieved by the chosen alternative. Unless this is done, managers will
never know what way their choice has contributed. Therefore, the implementation of decision
may be seen as an integral aspect of decision.
Once the creative and analytical aspects of decision making through which an alternative has
been chosen are over, the managerial priority is one of converting the decision into something
operationally effective. This is the action aspect of decision making. Implementation of a
decision requires the communication to subordinates, get- ting of subordinates over the matters
involved in the decision, and getting their support for putting the decision into action. The
decision should be effected at appropriate time and in proper way to make the action more
effective.
7. Results
When the decision is put into action, it brings certain results. These results must correspond with
objectives, the starting point of decision process, if good decision has been made and
implemented properly. Thus, results provide indication whether decision making and its
implementation is proper. Therefore, managers should take up a follow-up action in the light of
feedback received from the results. If there is any deviation between objectives and results, this
should be analysed and factors responsible for this deviation should be located. The feedback
may also help in reviewing the decision when conditions change which may require changes in
decision. Therefore, a successful manager is one who keeps a close look at the objectives and
results of the decision and modifies his decision according to the changes in the circumstances.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

118

TYPES OF DECISION MAKING

1. Programmed and non-programmed decisions:
Programmed decisions are concerned with the problems of repetitive nature or routine type
matters.
A standard procedure is followed for tackling such problems. These decisions are taken generally
by lower level managers. Decisions of this type may pertain to e.g. purchase of raw material,
granting leave to an employee and supply of goods and implements to the employees, etc. Non-
programmed decisions relate to difficult situations for which there is no easy solution.
These matters are very important for the organisation. For example, opening of a new branch of
the organisation or a large number of employees absenting from the organisation or introducing
new product in the market, etc., are the decisions which are normally taken at the higher level.
2. Routine and strategic decisions:
Routine decisions are related to the general functioning of the organisation. They do not require
much evaluation and analysis and can be taken quickly. Ample powers are delegated to lower
ranks to take these decisions within the broad policy structure of the organisation.
Strategic decisions are important which affect objectives, organisational goals and other
important policy matters. These decisions usually involve huge investments or funds. These are
non-repetitive in nature and are taken after careful analysis and evaluation of many alternatives.
These decisions are taken at the higher level of management.
3. Tactical (Policy) and operational decisions:
Decisions pertaining to various policy matters of the organisation are policy decisions. These are
taken by the top management and have long term impact on the functioning of the concern. For
example, decisions regarding location of plant, volume of production and channels of
distribution (Tactical) policies, etc. are policy decisions. Operating decisions relate to day-to-day
functioning or operations of business. Middle and lower-level managers take these decisions.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

119

An example may be taken to distinguish these decisions. Decisions concerning payment of bonus
to employees are a policy decision. On the other hand if bonus is to be given to the employees,
calculation of bonus in respect of each employee is an operating decision.
4. Organisational and personal decisions:
When an individual takes decision as an executive in the official capacity, it is known as
organisational decision. If decision is taken by the executive in the personal capacity (thereby
affecting his personal life), it is known as personal decision.
Sometimes these decisions may affect functioning of the organisation also. For example, if an
executive leaves the organisation, it may affect the organisation. The authority of taking
organizational decisions may be delegated, whereas personal decisions cannot be delegated.
5. Major and minor decisions:
Another classification of decisions is major and minor. Decision pertaining to purchase of new
factory premises is a major decision. Major decisions are taken by top management. Purchase of
office stationery is a minor decision which can be taken by office superintendent.
6. Individual and group decisions:
When the decision is taken by a single individual, it is known as individual decision. Usually
routine type decisions are taken by individuals within the broad policy framework of the
organization.
Group decisions are taken by group of individuals constituted in the form of a standing
committee. Generally very important and pertinent matters for the organization are referred to
this committee. The main aim in taking group decisions is the involvement of maximum number
of individuals in the process of decision- making.
FORECASTING: MEANING
Forecasting management is a key element of any successful business operation. It involves
anticipating future trends and events, and using that knowledge to inform choices and decisions
about the direction of the organization. More than ever, accurate forecasting management is

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

120

essential for staying ahead of the competition in today’s rapidly changing global business
environment. Forecasting is a method of making informed predictions by using historical data as
the main input for determining the course of future trends. Companies use forecasting for many
different purposes, such as anticipating future expenses and determining how to allocate their
budget. The data used for forecasting methods can either come from primary sources or
secondary sources.
i. Primary Sources: Primary sources provide first-hand information, collected directly by the
person or organization that is doing the forecasting. The data is usually collected from various
questionnaires, focus groups or interviews and, although all the information is difficult to gather
and centralize, the direct way of acquiring the data makes primary sources the most trustworthy
ones.
ii. Secondary Sources: Secondary sources provide information that has already been gathered
and processed by a third-party organization. Receiving the data in an organized and compiled
way makes the forecasting process quicker.
IMPORTANCE OF FORECASTING
1. Estimating the success of a new business venture: When starting a new business, proper
forecasting can reveal crucial information that may determine the company's future success.
Forecasting reveals some of the risks and uncertainties that a new business faces and can offer an
entrepreneur the right tools to anticipate elements such as the strength of the competition,
demand potential for a product or service and future industry development.
2. Estimating financial necessities: Estimating a company's future financial requirements is one
of the most important uses of forecasting. It can help a company determine its financial future by
estimating future sales, the capital needed for future product development, the costs of future
expansions and other estimated expenses that are used to estimate future costs.
3. Ensuring the company's operational consistency: Proper forecasting can reveal important
information regarding future earnings and spending. By having an estimate of the funds going in

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

121

and out of the organization over a certain period of time, the company's management can make
more efficient and accurate plans for the future.
4. Helping managers make the right decisions: A significant proportion of management
decisions are made by relying on accurate forecasting. Most businesses, regardless of size, face
several potential uncertainties — such as seasonal rises and falls in sales, changes in personnel
and changes in raw material prices — depending on the exact nature and purpose of the
organization. Forecasting plays a major role in providing managers with the information they
need to make informed decisions regarding the company's future.
5. Formulating effective plans for the future: All planning implies the use of forecasts, making
forecasting a very important element of formulating realistic and helpful plans. Any form of
planning, from short-term to long-term, is heavily reliant on forecasting, creating a direct link
between accurate forecasting and adequate planning.
6. Promoting workplace cooperation: Gathering and analysing the data required for forecasting
typically requires coordination and collaboration between all the company's department
managers, as well as other employees. This makes the whole process a collaboration, increasing
team spirit and cohesion.
7. Helping an organization improvement: Forecasting gives managers’ information that they
can use to spot any weakness in the organization's processes. By discovering potential
shortcomings ahead of time, the company's managers have the proper tools to correct any
weakness before they affect the profits.
METHODS OF FORECASTING
1. Historical Analogy Method: Under historical analogy method, forecast in regard to a
particular phenomenon is based on some analogous conditions elsewhere in the past. This
method is based on the stages of economic development as suggested by Rostow. According to
him, an economy has to pass through certain stages before the stage of take-off and later of high
mass consumption. Since this is true for all the economies, the situation of a country can be
forecast by making comparison with the advanced countries at a particular stage through which

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

122

the country is presently passing. For example, if the Indian economy is ready for take-off which
was the condition prevailing in U.S.A. around 1940, the demand for various commodities can be
forecast. Similarly, it has been observed that if anything is invented in some part of the world,
this is adopted in other countries after a gap of certain time. Thus, based on analogy, a general
forecast can be made about the nature of events in the economic system of the country This
method, thus, gives broad indication about the future events of general nature.
2. Survey Method: Field surveys can be conducted to gather information on the intentions of the
concerned people; for example, information may be collected through surveys about the likely
expenditures of consumers on various items. Both quantitative and qualitative information may
be collected. Such information may throw useful light on the attitudes of the consumers in regard
to various items of expenditure and consumption. On the basis of such surveys, demand for
various goods can be projected. To limit the cost and time, the survey may be restricted to a
sample from the prospective consumers. Survey method is suitable for forecasting demand both
of existing and new products.
3. Opinion Poll: Opinion poll is conducted to assess the opinion of the knowledge- able persons
and experts in the field whose views carry a lot of weight. For example, opinion polls are very
popular to predict the outcome of elections in many countries. Similarly an opinion poll of the
sales representatives, wholesalers or marketing experts may be helpful in estimating the life of a
technology.
4. Business Barometers: In physical science, a barometer is used to measure theatmospheric
pressure. In the same way, index numbers are used to measure the state of economy between two
or more periods. These index numbers are the device to study the trends, seasonal fluctuations,
cyclical movements, and irregular fluctuations. These index numbers, when used in conjunction
with one another or combined with one or more, provide indications as to the direction in which
the economy is heading. Thus, with the help of business activity index numbers, it becomes
comparatively easy to forecast the future course of action.
5. Time Series Analysis: Time series analysis involves decomposition of historical series into its
various components, viz., trend, seasonal variations, cyclical variations, and random variations.
In time series analysis, the future is taken as some sort of an extension of the past. When the

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

123

various components of a time series are separated, the variation of a particular phenomenon, the
subject under study, say price, can be known over the period of time and projection can be made
about future. A trend can be known over the period of time which may be true for future also.
However, time series analysis should be used as a basis for forecasting when data are available
for a long period of time and tendencies disclosed by the trend and seasonal factors are fairly
clear and stable.
6. Extrapolation: Extrapolation is also based on time series because it relies on the behaviours
of a series in the past and projects the same trend in future. This method does not isolate the
effects of various factors influencing a problem under study but takes into account the totality of
their effects and assumes that the effect of these factors is of a constant and stable pattern and
would continue as such in future Since the projection of future is based on past, it is essential that
the growth curve of a series is chosen after a very careful study of its past behaviour.
7. Regression Analysis: Regression analysis is meant to disclose the relative movements of two
or more interrelated series. It is used to estimate the changes in one as a result of specified
changes in other variable or variables. In economic and business situations, there is multiple
causation and a number of factors affect a business phenomenon simultaneously. Regression
analysis helps in isolating the effects of such factors to a great extent. For example, we know that
there is a positive relationship between advertising expenditure and volume of sales or between
sales and profit, it is possible to have estimate of the sales on the basis of advertising or of profit
on the basis of projected sales, provided other things remain the same.
8. Input-Output Analysis: Under this method, a forecast of output is based on given input if
relationship between input and output is known. Similarly input requirement can be forecast on
the basis of final output with a given input-output relationship. It is because of this mechanism
that the technique is known as input- output analysis or end-use technique. The very basis of this
technique is that the various sectors of economy are interrelated and such interrelationships are
well established. Such relationships are known as coefficients in mathematical terms. For
example, coal requirement of the country can be predicted on the basis of its usage rate in
various sectors, say industry, transport, household, etc.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

124

9. Econometric Models: In econometric method, mathematical models are used to express
relationship among variables. These models take the form of a set of simultaneous equations.
The constants in these equations are arrived at by a study of time series and since the variables
affecting a business phenomenon are many, a large number of equations may have to be formed
to arrive at a particular econometric model. These equations are not easy to formulate but the
advent of computers has made the formation of these equations relatively easy. The construction
of an econometric model is very expensive, technical and complicated task and individual
organisations can ill afford to have such models of their own. They have to rely on aggregate or
macro level models developed by specialized forecasting agencies or institutes.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

125

CHAPTER – VIII: PERFORMANCE APPRAISAL AND PROMOTION

PERFORMANCE APPRAISAL
Performance appraisal is one of the oldest and most accepted universal principles of
management. It refers to all the formal procedures used in working organizations to evaluate the
personalities, contributions and potentials of group members. It is used as a guide by formulating
a suitable training and development programme to improve the quality of performance in his
present work.
Performance appraisal or performance review is a systematic process in which employee
performance at work is evaluated in relation to the projects on which employee has worked and his
contribution to the organisation. It is also known as an annual review or performance review.It helps
the managers place the right employees for the right jobs, depending on their skills. Often, employees
are often curious to know about their performance details and compare it with their fellow colleagues
and how they can improve upon it. So every company needs a good performance appraisal system.

As Dale Yoder said, “Performance appraisal includes all formal procedures used to evaluate
personalities and contributions and potential of group members in a working organisation. It is a
continuous process to secure information necessary for making correct and objective decisions on
employees.”

PROCESS OF PERFORMANCE APPRAISAL
 Establishing Performance Standards: The first step in the process of performance
appraisal is the setting up of the standards which will be used to compare the actual
performance of the employees against the standards set. This step requires setting the
criteria to judge the performance of the employees as successful or unsuccessful and the
degrees of their contribution to the Organizational goals and objectives. The standards set
should be clear, easily understandable and measurable. In case the performance of the
employee cannot be measured, great care should be taken to describe the standards.
 Communicating the Standards: Once performance standards are set, it is the
responsibility of the management to communicate the standards to all the employees of

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

126

the Organization. The employees should be informed and the standards should be clearly
explained to the employees. This will help them to understand their roles and to know
what exactly is expected from them. The standards should also be communicated to the
appraisers or the evaluators and if required, the standards can also be modified at this
stage itself according to the relevant feedback from the employees or the evaluators.
 Measuring the Actual Performance: The most difficult part of the Performance
appraisal process is measuring the actual performance of the employees, that is, the work
done by the employees during the specified period of time. It is a continuous process
which involves monitoring the performance throughout the year. This stage requires
careful selection of appropriate techniques of measurement. It should be taken care that
personal bias does not affect the outcome of the process. Comparing the Actual with the
 Desired Performance: The actual performance is compared with the desired or the
standard performance. The comparison tells the deviations in the performance of the
employees from the standards set. The result can show the actual performance being
more than the desired performance. On the other hand, the actual performance may be
less than the desired performance depicting a negative deviation in the Organizational
performance. This step includes recalling, evaluating and analysis of data related to the
employees’ performance.
 Discussing Results: The result of the appraisal is communicated and discussed with the
employees on one-to-one basis. The focus of this discussion is on communication and
listening. The results, the problems and the possible solutions are discussed with the aim
of problem solving and reaching consensus. The feedback should be given with a positive
attitude as this can have an effect on the employees’ future performance. The purpose of
the meeting should be to solve the problems faced and motivate the employees to perform
better.
 Decision Making: The last step of the process is to take decisions which can be taken
either to improve the performance of the employees, take the required corrective actions,
or the related HR decisions like rewards, promotions, demotions, transfers etc.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

127

METHODS OF PERFORMANCE APPRAISAL
I. Traditional Approach
This approach has been used as just a method for determining and justifying the salaries of the
employees. It has been used as a tool for determining rewards and punishments for the past
performance of the employees. This approach was a past oriented approach which focused only
on the past performance of the employees i.e. during a past specified period of time. This
approach did not consider the developmental aspects of the employee performance i.e. his
training and development needs or career developmental possibilities. The primary concern of
the traditional approach is to judge the performance of the Organization as a whole by the past
performances of its employees. Therefore, it is also called as the overall approach. The following
are some of the traditional performance appraisal methods that Organizations may follow:
1. Essay Appraisal Method: This traditional form of appraisal, also known as “Free Form
method” involves a description of the performance of an employee by his/ her superior. The
description is an evaluation of the performance of any individual based on the facts and often
includes examples and evidences to support the information. A major drawback of the method is
that it may suffer from the bias of the evaluator.
2. Straight Ranking Method: This is one of the oldest and simplest techniques of performance
appraisal. In this method, the appraiser ranks the employees from thebest to the poorest on the
basis of their overall performance. It is quite useful for a comparative evaluation.
3. Paired Comparison Method: In this method, comparison is made on each employee with all
others in the group. On the basis of the overall comparisons, the employees are given the final
rankings.
4. Critical Incidents Methods: In this method, the evaluator rates the employee on the basis of
critical events and how the employee behaved during those incidents. It includes both negative
and positive points. The drawback of this method is that the supervisor has to note down the
critical incidents and the employee behaviour as and when they occur.
5. Field Review Method: In this method, a senior member of the HR department or a training
officer discusses and interviews the supervisors to evaluate and rate their respective

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

128

subordinates. A major drawback of this method is that it is a very time consuming method. This
method helps to reduce the superiors’ personal bias.
6. Checklist Method: The rate is given a checklist of the descriptions of the behaviour of the
employees on the job. The checklist contains a list of statements on the basis of which the rater
describes the job performance of the employees.
7. Graphical Rating Scale Method: In this method, an employee’s quality and quantity of work
is assessed in a graphic scale indicating different degrees of a particular trait. The factors taken
into consideration include both the personal characteristics and characteristics related to the on
the job performance of the employees. For example a trait like Job Knowledge may be judged on
the range of average, above average, outstanding or unsatisfactory.
8. Rating Scales Method: Rating scales consists of several numerical scales representing job
related performance criterion such as dependability, initiative, output, attendance, attitude, etc.
Each scales ranges from excellent to poor. The total numerical score are compared and final
conclusions are derived. Advantages of rating scales are: adaptability, ease to use, low cost,
every type of job can be evaluated and final conclusions can be derived, no formal training is
required. However, rater’s bias is considered as the major disadvantage of this method.

II. Modern Approach
The modern approach to performance development has made the performance appraisal process
more formal and structured. It includes a feedback-process that helps to strengthen the
relationships between superiors and subordinates and improve communication throughout the
Organization. It is a future oriented approach and is developmental in nature. This recognizes
employees as individual and focuses on their development. The following are some of the
modern performance appraisal methods that Organizations may follow:
1. Assessment Centres: An assessment centre typically involves the use of methods like
social/informal events, tests and exercises, assignments being given to a group of employees, to
assess their competencies to take higher responsibilities in the future. Generally, employees are
given an assignment similar to the job they would be expected to perform if promoted. The

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

129

trained evaluators observe and evaluate employees as they perform the assigned jobs and are
evaluated on job related characteristics. The major competencies that are judged in assessment
centers are interpersonal skills, intellectual capability, planning and organizing capabilities,
motivation, career orientation etc. Assessment centers are also an effective way to determine the
training and development needs of the targeted employees.
2. Human Resource Accounting Method: Human resources are valuable assets for every
Organization. Human resource accounting method tries to find the relative worth of these assets
in terms of money. In this method the Performance appraisal of the employees is judged in terms
of cost and contribution of the employees. The cost of employees include all the expenses
incurred on them like their compensation, recruitment and selection costs, induction and training
costs etc. whereas their contribution includes the total value added (in monetary terms). The
difference between the cost and the contribution will be the performance of the employees.
Ideally, the contribution of the employees should be greater than the cost incurred on them
3. Management by Objectives (MBO): MBO can be described a process whereby the
employees and the superiors come together to identify common goals. The employees set their
goals to be achieved, the standards to be taken as the criteria for measurement of their
performance and contribution and deciding the course of action to be followed. The essence of
MBO is participative goal setting, choosing course of actions and decision making. An important
part of the MBO is the measurement and the comparison of the employee’s actual performance
with the standards set. Ideally, when employees themselves have been involved with the goal
setting and choosing the course of action to be followed by them, they are more likely to fulfill
their responsibilities.
4. Balance Score Card: The Balanced scorecard – an approach given by Kaplan and Norton
provides a framework of various measures to ensure the complete and balanced view of the
performance of the employees. Balanced scorecard focuses on the measures that drive
performance. The balanced scorecard provides a list of measures that balance the Organizations
internal and process measures with results, achievements and financial measures.
5. 360 Degree Feedback Appraisal: It is also known as ‘multi-rater feedback’, is the most
comprehensive appraisal where the feedback about the employees’ performance comes from all

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

130

the sources that come in contact with the employee on his job. 360 degree respondents for an
employee can be his/her peers, managers (i.e. superior), subordinates, team members, customers,
suppliers/ vendors. Anyone who comes into contact with the employee and can provide valuable
insights and information or feedback regarding the “on-the-job” performance. The 360 degree
appraisal has four integral components: Self appraisal, Superior’s appraisal, Subordinates’
appraisal and peers appraisal.
Self appraisal gives a chance to the employee to look at his/her strengths and weaknesses, his
achievements, and judge his own performance. Superior’s appraisal forms the traditional part of
the 360-degree performance appraisal where the employees’ responsibilities and actual
performance is rated by the superior. Subordinates’ appraisal gives a chance to judge the
employee on the parameters like communication and motivating abilities, superior’s ability to
delegate the work, leadership qualities etc. The correct feedback given by peers can help to find
employees’ abilities to work in a team, co-operation and sensitivity towards others.

PROMOTION - INTRODUCTION
Promotion means the advancement of an employee to a higher job involving more work,
greater responsibility and higher status. It may or may not be associated with the increment
in salary. Promotion is one of the best forms of incentives and it provides higher
responsibilities, better salary, high morale and job satisfaction to the employees. Practically,
all the employees aspire for career advancement and promotion is an advancement of the
employee in the organisational hierarchy.
Edwin B. Flippo, “A promotion involves a change from one job to another that is better in
terms of status and responsibilities.”
Scott &Spriegal, “A promotion is the transfer of an employee to a job that pays more money
or that enjoys some better status.”

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

131

FEATURES OF PROMOTION
a. Promotion is a reward for consistently good performance of the employee.
b. It enhances employee morale and job satisfaction.
c. It involves higher responsibilities, better job status and increase in salary.
d. Provides opportunities for career advancement.
e. Promotion is beneficial to both employees as well as organisation. It motivates, increases
the involvement and commitment of the employees, leading to increased productivity.
f. It helps the organisation to attract and retain good performers.
PURPOSE OF PROMOTION
1. To recognise an individual’s performance and reward him for his work.
2. To retain and reward an employee for his unbroken continuous service to the
organisation.
3. To increase an employee’s organisational effectiveness.
4. To build loyalty morale, and belongingness on the part of the employee.
5. To promote job satisfaction among the employees.
6. To attract suitable and competent workers for the organisation.
The importance of promotion is that it provides incentive to initiatives, enterprise, and
ambition, minimizes discontent and unrest, attracts capable individuals, necessitates logical
training of advancement and forms an effective reward for loyalty, co-operation and long
service. Promotions also afford an opportunity for greater self-actualization through more
varied and challenging assignments.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

132

TYPES OF PROMOTION
1. Horizontal Promotion:
This type of promotion involves an increase in responsibility and pay with the change in the
designation. However, the job classification remains the same. For example, a lower-
division clerk is promoted as higher-division clerk. In such a case, the position of the
employee concerned has been upgraded with some pay increase but the nature of his job
remains the same. This is known as upgradation of an employee. In universities and other
academic institutions, the system of this type of promotion is in the form of lecturer- senior
lecturer-selection grade lecturer, etc.
2. Vertical Promotion:
In vertical promotion, there is a change in the status, responsibilities, job classification, and
pay. For example, a production superintendent is promoted as production manager.
Sometimes, this type of promotion changes the nature of job completely, for example, a
functional head is promoted as chief executive of the organization. The jobs involved at
these two positions are completely different.
3. Dry Promotion:
Dry promotion refers to increase in responsibilities and status without any increase in pay or
other financial benefits, For example, a professor in a university becomes Head of the
Department. It is just an elevation of the Professor without any increase in financial
advantage.

ADVANTAGES OF PROMOTION
1. Recognizes the Commitment/Performance of Employees:
Promotion is the best tool to recognize the loyalty and commitment of the employee towards
organization. Promotion makes the employee perform better in future. It boosts up the
morale of employees and they start to internalize organizational goals as their goals.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

133

2. To Provide Opportunities for Career Development:
If promotions are not given to employees, they start looking for greener pastures outside the
organization. This harms the organization’s growth, stability and competence. Therefore,
the only way to encourage competent employees is to provide them with promotions.
3. To Develop Competitive Spirit among Employees:
Promotion has also been used to inculcate a spirit of competition among employees. The
thumb rule is made clear to all employees that ‘the one who performs the best gets
promoted. Employees then start to take work in a competitive spirit and try to prove
themselves to be worth promotion.
4. Give the Satisfaction of Continuous Unbroken Service:
It is very satisfying for an employee to work in the same organization for longer tenure.
They feel very happy and satisfied to tell others that they have been working with the same
group or organization for 20-25 years. The loyalty, commitment of such people is par
excellence. They become pride of the organization. Promotions given on time provide an
opportunity to employees to get this job satisfaction.
5. To Reduce Unrest and Discontent among Employees:
If employees feel that they have not been duly recognized by the organization, promotion is
the best tool to satisfy them. If there is an environment of unrest in organization, promotion
is the fastest way to control it. If the promotional policy of any organization is challenged,
the management should take it seriously and not allow it to catch fire.
DISADVANTAGES OF PROMOTION
1. Basis or Criteria for Promotion-Seniority vs. Merit:
Basis of promotion- seniority or merit itself poses a problem to the organization. If an
employee is promoted on the basis of his/her seniority i.e., length of service irrespective of

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

134

his/her merit or performance, meritorious employees lack interest in showing better
performance.
On the other hand, if the promotion is made on the basis of merit regardless of length of
service, competent and interested junior most employee may get an opportunity to occupy
higher position who may have to exercise power on senior employees which may cause
embracement to senior employees. Thus, basis of promotion itself may be a problem.
2. Refusal of Promotion by Employees:
Sometimes employees refuse promotion if they are promoted together with transfer to an
unwanted place or because of delegation of unwanted responsibility or employees feel that
they are incompetent to discharge duty. Under these circumstances, promotion becomes
problem.
3. Promotion May Disappoint Employees:
If all those who are due for promotion are promoted, employees will certainly welcome the
decision. On the other hand, if few are only promoted, leaving the other employees, those
who are not promoted will be disappointed when their colleagues with similar qualifications
and experience are promoted. Such employees may develop negative attitude and may not
contribute to the progress and prosperity of the enterprise.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

135

CHAPTER – IX: WORK FROM HOME
WORK FROM HOME: INTRODUCTION
Work From home or WFH is a concept where the employee can do his or her job from home
using company approved assets, policies and tools. Work from home gives flexible working
hours to the employee as well as the job for the employer is done with ease. Work from home is
helpful to delivering work life balance to the employee, and also parallelly helps the company to
get the work done. Nowadays, most of the employers are offering this option to their employees.
Work from home (or Working from home) is a modern work approach enabled through internet
and mobility wherein irrespective of the physical location of an individual work can be done.
Work from Home is also known as Working remotely or telecommuting which implies that the
employee is working from a remote location usually home.

Advantages of Work from Home (WFH)
1. There is more job applicant for a particular job with certain people with location constraint or
disabled people can apply for the job. Even parents with children who tend to leave job can be
retained for the job.
2. There is more work life balance. Many people claim that a more quieter or friendly
atmosphere is found at home which helps to concentrate on the work as well as they can
complete the assigned work quickly.
3. There is a lot of savings with respect to cost of office infrastructure like spaces, electricity bills
etc.
4. Employees feel motivated as they get a good work life balance, and improves their
productivity
Disadvantages of Work from Home
There are many disadvantages as well
1. There is always a major problem with monitoring the work.
2. The cost of technological infrastructure that is required for implementing the concept.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

136

3. There is always a security problem with data being transferred and that can’t be monitored
easily.
4. All jobs doesn’t is not suitable for work from home concept. Sometimes communication
problem between employees makes it problematic for a job.
MANAGING WORK FROM HOME
1. Ensure employees have the right infrastructure
This is the first step toward building a remote-friendly company. Ensure all your employees have
the correct setup to conduct their work seamlessly. This includes laptops, webcams, robust WiFi
connections, collaboration tools, security software, and more. If they do not have it, loan them
the equipment and get your IT expert to install all required software so employees can work
efficiently and safely.
2. Set clear expectations
Remote working comes with its own set of challenges. When not managed properly, it can lead
to confusion and chaos. You can avoid this from the get-go by setting clear expectations. This
includes work goals, deadlines, workflow, availability, performance, feedback, etc. Ensure all
employees are aware of what is required of them and how and when they need to deliver. This
will allow people to work cohesively, improve efficiencies and avoid friction.
3. Insist on communication and transparency
Communication and transparency comprise the foundation on which remote working practices
are built. There is no such thing as over communication when it comes to remote working. Even
though people are working from different parts of the world, they still need to work as a team.
The only way to make this possible is through communication and transparency. Identify other
channels people can use for one-on-one chats, team meetings, and sharing of resources and
updates. This will allow everyone to be on the same page, connect with each other and build
relationships based on trust.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

137

4. Adopt collaboration and remote working tools
While collaborative tools have been around for some time, they saw massive adoption during the
pandemic. In fact, they played the role of saviour for many businesses that had to shift to remote
working overnight. To make remote working successful, deploy collaboration tools and train
your employees to use them effectively. These will help them stay connected, work as a team
and be productive from anywhere. Popular collaboration tools include Zoom, Microsoft Teams,
Slack, Blink, Google Docs, Asana, and Trello, among many others. 
5. Offer flexibility
According to research published in Indeed’s Hiring Tracker, for nearly 80% of the jobseekers
work-life balance is important, with 41% stating it to be the ‘most important’. Remember that
your employees are juggling several responsibilities while working from home, such as
household tasks, taking care of children and looking after elderly parents. They may also be
working in a different time zone. Hence, it is imperative to offer them the flexibility to choose
how and when they work. This will allow them to find the most optimum way of working, be
more efficient and deliver at a better standard.
6. Set healthy boundaries
One of the downsides to remote working is that it can blur the lines between professional and
personal life as people tend to be available to work round the clock. This is not sustainable and
can impact employee productivity, physical and mental health and family dynamics. As a
business leader, it is crucial that you set healthy boundaries. It might be prudent to lead by
example by limiting hours of availability, promoting a healthy lifestyle, encouraging self-care,
and more.  
7. Catch up socially
Working in an office is not just about working. People form friendships and even create work
families within organisations. This could take a major hit when working remotely. So, think
about how you can have people interact beyond the scope of work in a remote setup. Encourage

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

138

your staff to socialise virtually, connect and build relationships. You can create an alternative
channel dedicated to non-work communication. Also, make it a point to connect one-on-one with
your employees in an informal setting whenever you can. This will create a sense of
camaraderie, increase productivity and lead to happy employees.
8. Foster employee wellbeing
Remote working has drastically reduced social interactions. With many people living away from
family, it can lead to loneliness. As a business leader, the onus of their overall welfare lies on
you. Employee well-being is just as crucial as offering training and professional growth
opportunities. You can do this by providing emotional support to your team members, checking
on them, encouraging them to take mental health days and seek counselling, if needed. 
Whether full-time or hybrid, remote working is not going anywhere. Following these best
practices can get you started in the right direction. However, every business is different, and you
may need to figure out what works for you through trial and error. Get feedback from employees
on the challenges they are facing while remote working. If something is amiss, be agile enough
to pivot. Include your employees in your remote working policy decision-making. After all,
happy employees lead to successful businesses.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

139

CHAPTER – X : MANAGEMENT BY OBJECTIVE S AND SPAN OF
MANAGEMENT
MANAGEMENT BY OBJECTIVES: INTRODUCTION
Management by Objectives, often shortened to MBO, is simply one of several management
models that have been used, and are still being used even today. This technique allows
management to focus on the attainable goals of the organization, and to work towards achieving
the best possible results, using the resources available to the organization at that point in time.
The goal of this model is to improve the overall performance of an organization by defining its
objectives clearly, and these objectives have to have been agreed to completely by the
management, the employees, and the other members of the organization. In other words, it
operates on the assumption that, if the goals of the organization are aligned with that of the
employees, then achieving these goals through work performance will be more successful. The
origins of MBO can be traced back to 1954, when management expert Peter Drucker first
introduced the term and the concept in his book, entitled “The Practice of Management”.
Basically, he described it as an environment where management and employees join forces and
work together to set and monitor the goals of the organization for a certain period.
MEANING
Management by objectives (MBO) is a strategic management model that aims to improve the
performance of an organization by clearly defining objectives that are agreed to by both
management and employees. According to the theory, having a say in goal setting and action
plans encourages participation and commitment among employees, as well as aligning objectives
across the organization. It refers to the process of setting goals for the employees so that they
know what they are supposed to do at the workplace. Management by Objectives defines roles
and responsibilities for the employees and help them chalk out their future course of action in the
organization.
NEEDS OF MANAGEMENT BY OBJECTIVES (MBO)
 The Management by Objectives process helps the employees to understand their duties at
the workplace.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

140

 KRAs are designed for each employee as per their interest, specialization and educational
qualification.
 The employees are clear as to what is expected out of them.
 Management by Objectives process leads to satisfied employees. It avoids job mismatch
and unnecessary confusions later on.
 Employees in their own way contribute to the achievement of the goals and objectives of
the organization. Every employee has his own role at the workplace.
 Management by Objectives ensures effective communication amongst the employees. It
leads to a positive ambience at the workplace.
 Management by Objectives leads to well defined hierarchies at the workplace. It ensures
transparency at all levels. Everyone is clear about his position in the organization.
 The MBO Process leads to highly motivated and committed employees.
 The MBO Process sets a benchmark for every employee. The superiors set targets for
each of the team members, each employee is given a list of specific tasks.
FEATURES OF MBO
1. Goal Orientation: MBO focuses on the determination of unit and individual goals in line with
the organizational goals. These goals define responsibilities of different parts of the organisation
and help to integrate the organisation with its parts and with its environment.MBO seeks to
balance and blend the long-term objectives (profit, growth and survival of the firm with the
personal objectives of key executives. It requires that all corporate, departmental and personal
goals will be clearly defined and integrated.
2. Participation: The MBO process is characterized by a high degree of participation of the
concerned people in goal setting and performance appraisal. Such participation provides the
opportunity to influence decisions and clarify job relationships with superiors, subordinates and
peers. It also helps to improve the motivation and morale of the people and results in role clarity.
Participative decision-making is a prerequisite of MBO. MBO requires all key personnel to
contribute maximum to the overall objectives.
3. Key Result Areas: The emphasis in MBO is on performance improvement in the areas which
are of critical importance to the organisation as a whole. By identification of key result areas

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

141

(KRAs), MBO ensures that due attention is given to the priority areas which have significant
impact on performance and growth of the organisation. Goals of all key personnel are properly
harmonized and they are required to make maximum contribution to the overall objectives.
4. Systems Approach: MBO is a systems approach of managing an organisation. It attempts to
integrate the individual with the organisation and the organisation with its environment. It seeks
to ensure the accomplishment of both personal and enterprise goals by creating goal congruence.
5. Optimization of Resources: The ultimate aim of MBO is to secure the optimum utilization of
physical and human resources of the organisation. MBO sets an evaluative mechanism through
which the contribution of each individual can be measured.
6. Simplicity and Dynamism: MBO is a non-specialist technique and it can be used by all types
of managers. At the same time, it is capable of being adopted by both business and social welfare
organizations. MBO applies to every manager, whatever his function and level, and to any
organisation, large or small.
7. Operational: MBO is an operational process which helps to translate concepts into practice.
MBO is made operational through periodic reviews of performance which are future-oriented
and which involve self-control.
8. Multiple Accountability: Under MBO, accountability for results is not centralized at
particular points. Rather every member of the organisation is accountable for accomplishing the
goals set for him. Multiple centers of accountability discourage ‘buck-passing’ and ‘credit-
grabbing’. MBO establishes a system of decentralized planning with centralized control.
9. Comprehensive: MBO is a ‘total approach’. It attaches equal importance to the economic and
human dimensions of an organisation. It combines attention to detailed micro-level, short range
analysis within the firm with emphasis on macro-level, long range integration with the
environment.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

142

BENEFITS OF MBO
1. Better Managing: MBO results in improved and better managing. Better managing requires
setting goals for each and every activity and individual and ensuring that these are achieved.
MBO not only helps in setting objectives but also ensures balancing of objectives and resources.
For establishing objectives there is a need for better and result oriented planning. Management
by objectives forces managers to think about planning for results, rather than merely planning
activities or work. Managers will devise ways and means for achieving objectives. The
objectives also act as controls and performance standards. So MBO is helpful in improving
management.
2. Clarifying Organisation: MBO helps in clarifying organisational roles and structures.
Responsibility and authority are assigned as per the requirements of the tasks assigned. There is
no use of fixing objectives without delegating requisite authority. The positions should be built
around the key results expected of people occupying them. Implementation of MBO will help in
spotting the deficiencies in the organisation.
3. Encouraging Personal Commitment: The main benefit of MBO is that it encourages
personnel to commit themselves for the achievement of specified objectives. In a normal course
people are just doing the work assigned to them. They follow the instructions given by the
superiors and undertake their work as a routine matter. In MBO the purpose of every person is
clearly defined with his or her own consent. People in the organisation have an opportunity to
put their own ideas before superiors, discuss the pros and cons of various suggestions and
participate in setting the final objectives. When a person is a party for setting objectives then he
will make honest endeavour to achieve them. He will feel committed to reach the goals decided
with his consent. A feeling of commitment brings enthusiasm and helps in reaching the goals.
4. Developing Controls: MBO mechanism helps in devising effective controls. The need for
setting controls is the setting of standards and then finding out deviations if any. In MBO,
verifiable goals are set and the actual performance will help in finding out the deficiencies in
results. Every person is clear about what is expected from him and these standards act as clear-
cut controls. So, controls can easily be devised when MBO is followed.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

143

DRAWBACKS OF MBO
1. Failure to Teach MBO Philosophy: The success of MBO will depend upon its proper
understanding by managers. When managers are clear about this concept only then they can
explain to subordinates how it works, why it is being done, what will be the expected results,
how it will benefit participants, etc. This philosophy is based on self-direction and self-control
and aims to make managers professionals.
2. Failure to Give Guidelines to Goal setters: If the goal setters are not given proper guidelines
for deciding their objectives, then MBO will not be a success. The managers who will guide in
goal setting should themselves understand the major policies of the company and the role to be
played by their activity. They should also know planning premises and assumptions for the
future. Failure to understand these vital aspects will prove fatal for this system.
3. Difficulty in Setting Goals: The main emphasis in MBO technique is on set ting objectives.
The setting of objectives is not a simple thing. It requires lot of information for arriving at the
conclusions. The objectives should be verifiable so that performance may be evaluated. Some
objectives may not be verifiable, precaution should be taken in defining such objectives. The
objectives should not be set casually otherwise MBO may prove liability for the business.
4. Emphasis on Short Term Objectives: In most of the MBO programs there is a tendency to
set short-term objectives. Managers are inclined to set goals for a year or less and their thrust is
to give undue importance to short term goals at the cost of long-term goals. They should achieve
short term goals in such a way that they help in the achievement of long-term goals also. There
may be a possibility that short term and long-term objectives may be incompatible because of
specific problems. So proper emphasis should be given to both short term and long-term
objectives.
5. Danger of Inflexibility: There is a tendency to strict to the objectives even if there is a need
for modification. Normally objectives will cease to be meaningful if they are often changed, it
will also be foolish to strive for goals which have become obsolete due to revised corporate
objectives or modified policies.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

144

PROCESS OF MBO
1. Define Organizational Goals: Goals are critical issues to organizational effectiveness, and
they serve a number of purposes. Organizations can also have several different kinds of goals, all
of which must be appropriately managed. And a number of different kinds of managers must be
involved in setting goals. The goals set by the superiors are preliminary, based on an analysis and
judgment as to what can and what should be accomplished by the organization within a certain
period.
2. Define Employees Objectives: After making sure that employees’ managers have informed
of pertinent general objectives, strategies and planning premises, the manager can then proceed
to work with employees in setting their objectives. The manager asks what goals the employees
believe they can accomplish in what time period, and with what resources. They will then
discuss some preliminary thoughts about what goals seem feasible for the company or
department.
3. Continuous Monitoring Performance and Progress: MBO process is not only essential for
making line managers in business organizations more effective but also equally important for
monitoring the performance and progress of employees. For monitoring performance and
progress the followings are required;
i. Identifying ineffective programs by comparing performance with pre-established objectives,
ii. Using zero-based budgeting,
iii. Applying MBO concepts for measuring individual and plans,
iv. Preparing long and short-range objectives and plans,
v. Installing effective controls, and
vi. Designing a sound organizational structure with clear, responsibilities and decision-making
authority at the appropriate level.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

145

4. Performance Evaluation: Under this MBO process performance review is made by the
participation of the concerned managers. Evaluation measures topics such job skills, quantity
and quality of work, and achievement of task-specific goals.
5. Providing Feedback: The filial ingredients in an MBO program are continuous feedback on
performance and goals that allow individuals to monitor and correct their own actions. This
continuous feedback is supplemented by periodic formal appraisal meetings in which superiors
and subordinates can review progress toward goals, which lead to further feedback.
6. Performance Appraisal: Performance Appraisal refers to the professional unbiased opinion
of an assessment of the value of an entity or commodity. Therefore, performance
appraisal describes the systematic methodologies of evaluating employees' performance, skills,
and achievements in contribution to a company's success. The evaluation is conducted by
understanding employees' abilities for further development. Before evaluating employees'
performance and contribution to company success, the management sets goals and targets to be
met within a particular timeframe. The performance is then measured based on whether the
organization met the targets and goals. Performance appraisals are a regular review of employee
performance within organizations. It is done at the last stage of the MBO process.

SPAN OF MANAGEMENT
Span of management is the number of people or subordinates that the manager can control and
manage. Simply, the manager having the group of subordinates who report him directly is called
as the span of management.
The term ‘span of management’ is also known as ‘span of control’ and ‘span of supervision’.
An organisation needs to maintain a balance between the number of employees within a team
and the number of employees that a manager is responsible for taking care of. It relies on the
type and nature of the work in the organisation. The span of control of a manager thus depends
upon their subordinates, which can range from a few to a hundred.
When an organisation understands its own span of management, they perform better, as it can
create an efficient and healthy work environment for the employees and its team. It is also

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

146

determined by the manager’s ability to communicate with and motivate subordinates and
control their work and projects. There are different departments in an organisation, such as
finance, HR, marketing, etc., and each of those departments has its team members. Handling
them together might be difficult for the head of that organisation. In such a case, a span of
management is necessary.
IMPORTANCE OF SPAN OF MANAGEMENT
 Discipline: By specifying the span of control at every management level, stakeholders can
create discipline within the organizations.
 Motivation: Motivation is a crucial factor that keeps the team going. One can motivate its
workforce through the span of control by providing guidance and feedback at regular
intervals.
 Timely Decision Making: Many small or big business decisions have to be taken at every
hierarchy. The determination of the span of management helps in timely decision-making.
 Effective Control: Control is an essential principle of management. Managers use the
span of control to achieve effective control over the business.
 Communication: Business communication is how individuals interact within the business.
To attain effective communication, organizations use the span of control. It eases the
communication flow and sends information to the lower levels of management.
FACTORS DETERMINING SPAN OF MANAGEMENT
1. Capacity of Subordinates: The span of management very much depends on the efficiency
and ability of the subordinates that are under the control of the manager. If they are qualified
and capable enough, the work of the manager to maintain relationships with their subordinates
becomes easy, and they can manage a larger number of people.
2. Manager’s Capability to Manage: The manager’s competency and skill affect the span of
management. If the manager is competent and knowledgeable, he can manage a wider span of
control. The abilities of managers, like leadership, communication, decision-making, etc., to
manage more subordinates can determine the span of management.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

147

3. Size of the Organization: The organization’s size also influences the span of management.
It determines the number of people the manager can handle. The larger the organization, the
wider control it has over its subordinates, and thus, the information flow and communication
are done more effortlessly. Whereas in a smaller organization, the span of control is restricted
but concentrated and the manager can perform better supervision.
4. Nature of Work: Frequent guidance is not required when the work performed by the
subordinates is simple and repetitive. So managers can supervise a large number of
subordinates. But the span of management is narrow when the nature of work is different or
non-identical. The rate of change in work also affects the span of management. A wider span
of management is used when the work is stable and does not change frequently.
5. Availability of Time: If the manager has more time on his hand, he will be able to manage a
greater number of subordinates efficiently as he will have more time for guidance. Top-level
managers have less time for supervision as they devote the major portion of their time to
planning and organising, and therefore their span of management is narrow.
6. Plans and Activities: If the organization’s plans and activities to attain its goal are simple
and clear, it will be easier for the manager to control the activities happening in the
organization. Whereas, if the plans are unstable, it can be difficult for the manager to supervise
the subordinates and the activities of the organization.
7. Facilities Available: The span of management will be wider if advanced technologies and
facilities are available. Modern and convenient office equipment and faster communication
devices simplify the task of management.
8. Degree of Decentralisation: A reasonable level of decentralisation lowers the load of the
manager’s work as they can manage a larger number of employees. On the other hand, if the
organization is centralized, the manager can efficiently control the smaller portion of
subordinates.
9. Type of Technology: Wider span of management is used by organisations using mass
production and assembly line technology and a relatively narrower span is used by
organisations employing batch or process production systems.
10. Geographical Dispersion of Subordinates: Control and management of employees
become difficult when the subordinates are dispersed at different places. Therefore, the span of
management is relatively smaller.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

148

11. Staff Assistance: Managers can handle more subordinates if staff assistance, like a private
secretary is available. The availability of staff reduces the workload of the managers.
The span of management of an organization is an essential element for any manager overseeing
their subordinates. It also affects the organisation’s communication, increasing or decreasing
its efficiency. Thus, the narrower the span of management, the more effective an organization’s
functioning.
TYPES OF SPAN OF CONTROL
1. Wide span of control
Wide span of control is common for companies with flat organizational structures. This is
because fewer layers are involved between top to bottom levels. Thus, the chain of command is
short. For example, a company may have two levels of authority, namely only the director and
the manager as division head. The manager supervises 6 employees. Each employee will be
responsible and report to the manager, who in turn will report to the director.
Advantages of wide span of control
 Faster communication and coordination: Information from the lowest level gets to the
top-level (or vice versa) faster because fewer layers are involved. It allows for quick
coordination and decision-making.
 Higher motivation: Managers delegate less essential decision-making to employees. It
can lead to high job satisfaction and motivation as employees are more involved in
making decisions about their work.
 Work flexibility: Managers reduce oversight of their subordinates through delegation.
And they place high trust in subordinates and are expected to act according to their
expectations.
 Lower costs: Managers supervise more people. So, companies need fewer managers and
layers in the organizational structure.
 More delegates: The span of control is wider, and the manager is responsible for more
subordinates. Indeed, it makes their work heavier. But, on the other hand, it should

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

149

encourage managers to delegate more because it is impossible to do all the important
work on their own.
 Job satisfaction: With more delegation, employees can make more decisions on their
own. It can be more effective because they understand the problems in their job better
than the manager. Combined with more autonomy, they have the freedom to manage
their working life, leading to higher job satisfaction.
Disadvantages of wide span of control
 Decreased productivity: Managers manage many subordinates, and not all managers
have the quality to do so. That can place a heavier workload, lowering their productivity.
 Bad decision: Delegation allows employees to make decisions. However, they may not
be good decision-makers even though they are experts in their fields. In the end, they
may make the wrong decision.
 Losing control: It is difficult to control all the subordinates. Bad decisions by employees
can stress managers out. In addition, individual decisions may not be well-coordinated
and tend to be random and undirected. Finally, it requires more managerial intervention
to guide, increasing the manager’s workload.
 Less effective communication: Communication messages may arrive faster, but the
quality may be poor. That’s because managers need to convey it to a lot of people. And
not all understand; each may have its own interpretation.
2. Narrow span of control
Under a narrow span of control, managers have fewer subordinates to supervise. This is common
in tall structure companies involving more levels or layers. For example, a company has three
levels of authority: directors, division heads, and managers. The division head oversees three
managers. Meanwhile, the manager is responsible for two subordinates.

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

150

Advantages of narrow span of control
 More control: Managers can supervise better because they supervise fewer subordinates.
In addition, to reduce tighter supervision, they may use a more personal approach, which
is more likely to be done with fewer subordinates.
 Better productivity: The manager’s workload is less due to supervising fewer
subordinates. In addition, decision-making is distributed over more layers. That should
lead to higher performance and productivity.
 Better decision: Managers take a more dominant role in making decisions than
employees. Thus, they can make better, more coordinated decisions than delegating them
to employees.
 More effective communication: Fewer subordinates allow for higher quality
communication and feedback. As a result, managers can more effectively convey
messages to or accommodate their aspirations.
Disadvantages of narrow span of control
 Lowers morale: If managers supervise too closely, it can demoralize employees. A
personal approach may be effective in some cases to prevent that. But, not all managers
have the quality to do it.
 Greater cost: Companies need more managers to supervise fewer employees. Thus, it
consumes a larger cost.
 Slower communication and coordination: Communication quality may be good under
a narrow span of control. But, it can take more time to get from the lowest to the top-level
(or vice versa) because it has to go through many layers. As a result, decision-making at
the top level tends to be slow.

*************

PRINCIPLES OF MANAGEMENT ISBN - 978-81-969444-6-9

151

POM BOOK PUBLISHED COPYN.pdf HYAAENA PUB

About This Presentation

Slide Content

Tags

Categories

Download

Quick Actions

Statistics

Related Slideshows

POM BOOK PUBLISHED COPYN.pdf HYAAENA PUB

About This Presentation

Slide Content

Slide 1

Slide 2

Slide 3

Slide 4

Slide 5

Slide 6

Slide 7

Slide 8

Slide 9

Slide 10

Slide 11

Slide 12

Slide 13

Slide 14

Slide 15

Slide 16

Slide 17

Slide 18

Slide 19

Slide 20

Slide 21

Slide 22

Slide 23

Slide 24

Slide 25

Slide 26

Slide 27

Slide 28

Slide 29

Slide 30

Slide 31

Slide 32

Slide 33

Slide 34

Slide 35

Slide 36

Slide 37

Slide 38

Slide 39

Slide 40

Slide 41

Slide 42

Slide 43

Slide 44

Slide 45

Slide 46

Slide 47

Slide 48

Slide 49

Slide 50

Slide 51

Slide 52

Slide 53

Slide 54

Slide 55

Slide 56

Slide 57

Slide 58

Slide 59

Slide 60

Slide 61

Slide 62

Slide 63

Slide 64

Slide 65

Slide 66

Slide 67

Slide 68

Slide 69

Slide 70

Slide 71

Slide 72

Slide 73

Slide 74

Slide 75

Slide 76

Slide 77