PRINCIPLES OF MANAGEMENT

4.1.1 DEVELOPMENT OF MANAGEMENT THEORY

Two centuries ago, working and living conditions in factories were very poor. Men, women and
children (5 or 6 years old) worked up to 14 hours a day, 6days a week. Wages were very low. Housing
was crowded and unsanitary. Workers were dominated by their bosses. Everything was determined on
the basis of authority. This period came to an end when French Revolution gave the cry for fraternity,
liberty and equality.

Robert Owen, a manager of several Cotton mills at Scotland, and Charles Babbage a British
professor of mathematics are considered as forerunners of scientific management theory. Robert Owen
reduced work to 10.5 hours a day and refused to employ children under the age of 10. Robert Owen
believed that improving conditions of employees will increase production and profits.

Charles Babbage was in favour of division of labour to increase productivity, lower expenses,
improve worker’s skill and efficiency.

The period between 1700 and 1850 highlights the Industrial Revolution. The advent of factory
system during this period gave importance to managerial function. Several economists, during this period
explained the concepts and functions of management. Adam Smith explained the concepts and results f
division of labour. Turbot explained the importance of direction and control. J.B. Say emphasized the
importance of planning.

Management, as a separate field of study, has emerged only during the second half on the 19th
century. During this 19th century, management has become a science with some principles and
practices. The evolution of management theory can be studied under the following three stages.
1. Traditional Management
2. Early Management Approach
3. Modern Management Approach

1. Traditional Management:
It prevailed in 18th and 19th centuries. Management was considered as in born quality gifted by
God and could not be acquired. The then managers handled problems by their own opinions, judgments
and whims. Every manager solved his problem in his own way and hence management was considered
as an art. Business was managed by rule of thumb and common sense. There was inefficiency around.

2. Early Management Approach

The early Management consists of
(a) Scientific Management
(b) Administrative Management
(c) Human relations
a) Scientific Management:
Scientific management theory emerges from the need to increase productivity. In the USA, skilled
labour was in short supply at the beginning of twentieth century. The only way to increase productivity
was to raise the efficiency of workers. Thus Frederick Win low Taylor (F.W. Taylor). Henry L. Gantt, Frank
Gilbreth and Lillian Gilbreth devised a number of principles known as scientific management theory.
F.W. Taylor (1856 - 1915) is consider to be the father of scientific management. He stressed the
importance of Time and Motion Study” to increase the efficiency of men and machines. He introduced
differential piece rate system to motivate workers to increase production. Taylor also developed various
principles of management applicable to workers level.
Henry L. Gantt introduced two new features in Taylor’s incentive scheme. Every worker, who
finished a day’s assigned work was given 50% bonus for that day. The foreman was given bonus if a
fixed target is reached. Gantt also devised a charting system for production control. This system, “Gantt
Chart” is still in use today.
Frank Gillbreth and his wife Lillian Gilbreth made “Motion and. Fatigue” study to find most
economical ways of doing jobs.

b) Administrative Management
Henri Fayol (1841 - 1925), a French industrialist is considered the Father of Administrative
Theory, because he was the first who suggested the functions of management (technical, commercial,
financial, accounting, security and administrative). He used the word “administration” for what we call
“management”. Fayol also presented fourteen principles of management applicable to higher level of
management.

C) Human Relations Approach

The human relations approach emerged because managers found that Taylor’s and Fayol’s
principles, did not achieve complete production efficiency and work place harmony. The famous
Hawthorne experiments done by Prof. Elton Mayo at Western Electric Company, I llionis form 1927 to
1932 laid greater stress on the aspect of sociology and psychology. Importance of human relations was
realised.

3. Modern Management:
Modern management consist of
a) Behavioral Approach
b) Quantitative Approach
c) System Approach

Behavioral Approach is an improved version of the human relations approach. Human relations is
about “Social Man” motivated by a desire to form relationship with others. Behavioral Science is about
“Self-actualising man” for ex paining human motivation.
 Behavioral scientists such as Argyris, Maslow and McGregor have made enormous contributions
to understand individual motivation, group behaviour and importance of work to human beings. Their
findings have enabled managers to deal effectively with subordinates.

Latest techniques for management are quantitative techniques. Many writers have used
mathematical models for solving management problems. These techniques are Operation Research,
Linear programming, Queuing theory, Waiting line theory, Game theory etc.

At present, the management is considered as a system. The system approach of management is

similar to physical and biological system. System approach helps to study the complex nature of
management in better way.

4.1.2 MANAGEMENT, ADMINISTRATION AND ORGANISATION

Management:
Management is an art and science of achieving organisational goals through people. It is a
process of direction and control over the various activities of people to attain goals of an organisation. It
integrates people, resources, techniques and purposes into profitable Organisational systems.

Administration
Administration is the determination of goals and policies of an enterprise. It co-ordinates finance,
production and sales at a profit.

Organisation
Organisation is a system of structural interpersonal relations. Individuals are differentiated in
terms of authority, status and role. Organisation provides necessary frame work for management.

Relationship between management, administration and organisation

Administration is a determinative function. Management is an execution function to carryout the
policies laid down by the administration. Organisation is a machinery through which co-ordination is
established between administration and management.
In brief, management carries out the policies of administration through the framework of the
organisation.

4.1.3 EW. TAYLOR’S SCIENTIFIC MANAGEMENT

The following are the Taylor’s principles of scientific management
1. Science, not rule of thumb.
2. Harmony, not discord.
3. Co-operation, not individualism.
4. Maximum output, not restricted output.
 5. Specialisation, not generalisation.
6. Scientific selection, training and development of persons, not on personal judgment.

1. Science, not rule of thumb

Taylor’s overall goal was higher industrial efficiency through higher productivity. To improve
industrial efficiency, application of method of science is essential. Taylor identified the following objectives
for this purpose.
a) Standardisation of working conditions:
Determining the best temperature and humidity, provision for rest breaks, adequate lighting are
examples of standardisation of working conditions.
b) Standardisation of work methods:
Analysing the work on scientific basis and determining the best procedure for doing the job.
Motion study techniques shall be used to standardise work methods.
c) Planning of a daily task (Job) :
The job shall be broken into elements. Each element shall be timed to determine production time
for a job. Time study techniques shall be used for this and standard time for a job shall be fixed.
2. Harmony, not discord:
There must be friendly relations (harmony) among personnel of a concern. There shall be no
difference of opinion arid dispute (discord). The interest of the employer and employees shall be same.
To maintain harmony, fair agreements, effective supervision and firmness are required.
3. Co - operation, not individualism
Development of hearty co between management and labour is essential. The personnel of a
concern should not be selfish. They should not always think of their own interests. General interest is
more important than self interest.
4. Maximum output, not restricted output:
Workers must be encouraged to produce more by “Incentive of high wages”. For this Taylor
introduced “Differential Piece Rate Plan”. Under this plan, workers producing above stand were paid high
piece rate and those producing below standard were paid a lower piece rate.
5. Specialisation not generalisation
Division of work between management and labour is necessary to achieve higher industrial
efficiency. Division of work leads to specialisation. Management must take responsibility for planning and
supervision. Workers are responsible for ‘do of works Taylor developed functional organisation for this
purposes.
6. Scientific selection, training and development of persons, not on personal judgment:
If an organisation does not posses right kind of people for different activities, it will lower
production and employee morale. It may also increase absenteeism and labour turnover.
Therefore scientific selection of right type of people, training and developing them and fitting them
in proper placement are essential.
Taylor’s principles of scientific management had contributed to
 Elimination of waste effort.
  More emphasis on fitting workers to a particular job.
 Greater care in training workers.
 Greater specialisation of activities.
 Establishment of standard task level.
 Standardisation of working conditions and working methods.

4.1.4 HENRY FAYOL’S PRINCIPLES OF MANAGEMENT

The following are the Henry Fayol’s fourteen principles of management.
1. Division of work.
2. Authority and Responsibility.
3. Discipline.
4. Unity of Command.
5. Unity of Direction.
6. Subordination of individual interest to general interest.
7. Remuneration of Personnel.
8. Centralisation.
9. Scalar Chain.
10. Order.
11. Equity.
12. Stability of Tenure of Personnel.
13. Initiative.
14. Esprit de corps.

1. Division of work :
This is the principle of specialisation. Specialisation is defined as the concentration of effort upon
a particular work. As a man concentrates his efforts (mental or manual) on a particular work, he acquires
ability, confidence and accuracy. This increases productivity.
The division of work may lead to new discoveries and in But it has the disadvantages of (i)
boredom and monotony due to the repetition of same type of job and (ii) difficulty in getting some other
type of job.
2. Authority and Responsibility:
Authority is legal power to command others and extract obedience. Responsibility is the
obligation (or) duty towards a job.
Authority may be delegated but responsibility can not be delegated. For example, a general
manager is answerable to the board, for anything and everything that happens in the firm. He cannot say
that he has delegated the responsibility to a production manager, who may be cause for any trouble.
People often seek authority but fear responsibility. The fear of responsibility destroys initiative
and other good qualities. Authority without responsibility and responsibility without authority are defects of
management which should be avoided.
3. Discipline
 Discipline is “respect for agreements and the outward marks of respects. Discipline is absolutely
essential for the smooth running of an enterprise. Maintenance of discipline
requires good supervisors at all levels, clear and fair agreements, judicious application of penalties and
effective communication.

4. Unity of command:
This is the principle that an employee should receive orders from one superior only. A man can
serve only one boss. Multiple commands will cause conflicts and confusion. A sound management should
avoid dual commands.
5. Unity of direction
It means that there should be complete identity between individual goals and organisational
goals. They should not pull in different directions. Each group of activities having the same objective must
have one head and one plan. Unity of command cannot function without unity of direction.
6. Sub-ordination of individual Interest to general interest
The interest of an organisation is more important than the interest of an employee. This is
necessary to maintain unity and to avoid friction among the employees. Fair agreements, effective
supervision, firmness and good examples set by superiors are essential to maintain general interest.
7. Remuneration of personnel:
Remuneration is the money paid to the employees for the work done by them. This should be fair
and give maximum satisfaction to the employees.
8. Centralisation
Centralisation means concentration of authority at the top level of management. All decisions are
taken only by the top executive. Centralisation will cause delays in works.
Decentralisation is essential. Decentralisation means delegation of authority to subordinates for
quick action.
9. Scalar chain :
Scalar chain means “line of authority”. One should not unnecessarily short circuit the lines of
authority. The chain may be short circuited only when it is harmful to follow the scalar chain principle
strictly.

Fig. 4.1.1
Refer Fig. 4.1.1. If F has to communicate with I, the channel is F toB to A to C to I. By short
circuiting, F directly communicates with I and their superiors are later informed.

10. Order
 This is a principle of arrangement of things and persons. This principle is of two types – Material
order and Social Order. "A place for everything and everything in its place” is material order and” A place
for everyone and everyone in his place” is social order. Scientific selection, training and placement are
necessary for adopting this principle.

11. Equity:
The managers should treat subordinates equally with kindness and justice. By this, loyalty and
devotion from employs can be expected. A good morale could be maintained among employees.

12. Stability of Tenure of Personnel:

Stable and secure work force is an asset to an organisation. Unnecessary labour turnover is
costly and dangerous to the organisation. It is better to have one manager of average ability than to have
outstanding managers who merely come and go.

13. Initiative :
It is the capacity to see what needs to be done and take efforts to do it. It gives deep satisfaction
for an intelligent man. Hence managers should encourage subordinates to use imitative. For example,
when employees come forward to propose a new method, idea etc., it must be encouraged.

14. Esprit de crops

These are French words which means “feeling of harmony and union among personnel of a
factory “. Union is strength. The management should avoid the dangers of “divide and rule”.

MANAGERIAL FUNCTIONS
4.2.1 FUNCTIONS OF MANAGER
The following are the functions of a manager
1. Planning 4. Co-coordinating
2. Organising 5. Directing
3. Staffing 6. Controlling

4.2.2 PLANNING
It is the process of thinking before doing and determining the course of action to be taken.
Without proper planning the activities of an organisation may become ineffective.
Planning is a decision making process to decide In advance what is to be done, when is to be
done, how it is to be done, by whom (who) it is to be done and where it is to be done.

4.2.3 PROCESS OF PLANNING

The following steps are involved for effectively carrying 3ut the planning function.
1. Determination of organisational objectives.
2. Establishment of planning premises.
 3. Formulation of policies, Procedures, Schedules, rules and strategies.
4. Development and examination of alternative course of action.
5. Selection of Course of action.
6. Introduction of the plan.
7. Evaluation.

Objectives:
Objectives are the end results to be achieved. The ultimate universal objective of an organisation
is the creation of products and services.
Managers at the top formulate objectives for the firm as a whole. These overall goals have to be
broken down into specific targets for each department. For example, if the objective of a company is to
increase its market penetration, targets must be set for marketing, for production, purchasing and for
other functions. The goals of the production department is to produce the required number of units at the
right time and at the lowest costs.
Planning Premises
Many environmental factors or premises will affect planning. For example, production target is
based on market demand. Studies and reports on market trend are most useful to forecast the sales
demand. Other environmental factors are political stability, government controls, trends in employment,
technological change etc., It is the responsibility of managers to assess the various factors and their
effect on the planning process.

Policies
Policies are general statements to serve as guide lines in the process of decision making. They
are rules for action policy should not be confused with objectives. Policy is a command whereas an
objective is an expectation. For example the statement “To emphasize company brand name in
advertising” is an objective statement. The policy statement should be “Company brand name must be
used in advertising”.

Procedures and programmes

The procedure tells how work is to be done. The programme tells what is to be done. A
programme gives step by step approach to guide the action necessary to implement the policy.
Schedules
This is the process of establishing a time sequence for the work to be done. It tells ‘when’ the
work has to be done. It is an integral part of programming.
Rules
Rules are related to the procedures. For example, a procedure for handling a customer order
may incorporate the rule ‘all orders must be confirmed on the same day they are received’. A rule thus
allows no alternative action; It gives a specific and definite action that has to be taken. Rules shall not be
confused with policies. Policies are to guide thinking. But the rules are to guide action and not thinking.
Strategies
 Strategies are special kind of plans to counteract the plans of a competitor. If competition is
involved in a business a man must develop a plan with regard to his competitor Plan. If not his planning
will become a failure.

Alternative plans and selecting the optimum one

In all situations there is more than one possible plan. Ingenuity, imagination and experience are
required to ascertain a number of possible alternative plans.
Introduction of Plans
Appropriate time schedule has to be prepared and detailed instructions have be written for
communication of the plan.
Evaluation
To ensure achievement of goals, plans for evaluation will have to be developed. This is
necessary for adequate controlling.
4.2.4 ADVANTAGES OF PLANNING
The following are some of the advantages of planning.
1. Increases the organisational ability.
2. Reduces unnecessary pressure of work and mistakes.
3. Ensures effective utilisation of resources.
4. Makes control ‘easier.
5. Helps to secure name and fame.
4.2.5 ORGANISING
Organising is defined as the process of ( i) identifying and grouping of activities to be performed-
to achieve objectives (ii) and a’ authority and responsibility and (iii) establishing relationships for the
people to work effectively.
4.2.6 PROCESS OF ORGANISING
The process of ‘Organising’ involves the following steps

1. Establishment of objectives
2. Departmentation.
3. Defining authority and responsibility.
4. Delegation of authority.
5. Establishment of structural relationship.
Establishment of objectives
The nature of organisation will vary depending on objectives. Hence the ‘objectives should be
decided clearly. It is very essential for manager to be familiar with the objectives and plans of the
organisation.
Departmentation:
Grouping of activities is called as departmentation. It involves,
i. Identifying the activities necessary to attain objectives.
ii. Grouping the activities on the principle of departmentation.
 The most generally used basis is the departmentation by function. This consists of grouping all
similar activities into major department. In manufacturing firms, production, sales, finance, purchasing,
accounting, inspection etc., are examples of departmentation by function.
Defining authority and responsibility:
This shall be clearly described in writing so that each person knows what is expected of him. If a
manager has to work efficiently, he must know what his job is and how much authority he has. If it is clear
who is to do what work then it is possible to fix accountability for mistakes.
Delegation of authority:
Delegation is the entrustment of work to another person with necessary rights and responsibility.
A manager cannot do all his work by himself. He needs others help. He must decide what part of his work
can safely be entrusted to others.
Establishing Structural relationship
This involves,
i. Establishment of clear relationship among individuals and departments.
ii. Preparation of organisation charts and manuals.
An organisation structure will clarify the position, role and relationship of all employees The
structural relationship established shall be shown in the form of charts and manuals. Organisations chart
is an important tool of management.
Note : Types of organisation are explained in chapter 4.3
4.2.7 STAFFING
Staffing is a process of determining the number of employees required, selection, training, and
placing of quail- fled people in various jobs. It ensures right type of persons are available to execute the
various activities. Stalling is a continuous process. Every manager must ensure that right quality
personnel are available in the organisation. This s essential for achievement of organisational goals.

4.2.8 CO-ORDINATION
Co-ordination is not co-operation as often confused. Co-operation means working together to
achieve a desired goal. Co-ordination means putting things and actions into proper order. It decides who
has to do what and when. Take an example of ‘orchestra performance’. The leader (music director)
waves his band (or hand). He thus gives signals to the individual performers. They play their instruments
accordingly. Thus .the leader co-ordinates the performance of every individual in the group by giving
signals and every body in the group offers co-operation.
In an industrial situation, there are various activities like production, sales, purchase, etc., All
these activates should happen at right time, at right place in proper sequence for achievement of goals.
Therefore, the manager co-ordinates these activities The people must offer co-operation to the manager.
Therefore co-ordination may be defined as the process of uniting and synchronizing all activities
of an organisation to achieve harmony of individuals efforts towards achievement of objectives.

4.2.9 PROCESS OF CO-ORDINATION

 The manager can achieve effective co-ordination through the following principles.
1. Sound objectives, planning and policy.
2. Harmonising employees goals with organisation goals.
3. Continuous contact with subordinates.
4. Continuous interchange of information.
5. Effective communication.
6. Group meetings.
7. An effective organisation structure.
8. Informal organisational relationship.
9. Mediation, reconciliation, delegation and centralisation.

1. Sound objectives, planning and policy:

Co-ordination will be successfully done if the objectives, planning and policies are sound. Once
the plans are put into operation, afterwards it becomes more difficult to change. For example, a designer
should specify tolerance on a job in consultation with production department.

2. Harmonising employee goals with organisation goals:

Best co-ordination occurs when employees find that the if goals harmonize with the goals of
organisation. This requires knowledge and understanding of enterprise objectives. For example, if
managers are not sure whether the firms objective is profit or quality of goods it is impossible to co-
ordinate their efforts.

3. Continuous contact with subordinates:

This refers to principle of direct contact. Through direct contact people exchange ideas and
come to an understanding and agreement. Once an agreement is reached, there will be co-ordination.

4. Continuous interchange of in formation:

Anticipation of problems and preventing them are essential-for good co-ordination. This is
possible only when there is continuous interchange of information.

5. Effective communication:
Personnel contact is the most effective means for achieving co-ordination but communication
also plays a vital role in achieving co-ordination. Employees should be trained in communication
techniques to express ideas.

6. Group Meetings
Group meetings are effective device for achieving co-ordination. This brings the effective
personal contact with the people. The purpose is not to tell’ something. The purpose is to active unity
objectives
7. Organisation structure
It will be impossible for the manager to have continuous contact with the subordinates when the
span of control is too broad. If the Span of control is too narrow, the managers may short circuit
subordinates. In both cases, short circuit subordinates. In both cases, the co-ordination will be ineffective;
Consideration of span of control is important step in designing organisation structure.

8. Informal organisational relationship

Informal organisation refers to the actions of people in terms of needs, emotions and attitudes. In
the informal organisation people work together because of their personal likes and dislikes. Therefore,
informal relationship within a company also facilities effective co-ordination.

9. Mediation, reconciliation, delegation and centralisation:

For achieving effective co-ordination, the manager must mediate when difference of opinion
occurs. He must be prepared to take other means of reconciliation when his personal intervention is not
possible or desirable. The manager must also decide to secure co-ordination (1) by the delegation of new
authority or (ii) by the Withdrawal of authority and centralisation of command.

4.2.10 DIRECTING
Directing is the process of guiding and supervising the works of subordinates towards the
achievement of organisational goals.

The following qualities are essential for a manager to achieve success in this function.
a) Effective communication with the people
b) Understanding their motives for their behaviour
c) Effective leadership qualities.

4.2.11 PROCESS OF DIRECTING

The process of directing involves ‘the following steps
1. Selection of personnel.
2. Creation of environment.
3. Encouraging subordinates to accept responsibility.
4. Keeping open channels for communication.
5. Exercising immense patience.
6. Appraisal, counseling and .coaching.
7. Harmonising objectives.
8. Issue of orders.
9. Maintaining discipline and morale.
10. Supervising the work. . Selection of Personnel

1. Selection of personnel:
 The manager shall select right persons for his team. He must know what kind of persons are
needed to fill the various positions for his effective delegation.
2. Creation of environment:
The manager shall assign duties to subordinates, delegate authority and define the job. This
creates an environment to undertake function of direction.
3. Encouraging subordinates to accept responsibility.
The manager has to study each subordinate, motivate him to accept responsibility, give him
authority gradually and hold before him a challenging job.
4. Keeping open channels for communication and participation
To inspire subordinates, the manager, shall provide opportunity for his sub-ordinates to represent
matters that affect them. Opportunity must also be given to participate in the discussion, Otherwise there
will be reeling of hurt pride and frustration. The manager must also take efforts to get suggestions from
his subordinates.
5. Exercising Immense patience:
The manager needs patience to bear with the mistakes of his subordinates. Instead of finding
fault and scolding, the manager must show the right way of doing things.
6. Appraisal, counseling and coaching:
The manager must know the value of his subordinates. He must advise and coach them when
they report to him directly. He must arbitrate disagreement, reconcile opposition, and handle grievances
and complaints.

7. Harmonizing objectives:
Individuals generally work hard to satisfy their personal desires. In directing subordinates, the
manager has to harmonize the objectives of the individuals with those of the firm. For example, the
manager may award suitable rewards if a desired production target is reached.

8. Issue of orders:
Orders are given with the view to start, stop or modify an activity. Orders may be written or oral.
The type of order has its effect on the work done. Therefore orders should be of the right type, depending
on the psychological state of the subordinates For example, an order given to a subordinate at canteen
while he is enjoying coffee with his friends, may not be liked by him. The manager must command others
without causing insult.

9. Maintaining discipline and morale

Discipline and morale are important factors for increasing productivity. Therefore all steps shall
be taken by the manager to maintain discipline and morale of high order.. The fundamental basis for
morale and discipline is faith.

4.2.12 COMMUNICATION
 Communication is the exchange of information, passing on Instructions and transmission of
meaning.
Communication is very essential for an organisation. Ineffective communication results in
misunderstanding and separates people.

Advantages of effective communication:

1. Links together the persons in the organisation.
2. Promotes better understanding between persons.
3. Motivates persons.
4. Resolves conflicts
5. Maxmises efficiency of the organisation.

4.2.13 ELEMENTS OF COMMUNICATION

The four elements of communication are
1. The sender 3. The communication channel
2. The receiver 4. The symbols
The sender is one who starts communication fort the purpose passing information, attitude, ideas,
Wishes etc. and understanding the receiver.
The receiver is one who receives or understands information, attitude ideas etc., from the sender.
The communication channel is the medium by which information, attitude, ideas, opinions,
understanding etc., are passed from a sender to a receiver. Notice Board, letters, circulars, booklets,
posters, periodicals, interviews, public system (meetings), telephone etc., are the examples of
communication channels.
The symbols provide basis for contact. There will be no information flow in the channel
connecting the sender and receiver without use of symbols or words. Words are also symbols. The
problem of communication is formed because persons do not see the same meaning in a -word. Words
are interpreted differently according to one’s own experience. Not only words but also the tone of voice
will have its effect on interpretation of words.
The sender through speaking, writing, acting or drawing transmits the information, ideas, opinion,
etc, to the receiver who receives them through listening, reading, or observing. Words and actions are the
most important symbols used.

4.2.14 TYPES OF COMMUNICATION

There are many types of communication. The same are shown in th Figure 4.2.1.
 i. Non Verbal Communication is, communication without words.
Examples: Gestures, facial expressions and silence. They often communicate feelings, attitudes, ideas,
opinions.
ii. Verbal Communication is communication through words.
iii. Formal Communication is generally used for all practical purposes. These communication flow
through recognized organisation mutes. This is authoritative, specific accurate and. reaches
everybody. The medium for formal communication may be departmental meetings, conferences,
telephone calls, interviews, circulars, leaflets and the like.
iv. Informal Communication follows grapevine route. It is -not authoritative. It may be a fact but
more in nature of rumour. It does not reach everyone. It exists in every organisation because of
group interests of individuals. Informal communication are quite fast and spontaneous.
v. Written Communication is transmitting message in writing. Written communication can be
followed when a record of communication is nece3
vi. Oral Communication is transmitting messages orally either by meeting the person or through
artificial media of communication such as telephones, intercom systems.
vii. The Downward Communication will flow down from higher to lower levels in the chain of
administration. This communication may consist of -
• Orders • Rules
• Instructions • Policies
• Informations • Procedures
viii. The Upward Communication will flow from lower to higher levels in the chain of
administration. This communication may consist of
• Suggestions • Complaints
• Opinions • Ideas
• Appeals • Grievances
ix. The Horizontal communication will take place between the subordinates or managers at the
same level or from. one level to another. In this communication, there may be line- staff conifict
and therefore shall be avoided.
Merits of oral communication
1. It is face to face system and hence doubts can be clarified.
2. There is an opportunity to ask questions, exchange ideas and clarify meaning.
3. It can develop a friendly and co-operative spirit.
4. It is easy and quick.
5. It is flexible and hence effective.

Demerits of oral communication

1. The spoken words may be misunderstood.
2. The facial expression and tone of voice of the communicator may mislead the receiver.
3. Not suitable for lengthy communication.
4 it requires the art of effective speaking.
5. It has no record for future reference.

Demerits of written communication

1. It requires skill and education for understanding.
2. It is one way communication and hence not effective.
3. There is no opportunity for the subordinates to ask questions, exchange ideas and clarify
meaning.
4. There is no opportunity for the sender to check and ensure whether the message is
understood or not.

4.2.15 PRINCIPLES OF EFFECTIVE COMMUNICAi’ION

The following are some of the principles or rules for effective communication
1. Decide what to communicate and why.
2. Decide how much, to communicate-message must be adequate covering all aspects. Too
much information may cause boredom.
3. Decide whether written or oral communication to be used.
4. Be clear in the use of language-use simple sentences, familiar words that are easy to
understand.
5. Provide right climate by removing communication barriers such as status symbols.
permanent re for future reference.
6. Listen attentively.
7. Avoid unintentional communications like bored look, frowning.
8. Be sure the message is received and understood- check back with questions.
9. Practice what you preach
10. Improve communication skills by adequate training.
4.2.16 MOTIVATION
Motivation means inspiring people to work willingly using their capabilities. People will work co-
operatively and enthusiastically only when their personal needs are associated with it. Monetary income
alone will not satisfy people. People strive for many needs such as opportunity, income; power, prestige
and status. Their behavious is guided by their motives (desires or reasons).
Motives cannot be directly observed. They exist within individuals Therefore it is possible only to
make inference regarding the kind of motives- associated with human behaviour.

4.2.17 THE DIMENSIONS (TYPES) OF MOTIVES

Motives are -classified into the following dimensions (Types)
1. Physical dimension
2. Social dimension
3. Psychic dimension

1. Physical Dimension:
This dimension of motive is related to biological needs of people such as hunger, thirst, security,
rest, comfort, temperature, humidity etc.
In organisational situation, anything that gives physical comfort and security of people is releated
to motive satisfaction in the physical dimension.
Examples:
a. Controlled temperature and humidity.
b. Absence of physical hazards.
c. A canteen serving good food.
d. A rest room with good toilet facilities.
e An attractive salary.
For lower socio economic group, physical dimension of motive is most important.
2) Social dimension
It is desire to hold status in society. It is feeling of importance and recognition. It is need for
friendship, affiliation, love, self esteem and esteem from others.
Examples
a. Holding a job considered important by others.
a. Becoming a member of a reputed service society.
c. Having pleasant work companions.
d. Opportunity to hold a position of social eminence.
3) Physic Dimension
Motives that may not lead to any physical or social satisfaction but leads to fulfill one self, belong
to psychic motives.
 For example, a person who anonymously contributes his money to a charitable cause, receives
neither physical satisfaction or social esteem. He finds such action personally satisfying. Such
satisfaction involves the psychic dimension of motivation.
Examples:
a. The opportunity to help others.
b. The opportunity to work independently.
c. The opportunity to apply new ideas.

4.2.18 POSITIVE AND NEGATIVE MOTIVATION

Positive Motivation:
Motivating people to work by giving incentives is positive motivation. The incentives may be
financial or non financial. Prizes, higher wages are examples of financial positive motivation.
Appreciation, promotion, pleasant work companions are examples of non financial positive motivation.
Negative Motivation:
Making the people to work by the threat of punishment is negative motivation. Reduction in wages,
dismissal from work, demotion etc., are the examples of negative motivation. A manager should use both
positive and negative motivation depending on situation.
4.2.19 PRINCIPLES OF POSITIVE MOTIVATION
1. Positive motivation is based on Theory Y of management. The principles can be briefly
summarised as below
2. If employees needs are satisfied, they will work willingly. Workers are human beings and they
must be treated on humanitarian grounds.
3. Recognition of work is essential
4. Workers do not work by financial greed only but non financial greed also motivates them.
5. When physical dimension motives are satisfied, the negative motivational methods will not
yield expected results.

Advantages of Positive Motivation:

1. Good human relations.
2. Good understanding and co-operation.
3. High morale of employees.
4. High productivity.
5. Less labour turnover.

4.2.20 LEADERSHIP
Management is the process of achieving objectives through people. In every act, manager deals
with people. ‘Dealing with people’ is to motivate the people to work and direct their efforts in the manner
desired by the manager. To this process, the term ‘leadership’ is applied. For an organisation to be
successful, it should have a dynamic and effective leadership.
 Leadership may be defined as the capacity of the individual to make others to work together
willingly to attain the goals as desired by the leader.

4.2.21 STYLES OF LEADERSHIP

Based on the motivational methods, leadership style is classified into
a) Positive leadership and
b) Negative leadership
In positive leadership the manager motivates his people by praise, reward, incentives etc.
In the negative leadership; the manager motivates people by force, threats of punishment
etc.

4.2.22 TYPES OF LEADERSHIP

The following are the three types of leadership

1. Authoritarian (or) autocratic type
2. Democratic type
3. Laissez-faire (or) free-rein type

4.2.23 AUTHORITATIRAN TYPE LEADERSHIP

Authoritarian style is work oriented leadership. The authoritarian leader is one who makes his
subordinates to obey his orders without any question. He uses threats and authority to get work done.
This type presumes that people are generally lazy, will avoid work, want money and security.

Merits of authoritarian leadership

1. More suitable for production departments
2. The productivity is high.
3. Discipline is enforced

Demerits of authoritarian leadership

1. Morale is low
2. There will be submissive behavior, discontent and resentment.
3. This method will be a failure with the new generation which is more independent and dislike
controls by rigid rules.
 4. Not suitable for research departments.

4.2.24 DEMOCRATIC TYPE LEADERSHIP

Democratic style leadership is oriented towards both work and people.
In democratic type leadership, all policies will be determined by jroup discussion and decisions
arrived with the active assistance of the leader.
In this type, the leader tries to lead mainly through persuasion and example. He appreciates good
work of subordinates. Absence of leader will not affect the achievement of organisational goals.
Merits of Democratic Leadership
1. Good human relations and co-o3eration.
2. Freedom for group discussion.
3. Good morale is maintained.

Demerits of Democratic Leadership

1. Productivity is low when compared to productivity under authoritarian type.
2. Suitable for research departments but not for production departments.

4.2.25 LAISSEZ-FAIRE (or free-rein type) LEADERSHIP

Laissez-faire leadership is people oriented leadership. In this type there is complete freedom for
employees in decision making. There may be little or no participation of leader. There is maximum
decentralisation of authority.
This type of leader gives little or no direction. The existence of this type of leadership style may
be due to the frustration in service. This type of leadership method is most inferior to both democratic and
authoritarian style and hence not suitable for adoption.

Merits of Laissez-faire leadership

1. Morale may be kept high.
2. Employees enjoy complete freedom and hence they may be happy.

Demerits of Laissez-faire type

1. Productivity will be very low.
2. There will be indiscipline and tension in the organisation.
3. Employees will have little or no interest in the job.
4.2.26 CONTROLLING
Controlling means compelling works to take place as per plans. It is not a command as often
confused. It is measurement of performance and correction of activities to assure achievement of plans.
Any plan set into operation will not yield expected results by itself. ‘ occur to make the plane out
of target. Hence corrections are to be effected before deviations become serious. Controls ensure that
the work is carried out according to plan.
4.2.27 PROCESS OF CONTROLLING
The control process involves the following three essential steps
1. Establishing standards of, measurement.
2. M performances and comparing actual results with standards.
3. Taking corrective actions.

Establishment of standards
Standards are established to compare with the actual results. There are many types of standards
to measure performance.
1. Quantity standards:
Defining expected production volume, sales volume, number of people to be employed: etc are
examples of quantity standards.
2. Quality standards
These are quality standards such as the tolerances for a product, surface finish etc.
3. Cost standard
These are monetary measurements. Specifying the amount of money to be spent for raw
materials, advertisement etc., are examples.
4. Time standard
Setting up a schedule to be followed in completion of certain activities is time standard.
Measurement of performance
Accurate reporting of work completed is required for effective measurement. Records must be
kept for work completed. Measurements can be done by personal observation and by the study of various
reports received.

Taking corrective action

The actual performance is measured, compared with standards and deviations are noted. Then
corrective action has to be taken. The corrective action may be of redrawing the plans, modifying future
plan or standards. The corrective action should be taken promptly to avoid cumulative loss.
Before prescribing, corrective action, the manager should find out the reasons for the occurrence
of deviations. The reasons for deviation can give remedial action. Remedial action is more important than
a corrective action.

REVIEW QUESTIONS
1. State the functions of a manager and define each function.
2. Define managerial function ‘Planning’. What are the advantages of planning?
3. Explain briefly how the managerial function ‘planning’ is carried out effectively.
4. Define managerial function ‘Organising’ and explain how that function is carried out effectively.
5. What do you mean by ‘Staffing?’
6. Define and explain Co-ordination as applied to management. How does a manager co-ordinate
the activities of a person working under him.
 7. Define the managerial function directing’. Explain the process of directing.
8. What is communication and what are the advantage of effective communication.
9. Name the different elements of communication and explain.
10. Name the methods or types of communication and explain. Bring out the merits and demerits
of each type.
11. List out the principles of effective communication.
12. What is motivation and what are the three dimensions of motivation. Explain each with
examples.
13. Differentiate between positive motivation and negative motivation. What are the advantages
of positive. motivation?
14. What is leadership. Define the same
15. Explain the three types of leadership. State their merits and demerits.
16. Define managerial function “Controlling”. Explain the steps involved in ‘controlling’ process.

4.3 ORGANISATION

4.3.1 PRINCIPLES OF ORGANISATION

The following are the various principles of organisation.
1. Principle of objective:
The organisation as a whole or every part of it, must work for the achievement of objectives.

2. Principle of efficiency:
An organisation should attain its objectives with mini mum costs.

3. Principle of span of control:

This refers to the number of direct subordinates under a superior. This depends on the type of
organisation, nature of work and the capability of managers and subordinates. However the best number
is five or six at the top and twenty at the bottom level.

4. The scalar principle:

The ultimate authority must be somewhere in the organisation. There must be a clear line of
authority to every subordinate.

5. The principle of responsibility:

No superior can escape from responsibility for activities of his subordinates

6. The principle of unity of command:

Each subordinate should have only one superior. This means that the instructions to a
subordinate shall come from one person only.
7. The authority level principle:
Only decisions that cannot be made at a given level shall be referred upward in an
organisation.

8. The principle of division of work:

Departmentation shall be made to attain the objectives effectively.

9. The principle of definition:

The duties, authority, responsibility and relation of every one shall be clearly defined in writing,

10. The principle of balance:

All departments of the organisation shall be balanced to have uniform and uninterrupted output.
For example, if the purchase department is underdeveloped (i.e., it has neither adequate staff nor
resources, no authority etc.,) as compared to other departments, it will seriously affect other departments.

11. The principle of flexibility:

Changes and modification are bound to occur. Organisation should provide for growth and
change. It should not be rigid. It should be flexible.

12. Principle of stability:

This refers to the capacity of the concern to withstand if the key personnel leave the concern.
Executive training and employee development will give stability.

13. The principle of correspondence

There should be proper communication between various levels.

14. The principle of contact:

To avoid delay in communication, an executive at any level is permitted to contact other
executive, make decisions or take action upon any matter within their responsibility.

15. Principle of leadership facilitation

The structure and authority delegation of the organisation should be designed to facilitate the
leadership position to the manager.

4.3.2 ORGANISATION CHART

Organisation chart is graphical representation of organisational data. It diagrammatically shows:

a) How departments are tied together.

b The inter-relationship and relative position of each department.
c) Lines of command.
 d) Relationship between different managers and their status.
e) Kinds of managerial relationship (i.e., line, staff &Functional)

Uses of chart :
Organisation chart is a vital and useful management tool.

a) It serves as a guide for decision making.

b) It is training device to learn how the company is organised.
c) It points out weakness in organisation such as
i) Overlapping and duplication of functions.
ii) Excessive span of supervision
iii) Dual or more commanding.
iv) Dual or more reporting.
d) It shows who is responsible to whom- and who has authority to whom.

4.3.3 TYPES OF ORGANISATION

The following are the main types of organisation
1. Line organisation
2. Functional (pure) organisation
3. Line and staff organisation
4. Committee organisation

4.3.4 LINE ORGANISATION

It is the simplest form of organisation structure. It is also known as military organisation or scalar
type.
The figure 4.3.1 shows a pure line type organisation structure.
In this type, authority flows directly from the General Manager to the various subordinates and
from them to the workemen. Foreman is held responsible for the successful running of the entire
department.
 Line organisation is suitable for small concerns and foí automatic and continuous industries such
as paper, sugar, chemical, cement, textile etc.,

Merits of line organisation

1. It is simple and easy to understand.
2. There is clear cut authority and responsibility.
3. There is clear channel of communication and hence no confusion.
4. Unity of command is preserved and hence the structure is stable.
5. Unit of direction is followed and hence quick decisions and actions are possible.
6. Because of unity of-command and unity of direction, discipline is easily maintained.

Demerits of line organisation

1. It overloads a few important executives.
2. It neglects the principles of specialisation and hence highly skilled supervisory personnel are
necessary.
3. The loss of one or two capable men may weaken the entire organisation.
4. It encourages dictatorial way of working.
5. The structure can be used only for very small concerns

4.3.5 TAYLOR’S PURE FUNCTIONAL ORGANISATION

This type of organisation was developed by F.W. Taylor. In line organisation foreman is held
responsible for the successful running of the entire department. Taylor observed that the foreman in the
line organisation has to do eight types of works, both mental work and manual work.
Taylor found that it was very difficult to perform the eight functions by a single foreman and no
single foreman will have all the qualifications and capacity to perform all the functions efficiently.
Therefore Taylor wanted to have eight functional foreman instead of one foreman. Four of them
were located on the shop floor (manual work) and the remaining four of then in office (mental work). Each
functional foreman has direct and equal authority over the workers. Taylor named the eight functional
foreman as below.

1. Gang Boss:
He is in charge of perparation of all work until the job is set in the machine. He has to collect
tools, jigs, fixtures, materials etc., necessary for the job and keep it ready for the workers to start work
without delay. He is responsible for setting up the works accurately and quickly on the machine. He has
nothing to do with the running of the machine and his job is completed when the work is set up in the
machine.
2. Speed Boss
He has to ensure that proper cutting tools are used for each piece of work and that proper cutting speeds,
feeds and depth of cuts are used. He may have to demonstrate that the work can 1e completed in the
specified time, by doing it himself.
3. Repair Boss:
He is responsible for repairs and maintenance of equipments and machinery in proper condition.
He is also responsible for good house keeping.
4. Inspector (or) Inspection Boss
He is responsible for quality control of the products. He always ensures that the first piece made
is up to the specifications. Then he makes further inspection from time to time and to maintain the
standard.
5. Route Clerk
He is responsible for determining the method by which the work has to be performed.
6. Instruction card clerk
He is the man authorizing production by giving necessary instructions to workmen. He authorises
movement of material from department to department by issuing job ticket, inspection order etc.
7. Time and cost clerk
He is responsible for keeping records about the time spent by workers in completion of jobs and
calculation of workers wages, indirect costs etc.
8. Disciplinarian
He is responsible for maintaining discipline in the factory. He keeps records of workers regarding
late coming, absenteeism, leave, increments, promotions, etc., He also handles cases of insubordination
and can dismiss certain workers to maintain discipline.
Taylor’s functional organisation chart is shown in the Figure 4.3.2. The four functional foreman
attached to office are engaged in planning (Mental work) and the other four foreman attached to shop
floor are engaged in execution (Manual work). From the figure it can be seen that each worker has got
eight channels of communication upwards. Taylor’s pure functional type of organisation is absolute. But in
modified form, the same is used in modern and advanced industries.
Merits of functional organisation:
1. The principle of specialisation is adopted.
2. Specialisation leads to efficiency and expert guidance.
3. Expert guidance reduces the wastage of material and labour.
4. Specialised skills improve quality of work.
5. Heavy work load of executives is reduced.

Demerits of functional organisation

1. There is no unity of command.
2. Loss of unity of command affects discipline and morale.
3. Responsibility can not be fixed on single foreman in case something goes wrong.
4. It kills initiative of line executives and workers.
5. All round executives cannot be developed.

4.3.6 LINE AND STAFF ORGANISATION

This type of organisation is adopted by the medium and large size industries. The line
organisation is suitable only for small industries. The functional type has many disadvantages. The line
and staff type of organisation has the advantage of both line and functional types.
Special executives employed to assist line executives are known as staff. They perform functions
such as planning, design, quality control, research etc.
The line executives have authority and they can command subordinates. The staff executives are
only in an advisory capacity and they do not have any authority to direct the workers. Staff executives
advise the line executives in specialised work and all executive orders are passed to the workers only
through line executives.

The figure 4.3.3 shows a part of organisation chart, to explain the line and staff type.
 When the industrial engineer wants to make a change in the present method of operation, he
puts up his recommendation to the works manager. If works manager approves his recommendation, the
communication goes to the workmen through the foreman. Thus the industrial engineer is an advisor
only. This ensures the principle of division of labour without violating the principle of unity of command.

Merits of line and staff organisation:

1. There is unity of command and hence discipline can be maintained.
2. There is clear cut authority, responsibility and channel of communication.
3. There is unity of direction and hence quick decisions and actions are possible.
4. Division of labour is planned for expert advice.
5. Expert guidance and specialised skills.
a) Reduces wastages of material and labour.
b) Improves product quality.
Demerits of line and staff organisation:
1. Line executives may think that their prestige is lowered by the staff because of their better
suggestions.
2. Friction and jealousy may develop between line and staff executives.
3. Product cost may increase because of high salaries to staff executives.
4. Line executives depending on staff executives may loose their initiative.

4.3.7 COMMITTEE ORGANISATION

Factory problem are always many sided and it is difficult for any individual to fmd solution. In
order to have better solutions to problems, a committee system is introduced. A committee is purely an
advisory group. It has to investigate problems and to make recommendations. A committee has only staff
authority.

Definition of a committee:
A committee is a group of competent and interested persons who work collectively, discuss and
recommend solutions to the problems which cannot be solved by an individual.

Types of committees:
There are many kinds of committees and for m purposes. Only a few typical ones are discussed
below. It general, committees should not be too large or too small. An ideal number is six.
Committees can be broadly classified as (i) A standing or permanent committee and (ii) A
temporary committee.
A standing or permanent committee is formed in a complex organisation with problems almost all
times.
A temporary committee is formed to solve problems arising occasionally. It is a special committee with
short life span and dissolved immediately on completion of its work.
Based on the above broad classification, committees fall under the following types.
1. Advisory Committee: This committee is used extensively in business. Its basic function is to advise
the president of the firm on major policies and procedures.
2. Financial Committee: It has authority to make recommendations for policies and procedures on
fmancing, accounting system and fmancial reports. It also makes recommendations on economic and
fmancial matters affecting the company.

3. Manufacturing Committee: Its function is to co-ordinate the manufacturing policies. This committee
may have various sub committees such as
a. Methods Committee to discuss the problems concerning tools for new work or
improvements in existing ones.
b. Shop Committee to review the work in progress.
c. Safety Committee to, suggest ways and means to reduce accidents and for safe working
conditions.

4. Marketing Committee is to recommend sales and distribution policy of company’s products. It also
analyses the company’s product line.
5. Educational Committee gets information about company problems and explains the same to the -
individuals concerned.

6. Other Committees There are many other forms of committees which include workmen as members.
For example Grievance committee for adjusting differences, Welfare committee to deal with benefits,
wages, pension and all other matters concerning the welfare of employees, suggestion committee to
make suggestions for improving efficiency etc.,
Advantages of Committees:
1. It gives the best solution for a problem.
2. Through committee meetings, mistrusts and jealousy among personnel are eliminated. Co-
operation of various personnel can be secured.
3. It reduces the work load of management.
4. To delay the handling of a problem, the work can be entrusted to a committee.
5. It provides an opportunity for motivating people through participation.
Disadvantages of committees
1. The committee action is a time consuming one.
2. The committee action is expensive.
3. No individual can be held responsible for anything.
4. Committee decisions are generally compromised decisions, when there is disagreement between
committee members.
5. Sometimes due to disagreement no decisions are made.
REVIEW QUESTIONS
1. State and briefly explain the principles of organisation
 2. Define organisation chart. What are its advantages.
3. What are the different types of organisation. Explain any one in detail.
4. Explain line organisation using organisation chart. State its merits and demerits.
5. Explain functional organisation advocated by Taylor using an organisation chart. State its
merits and demerits.
6. What is the type of organisation chart which is being currently adopted by the medium and
large size industries? How does it integrate the advantages of line and functional type
organisation.
7. Explain committee organisation with its advantages and disadvantages.
8. Briefly explain various types of committees.
9. Name the different functional foreman identified by Taylor. What are the duties and
responsibility of each functional foreman.
10. Differentiate between line function and staff function.

4.4 CONCEPTS OF MODERN MANAGEMENT TECHNIQUES

4.4.1 MODERN MANAGEMENT
Over the last two decads, the Japanese economic miracle has focussed the attention of the
whole world. The Japanese economic miracle was due to unique management practices evolved by
them. The success of these management techniques have produced dramatic extraordinary results,
enabling the war-torn, ravaged economy of Japan to overtake the developed nations. Naturally, the
Japanese management systems have attracted the attention of the whole world.
The Japanese management system is based on “Theory Z” evolved by William G.Ouchi. Modern
Management techniques are the outcome of “Theory Z” or Japanese Management system. The theory Z.
comprises three major characteristics : a) Trust b) Subtlety and c) Intimacy.
Basic concepts of some of modern management techniques are briefly explained in this chapter.

4.4.2 MANAGEMENT BY OBJEVTIVES (MBO)

MBO is a participative style of management and its basic emphasis is on results. The results are
expressed in terms of objectives. The objectives must be specific, time bound, realistic and quantitative
(measurable). MBO is a system wherein the superior and subordinate manager of an organisation jointly -
a. establish and agree upon in advance, the common goals in terms of output.
b. define each individuals responsibility in terms of results expected of him in a given period
of time.
c. Use these measures as guides for operating the unit under him and for assessing his
achievement of goals.
At the end of prescribed time limit, a review or evaluation meeting is held between super or and
subordinate managers. The performance is assessed in relation to agreed targets. If any discrepancy is
found between the work planned and work ac1 causes for not achieving the results (targets) are analysed
and remedial action taken. This forms the basis for the determination of objectives for the next time
period.
 Thus in MBO, the managers review their performance along with their superior to measure
progress towards results.

Advantages of MBO
1. A constant watch over, the company objectives.
2. Motivates the people to work for the objectives.
3. Better co-ordination between various departments of an organisation.
4. Better understanding between the superior and subordinates.
5. Helps to detect prob1ems that prevent progress towards objectives.

4.4.3 MANAGEMENT BY PARTICIPATION

Modern management stresses the need for the participation of employees in the decision making
process. For higher productivity and sound industrial relations, it is considered necessary to give
employees the position of partners in -the industry. By this, the employees feel that they are one among
the management and work effectively for the progress of the organisation. It brings them closer to the
management and gives them an actual knowledge about economical and technical position.

Merits
1. Better decision and greater co-operation.
2. Higher productivity, and work satisfaction.
3. Greater responsibility towards work by the subordinates.
4. Reduction in absenteeism and labour turnover.
5. High morale and sound industrial relations

Demerits
1. All subordinates may not have ability to take active participation in decision making.
2. The decision taken may not be kept confidential. This may affect business.

4.4.4 JUST-IN-TIME (JIT)

Just-in-Time is a system of inventory control. In JIT -
i. Finished goods are delivered just-in-time to be sold.
ii. Sub-assemblies just-in-time to become finished goods.
iii. Finished components just-in-time to become sub- assemblies.
iv. Purchased raw materials just-in-time to be used for manufacturing components.
Adequate stock of raw materials, semi-finished goods and finished goods are necessary to satisfy
customer service. But excessive inventory increases the cost of/ production.
The objective of JIT manufacture is the elimination of the waste and getting the most out of
resources (machines, materials, money and men).
The following are the pre-requisites for implementing the JIT concept.
1. There shall be support from top management.
 2. There shall be willingness to co. in the JIT concept.
3. The firm should always choose the nearest supplier and develop good relationship with them.
4. JIT involves employee partkipation.
5. Set up times and lot size are to be educed.
6. Adequate process capability for critical operations are to be ensured before going in for JIT
manufacture.
7. The company should try to improve upon the situation continuous. It is not a one time affair.
JIT manufacture reduces the cost of inventory and hence improves productivity. The success of
the system depends the mutual trust between the vendors and firm.

4.4.5 QUALITY CIRCLES (QC)

Quality circles are a Japanese idea. In the Japanese firm, quality of the product and quality
control are the responsibility of every employee. Every is his own inspector. The attainment of high quality
is very important to everyone.
A Quality Circle (QC) is a group of employees (5 to 8) who meet regularly (weekly In most
cases) with their supervisor as the circle leader to solve work related problems (eg. Quality,
Quantity, Cost).
In QC, the main effort is focussed on preventing the occurrence of defects. The preventive action
always costs less than corrective action., Therefore in QC preventive approach is given importance. QC
activities are generally carried out during breaks and lunch times. QC members continue to think about
the points raised in the meetings. Circle members meet on their own time to complete QC assignments.

Pre-requisites for successful operation of QC

1. The members of QC shall have prior training in basic techniques of problem analysis.
2. Top management support and encouragement.
3. Active participation of workers.
4. Financial incentive scheme. (The accepted ideas and suggestions shall be suitably rewarded.)

Advantages of QC:
1. QC gives the employees opportunity for -
i. Involvement.
ii. Participation in work improvement.
iii. Social-need satisfaction.
2. Improvement in quality, productivity and cost reduction.
3. Favorable changes in the attitude of employees towards work.

4.4.6 TOTAL QUALITY MANAGEMENT (TQM)

To meet the strict market competitions, a number of Organisations are using unique system of
quality, known as
Total Quality Management (TQM). In TQM, three principles concerning quality are followed.
 1. Constant and continual improvement in quality. Meeting the same quality standards years
after year is not sufficient. Instead, more and better quality products to be provided for the customers.
2. Quality control shall be on every activity in organisation. Quality improvement and quality
control shall not be only to the product or services. Accounting system, purchase system, m activities, R
and D process and all other activities in the organisation shall be subjected to quality improvements.
3. Employees shall bear the major responsibility for quality improvement. Quality shall
become an integral part of every job in th organisation.
Thus, Total Quality Management (TQM) is a system in which organisation continually
make great efforts to improve quality. in all activities of the organisation and employees are key
source of quality improvement.
The commitment to quality has become of industrial culture. This commitment has been
reinforced by the introduction of quality circles. TQM is a system designed to produce product with
extremely small errors and mistakes. TQM aims at ever improving quality with increase in productivity
and at lower costs. High quality does not mean higher price.

Requisites of TQM programme

1. Quality audit. That is, careful study of every factor that affects quality in an activity. Audit shall
be conducted in every department.
2. Employee training on problem solving skills and techniques.
3. Organising quality circles in every department.

4.4.7 ZERO DEFECTS (ZD)

Zero defects is a system of quality control programme and its concept is to achieve perfect
results by preventing and eliminating defects.
ZD system makes the people to accept the fact that they arc not perfect and will make mistakes.
Zero defect programme motivates each individual to make great effort whole heartedly to achieve
superior performance in everything he does.
Man makes mistakes and will keep doing so. In some works man is willing to accept mistakes
and in others, he is not ready to accept mistakes. There are two causes for mistakes - lack of knowledge
and lack of attention. Knowledge can be measured and short comings can be corrected. Lack of attention
is an attitude problem. It must be corrected by the man himself. He must make a conscious effort to do
things.
ZD-programme gives opportunity to every employee to develop right self improvement. For the
success of ZD, management willingness and support is essential.

The following are the two basic objectives of ZD :

1. It guarantees improvement in quality through removal of causes of errors.
2. It allows every employee in the organisation to participate in the programme effectively.

REVIEW QUESTIONS
 1. Explain ‘Management by objectives’
2. What are the advantages of MBO.
3. Explain Just-in-Time production.
4. What are the re-requisities for JIT concept.
5. Write short notes on (1) quality circle and (ii) zero defects.
6. What do your mean by Total Quality Management. Explain
7. What is the difference between QC and TQM.

b) 4.5PERSONNEL MANAGEMENT

4.5.1 INTRODUCTION
Personnel management is now popularly known as Human Resource Management. It is
concerned with the human relationship within the organisation and their welfare for the achievement of
organisational goals.
It is an art of acquiring, developing and maintaing a competent work force to attain goals of
organisation with maximum efficiency and economy.

4.5.2 RESPONSIBILITIES OF HUMAN RESOURCE MANAGEMENT

The following are the duties and responsibilities or objectives of Human Resource Management.
1. To make correct selection of employees and to fit right person in the job.
2. To give opportunity for the maximum employee development.
3. To achieve effective utilisation of employees.
4. To improve welfare of the employees.
5. To maintain desirable working relation between employer and employee
6. To satisfy employees with good income, power, prestige etc.
7. To ensure promotions to higher posts are given on merits and senority.
8. To preserve goodwill, morale and reputation of the organisation.

4.5.3 POLICIES OF HUMAN RESOURCE DEPARTMENT

A personnel policy is a written document to help the presonnel department to achieve the
objectives or functions.. It contains policy regarding the following:
1. Recruitment of employees.
2. Employment conditions.
3. Promotions and discharges.
4. Safety practice.
5. Training, financial aid, health standards and other welfare facilities.
Personnel policy shall be fair and reasonable. It should be based on the following principles
1. It should be easily and clearly understood by all.
2. It should have proper wage and salary agreement system.
3. It should protect the employees against unfair dismissal.
 4. It should provide good working conditions, safety and medical benefits.
5. It should maintain an effective grievance handling procedure.
6. It should guarantee permanent employment to competent employees.
7. It should provide opportunities to the employees to develop capabilities for prom
8. It should organize and encourage social activities.
9. It should maintain effective communication between employer and employees.
10. It should maintain high standard of discipline among staff and give pride of their work and
surroundings.

4.5.4 FUNCTIONS OF HUMAN RESOURCE MANAGEMENT

The following are the functions of human resource management.
a) Procurement
b) Development
c) Compensation
d) Integration and
e) Maintenance

a) Procurement:
This refers to the hiring of personnel - the right people, in the right place, at right time. This
function deals with
• Man power planning
• Recruitment
• Selection through interviews, tests etc.
• Placement
• Merit rating
• Promotion, Transfer and Discharge
b) Development:
This refers to the education and training of personnel. This gives opportunity to acquire the
knowledge and skills.
C) Compensation:
This details with wage systems, monetary incentives and:, terms of employment. This function
involves:
• Job Evaluation • Wages and, rewards
• Profit sharing • Pension
• Gratuity • Group insurance
d) Integration:
This is concerned with reconciliation of individual and organisation goals. It deals with.
• Handling of Grievances
• Negotiation with labour unions
• Collective bargaining etc.
e) Maintenance:
This aims at maintaining good working conditions and favorable attitudes towards organisation. It
‘deaIs with -
• Maintaining employees health
• Maintaining employees safety
• Maintaining satisfactory personal contacts and employees relationship
• Maintaining employees welfare activities

4.5.5 RECRUITMENT AND SELECTION

The term should not be confused with the term recruitment”. Both the terms and different.
Recruitment is a positive process. It gets applications of the prospective employees willing to
apply for jobs from various sources. Selection is a negative process. It picks’ up a few suitable persons
from a number of applications received and eliminates many candidates aspiring for the same post

4.5.6 SELECTION PROCEDURE

Selection is done after the receipt of applications from the candidates through various sources.

The various steps involved in the selection procedure are

1. Obtaining job description.
2. Application blank or form.
3. Interview.
4. Teats.
5. Physical ex
6. Checking, of reference and records.
7. Placement.

1. Job description:
A job description is a short statement that describe the work to be performed and essential
requirements of the particular job. The job description mainly consists of the following:

• Work to be performed
• Job responsibilities eg. safety of workers, maintenance of machines etc.,
• Abilities and skills required to perform the job such as mental concentration, ability to read
drawings etc.
• Physical factors such as good vision, age, height, etc.,
• Personality traits such as tolerance, emotional stability, sociability, honesty etc,

2. Application blank or form

An application form or blank is generally used to screen applicants to be called for interview and
other tests. The application form is used to get from the applicant the information such as age, marital
status, education, training, previous work experience including nature of duties, salary, reason for leaving
etc. An applicant form may show whether the candidate has consistently progressed to better jobs and
whether the applicant meets the job requirements.

3. Interview:
An interview is a conversation between an applicant and the interviewer. In the interview, the
applicant and the employer get chance to know each other An interview helps the employer in the
following ways:
1. To measure attributes and information about applicant such as quickness in understanding,
motivation, emotional adjustments, behavior etc,
2. To study the impact of personality of apj upon others.
3. To measure whether the applicant will be a good fit to the job.

4. Tests:
Employment tests are conducted to measure the ability ties of applicants. An employment test
measures psychology cal facts such as ability to reason, capacity for learning, temperament, aptitudes
etc. The following are the types of employment tests used.

Performance test:
This is to measure what applicant knows about a particular job. For example, a welder is asked to
weld two metal pieces.

Aptitude test:
This is to find out the inborn talents of an applicant to perform well in a particular field and to
determine the hidden ability to learn a given work if proper training is given.

Intelligence test:
This is to get an idea about the mental quickness and general knowledge of an applicant.

Personality test:
Thin is to measure an applicant’s personality traits such as sociability, emotion, adjustment, self
confidence, patience, co-operation etc.., If an applicant lacks personality, he may riot be able to get along
with other people in an organisation.

5. Physical examination
To ascertain physical fitness of an applicant required for the job, medical tests are conducted by
an authorised doctor.

6. Placement
 The selected candidate is appointed by the issue of an appointment order and placed in the job.
When a new person joins a concern, everything in the organisation is new to him. Follow up action on the
new employees shall be taken for initial adjustment.

4.5.7 TRAINING
Training enables a new employee to acquire necessary knowledge and skill to do the job
effectively. Training is essential since no one is moulded to the required qualification for immediate
employment. Even the top executives are sent for training to learn the latest techniques of management.

4.5.8 OBJECTIVES AND ADVANTAGES OF TRAINING

The following are the main objectives of industrial training
1. To ensure, adequate supply of properly trained employees.
2. To improve the performance of each employee.
3. To increase productivity.
4. To reduce scrap, accident rate, fatigue and labour turnover.
5. To boost morale of employees.
6. To promote co-operation, teamwork arid good relations between employer and employees.

4.5.9 TRAINING OF WORKERS

The following are the types of training given to workers:
1. Induction and orientation training.
2. On the job training.
3. Apprentice training.
4. Vestibule school training.

4.5.10 INDUCTION AND ORIENTATION TRAINING

This type of training is meant for new employees. When a new worker joins a concern, everything
is strange for him. Hence this type of training is to make employee familiar with the company. This
training provides information about the company (its history, organisation structure, policies, products
manufactured etc.,), conditions of employment, rules, service benefits, wage rates, incentive schemes,
safety regulations, proper use of tools, the work to be undertaken, fellow workers, supervisors, etc, etc.

Merits and demerits of Induction training:

1. This training familiarizes new employees about company.
2. The emotional upset of new employees is minimised.
3. It develops a favorable attitude and confidence.
4. This may interfere with productive work.

4.5.11 INDUCTION AND ORIENTATION TRAINING

 This is considered to be the most effective method of training for new employees and for
retraining the old employees. Under this method, the worker is trained on the job and at his workplace.
This enables him to get training under the same working conditions and with the same materials and
equipments that will be used by him ultimately. The trainer explains and demonstrates to the trainee the
job, use of tools and equipments and the correct procedure to do the job. The trainee is then asked to do
the job by himself. Mistakes if any made by the trainee are corrected. The trainee is kept under constant
watch until he develops correct work habits.

Merits and demerits of On-the-job training

1. It is simple, cheaper and less time consuming.
2. No additional machinery for training is required.
3. The trainee learns by doing at the actual equipments and in the environment of the job.
4. Chances of accidents, spoilage of material, damage to equipments etc., may increase.
5. Productivity may decrease.
6. There may be distraction due to noise, pressure of work etc.

4.5.12 APPRENTICE TRAINING

This training consists of both class room instructions and shop floor practice. This training is used
in a number of fields such as turner, welder, motor mechanic, electrician etc. This training is to produce
highly skilled and fully qualified craftsman. Under this scheme young boys 16 to 18 years of age are
trained for 2 to 4 years and they are paid stipend. The training is broad, systematic and planned one.

Merits and demerits of apprentice training

1. The training is given by experts and hence effective.
2. The trainee becomes highly skilled and fully qualified craftsman.
3. The training is a costly one.
4. The training period is of long duration.
5. The training may interfere with actual production.

4.5.13 VESTIBULE TRAENING

The term vestibule school training is used to the training given in a separate place-outside the
shop floor. Only after this training, a trainee is permitted into the shop floor. The vestibule school is run
when a large number of persons have to be trained at the same time. )
In a vestibule school, the equipments similar to the e4uipments actually used on the shop floor
are used. After acquiring the required efficiency, the trainees are transferred to the production floor to
take up regular production work.

Merits and demerits of vestibule school training

1. A large number of persons can be trained without. affecting actual production.
2. Damages to costly machines on production line by untrained workers is avoided.
 3. There is no distraction as in the case of on-job training. Hence the trainees can concentrate on
learning.
4. The training is costly because there is duplication of equipments, materials etc.
5. If the demand for workers is less, the school will become idle.

4.5.14 MORALE
Morale is courage, confidence and enthusiasm in the performance of duty. It is a concept that
describes the attitudes of the employees towards all aspects of their work - the job, the company, working
conditions, fellow workers, supervisors etc.
There are certain indices to measure the depth of morale. These are resignation, accidents,
sickness, spoilage, grievances and complaints. If the morale is low these indices give high readings
Increased productivity, Industrial peace, economical growth and labour welfare are achieved by improving
morale.

4.5.15 IMPROVING MORALE

The following are the conditions that will improve morale.

1. The employees must find job satisfaction:

The employees must do their work with a feeling of a pride in performance. This can be achieved
by encouraging initiative and proper training to acquire skill.
2. Each employee must be made to feel important
Employees generally have the desire to be appreciated and considered important. This can be
provided by asking for opinions and suggestions and praising them in public for achievement.

3. Employees must believe that the purpose of enterprise Is worthwhile:

Employees will do the job with interest only if they understand that the job is worth-while.
Therefore they must be told about the importance Of the job given to them.

4. Employees self respect shall not be hurt:

Arbitrary orders without explanation, criticism in front of others, rules that create suspicion etc, will
hurt the employees. These shall be avoided.

5. The employees must be free from worry about Job security:

Employees want a job that is permanent and secure. Hence management must assure job
security

6. There shall be an opportunity for advancement:

Promotions must be made only on the basis of merit. The merit of employees who were
promoted should be clear to those who were not promoted. This will avoid resentment. Seniority rights
shall also be maintained.
7. There shall t fair and efficient leadership:
The employees must always have the impression that they receive fair treatment, there is no
favoritism and that equal consideration is given to all persons.

8. There shall be fair wages and incentives:

Employees will do duties honestly and sincerely and will involve in the organisational activities as
a family members only when incentives are given. For example, fair wages, bonus, retirement ) (like
Pension, Gratuity), good physical working conditions, welfare amenities (medical and educational
facilities, housing, recreations etc,) shall be provided.

REVIEW QUESTIONS
1. Define human resource management. What are its objectives? Explain.
2. Explain in brief, the functions and responsibilities of personnel department.
3. What do you mean by personnel policy? What are the p of personnel policy.
4. Explain the terms (i) R (ii) Selection Training and (iv) Placement.
5. Explain briefly the various steps followed in selection of candidates for employment.
6. What are the objectives and advantages of training program.
7. What are the different types of training for workers. Discuss the merits and demerits of each.
Mention the field of application.
8. Distinguish between on-the-job training and apprentice training.
9. Explain the term ‘morale’. Explain with examples how morale can be improved. What is
achieved by improving morale.

4.6JOB EVALUATION AND MERIT RATING

4.6.1 JOB EVALUATION
Job evaluation is a process to determine the i of every job In an organisation and to
determine the fair basic wage for every job.
It is essential that persona doing the same job in same organisation shall be paid equally.
Inequity in salaries lead to resentment and labour unrest. Labour turnover may also increase. Therefore a
judicious comparison of jobs necessary to determine the value of a job and to avoid unhealthy work
situations Job evaluation is a technique used for this purpose.
Job evaluation deals with jobs only and not the persons doing these jobs. For evaluating the
persons doing the job, Merit Rating is used.

4.6.2 OBJECTIVES OF JOB EVALUATION

The following are the main objectives of job evaluation.
1. To decide values of different jobs.
2. To improve employer – employee relationship
 3. To reduce labour turn over and improve job satisfaction.
4. To minimise labour unrest and to create healthy work situation

4.6.3 TYPES OF JOB EVALUATION SYSTEMS

Job evaluation systems are classified as follows
• Non Quantitative
a. Ranking System.
b. Rating or Grading or Classification System.
• Quantitative.
a. Point or Manual System
b. Factor Comparison System

4.6.4 RANKING SYSTEM

This is the simplest method. The jobs to be evaluated are ranked according to the value of work
as judged by the rankers. The ranking may be done by a trained analyst or by a committee of competent
persons. In ranking the jobs, the following factors may be considered.
1. Volume of work.
2. Difficulty of work.
3. Monotony of work.
4. Responsibility involved.
5. Knowledge & Experience required.
6. Working conditions.

Advantages of ranking system:

a. The method is simple and fast.
b. Suitable for small organizations
c. The method is less expensive; Disadvantages of ranking system:

Disadvantages of ranking system:

a. The method is not very accurate.
b. Not useful for big Organisations.
c. There is no scientific basis. It merely tells one job is higher or lower than the other.
Procedure for Ranking Jobs:
Evaluating jobs by the ranking system consists of the following steps:
1. All jobs to be evaluated are listed.
2. Competent persons are selected as rankers and a committee is constituted.
3. The ranking is done independently by committee members.
4. The ranking made by individuals is reviewed by the committee. Discrepancies found are set
right by mutual discussion.
 5. Similar procedure is adopted a number of times with an interval) of 2 to3 Total number of
observations is given by

2 where N is the number of jobs to be evaluated. If number of jobs to be evaluated is

6, then number of observations to be made

6. The rankings thus made are averaged and the final ranking of job is determined.

4.6.5 RATING OR GB4DING OR CLASSIFICATION SYSTEM

In ranking system, each job is ranked as higher or lower than the other: In few cases, there may
not be much difference between any two ranks of jobs in requirement of skill, knowledge, responsibility,
difficulty etc., All such jobs of equal or of little difference are grouped together and classified into a single
grade. This method of evaluation is known as grading system or rating system.
Thus each job family can be broken into number of grades. For example, welding job may be
graded as class A, Class B, Class C. Class A may deal with welding of pressure vessels which require
high skill and responsibility. Class C may deal with fabrication of furniture. Each grade carries an
appropriate scale of pay.

Advantages of grading system:

1. It is simple and flexible method.
2. It is more accurate as compared to ranking system.
3. A large number of jobs can be grouped into small number of grades.

Disadvantages of grading system:

1. It lacks scientific basis in classification.
2. The process of grading is time consuming.
3. This system is not suitable for big Organisations.

4.6.6 FACTOR COMPARISON SYSTEM

This method uses the following five factors for evaluating different jobs.
1. Skill requirements.
2. Mental effort requirements.
3. Physical effort requirements.
4. Responsibility.
5. Working conditions.

Steps Involved in factor comparison plan:

1 A few key jobs m the organisation are identified and their wages are recorded. Jobs which are
assumed to be correctly and fairly paid are taken as key jobs.
 2. The key jobs are analysed for each of the five factors - Skill, Mental, Physical, Responsibility
and Working Conditions.
3. The salary paid for each key job is allocated among the five factors in proportion to their
requirement, necessity and importance in the job. (Table 4.6.1)
4. Based on the above, a job comparison scale (Table 4.6.2) on money rating for each of the five
factors is set up.
5. The job to be evaluated is analysed into five factors.
6. As per the job requirement, the importance of each factor in the job is determined and fitted in
the job comparison scale.
7. Monetary value to each factor is added. This total gives the money v for the job to be
evaluated.
A close and careful study of tabulated statements in tables 4.6.1 and 4.6.2 will make the
procedure clear.

Advantages of factor comparison system:

1. The method is systematic and appropriate.
2. It can be well adopted in big Organisations.
3. Since the method uses monetary scales, the wages for new jobs can be calculated speedily.
Disadvantages of factor comparison system:
1. It is a complicated method. It cannot be understood easily by workers.
2. Different persons may attach different monetary values with each factor for the same importance.
Hence this method may not be very accurate.
3. Wrong selection of key jobs can introduce error in the wages calculated for new jobs.

4.6.7 POINT SYSTEM

In this system, the value of the job is expressed in terms of points. This method is very popular,
systematic and accurate. This method consists of
i. Dividing the job into a number of factors.
ii. Sub-Dividing each factor into number of grades or degrees.
iii. Awarding certain points for each factor/grade.
iv. Arriving at total points for each job,
v. Determining a suitable wage rate proportional to the total points.
The factors use this system and points awarded to each factor are shown in table
4.2.3. Points shown are subject to variation. Points values depend upon the importance of factors as
applied to jobs in a particular organisation.

Procedure involved in point Method:

A few key jobs are selected.
1. The jobs to be evaluated are determined.
2. The factors on which the jobs to be evaluated are selected.
3. Each selected factor is sub-divided into grades of four to eight. In table 4.6.3 five grades are shown.
4. The degrees for each factor are well defined. For example, the factor ‘education’ may have the
following 5 degrees.
i. Fresh diploma in engineering - I grade
ii. Diploma in engg. with one year training - II grade
iii. Fresh graduate in engineering - III grade
iv. Degree in engg. with 1 year training - N grade
v. Degree in engg. with 2 years training - V grade
5. Each factor a weighed depending on its importance and awarded points, keeping the total value as
100. This is basic points or basic weightage
6 Each grade on each factor is allotted points Basic weightage is awarded to I grade. Other successive
grades are given point values in arithmatic 7 The grade points awarded to each factor of key jobs are
totalled.
8. Since the wage rate far key jobs is fair and is known, relationship, between points and wage rates
of key jobs can be established. .
9. All grade points awarded to the job to be evaluated added This gives point value for the job
The wage rate for the job is determined proportional to the wage rate established for key jobs.

Advantages of point system:

1. It is more accurate and reliable method.
2 The employees can easily understand this method
3. Since grade points, are established, the chances of discretion decrease.
Disadvantages of point system:
1 Points are alloted to each factor based on opinion Only, not on reason.
2. More amount of work is involved in analysing factors and grades.
3 System analysis can be made only by experts
4.6.8 MERIT RTING
Merit rating is a process to assess the relative worth of anemployee m terms of his job
performance, initiative, integrity, leadership, behaviour, intelligence etc.
Merit rating Is done for the matters of
1. Wage increments
2 Promotions
 3 Transfers
4. Special assignments
5 Training
6. Discharge

Method of Merit Rating

Rating scale method is generally used for merit rating.
The steps involved in this method are -
1. Merit factors to rate the employees are dicided The different factors are -.
i. Standard output x. Character
ii. Quantity of output xi. Integrity
iii. Intelligence xii. Loyalty
iv. Job knowledge xiii Co-operation
v. Initiative xiv. Reliability
vi. Creative ability xv. Dependability
vii. Education xvi. xvi. Leadership.
viii. Experience xvii Judgment
ix. Organising ability xviii. Enthusiasm etc.,
Six to ten factors, depending on the nature of job, may be used for rating an employee.
2. Each factor is divided in to different grades like excellent, very good, good, fair, poor etc., For
each grade certain points or marks are fixed.
3. Merit factors are selected for an employee to be rated. Marks are awarded by the raters, for
each factor.
4. The marks awarded are added. The worth of an employee is determined from the total points
secured by him.
5. On the basis of these total points, different workers can be compared and rated as -
i. Excellent
ii. Very good
iii. Good
iv. Average
v. Poor
vi. Very poor

Advantages of Merit Rating :

1. It is a systematic method to rate employees.
2. Employee - employer relations improve.
3. Meritorious employees are encouraged.

Disadvantages of Merit Rating:

 1. The rater can rate an employee as poor, good, excellent etc., based upon general impression
formed by him.
2. A rater who does riot have enough personal contact with each employee can not rate them
correctly.
3. A supervisor-” may not like to degrade his subordinates, who may not be good at work.

REVIEW QUESTIONS
1. What is job evaluation and what are its objectives?
2. What are the types of job evaluation system ?
3. Distinguish between job evaluation. Bring out its merits and demerits.
4. Explain point system of job ev and merit rating.
5. Explain factor comparison system of job Juatlo’ How it differs from point system.
6. Explain ranking and grading systems of job evaluation.
7. What is merit rating and how and why it is done?
8. State the merits and demerits of merit rating.

4.7. WAGES AND SALARY ADMINISTRATION

4.7.1 WAGES AND SALARY

Wage is compensation paid to the employees for the work done by them. It is the payment for the
use of labour. Wage includes both of money and non-money payments.
If the quantum of work is difficult to measure, then the payment is Galled salary.
Payment made to laborers is generally called as wages. Money paid periodically to persons,
whose output can not be measured, such as clerical staff, supervisors, engineers is generally called as
salary.

4.7.2 COMPONENTS OF WAGES

Wages has the following components.
1. Basic wage
2. Dearness Allowance
3. Bonus
4. Incentive
5. Overtime payments
6. Other allowance (CCA, HRA, etc.,)

1. Basic Wage:
It represents the appropriate money value for the worth ofthejob. It does not include other
benefits given to the worker. This basic wage is variable one. It depends upon the nature of job and place
of the job. Basic wage shall not be below the minimum requirements of life.
2. Dearness Allowance (DA):
It is the payment given to compensate for the rise in prices of foodstuff and other essential
commodities from time to time. DA is linked up with Price Index Number.

3. Bonus:
It is extra amount paid to the employees out of the profit earned by the company. Under the
Bonus Act, the workers are entitled \o get a minimum annual bonus. The rate of minimum bon Bonus ct is
8.33% of the wages earned by a worker during a financial year. Some factories pay bonus to their
workers even up to 40%. The payment, of bonus encourages workers to increase their productivity.

4. Incentive:
It is a reward given to a worker for his extra productive effort and work. If a worker produces more
than the standard output, be is paid extra for his extra work. Incentives stimulate the workers for
increased production.

5. Overtime Payment:
It is the payment made for the work done beyond normal working hours. If workers are asked to
work beyond normal working hours, they have to be paid extra, at increased rates for overtime hours.

6. Other Allowances:
This refers to allowances paid other than dearness allowance. These allowances will depend
upon nature of-Work, work environment, place of work etc. City compensation Allowance (CCA), House
Rent Allowance (HRA) etc. a examples of such, allowances. In mines, where risk of life is more, “risk
allowances” are paid.

4.7.3 WAGES - ITS RELATED TEMRS

The following terms are used in connection with waget
1. Nominal Wage 2. Living Wage
3. Minimum Wage 4. Fair Wage
5. Real Wage 6. Take home pay
1. Nominal wage:
This is nothing but basic wage (Refer article 4.7.2)

2. Living wage:
This represents standard of living. This wage which is sufficient to meet a few of the requirements
of a family such as balanced food, clothing, education for children etc., and some insurance against
important misfortunes of life, is known as living wage. Living wage provides for ‘maintenance of health
and decency.

3. Minimum wage:
 This is least amount of wage which a worker should be paid so that he can survive and support
his family. It does not provide for future and other amenities of life, except food, shelter and cloth. The
amount of minimum wage is fixed by the standard per capita requirements of food, clothing etc., size of
average family, place of work etc.

4. Fair wage:
A wage is said to be fair when it enables the worker to maintain a decent standard of living. That
is, it must provide the worker and his family with necessities of life for minimum comfort. The fair wage
must not be below the minimum wage.

The upper limit depends upon the capacity and willingness of the’ employer to pay.

5. Real wage
This term refers to the purchasing power of wages paid in cash. When price level increases, the
purchasing- power (the value of real wage) decrease. This will affect the standard of living. The real wage
is measured by the goods and services that can be purchased with monetary wage.

6. Take Home pay:

This represents the actual amount paid after the “deducts”. Deducts are authorised deducations
regularly subtracted from warnings. The deductions are income tax, provident fund, p tax, insurance
premium etc.

4.7.4 WAGE BOARD

Wage board is a group of competent persons controlling - payment-of wages. This board will deal
with all aspects of wage fixation and adjust This would be set up at both state and central levels. These
boards are tripartite in. composition - having representatives from employers, employees and
Government. -
The wage board will decide the wage structure for industries based- on principles of fair wage.
Some wage boards are also required to deal with specific items such as bonus, gratuity, grant of interim
relief etc.
The first wage board was set up by the Government of India in March 1957. This was followed by
establishment of wage boards for major industries such as jute, plantation, coal and other mines, iron and
steel, chemical, sugar, cement etc.

4.7.5 WAGE FIXATION - MAJOR FACTORS

Supply and demand for labour, cost of living and individual productivity are the basis for wage
fixation. In addition, the following factors are also involved in wage fixation.
1. The needs of the worker.
2. The capacity of industry to pay and its policy.
3. Going wages - ie. the wages prevalent in the area.
 4. The bargaining strength of employer and employees (trade unions).
5. Availability of labour in the area.
6. Skill in a particular trade.
7. Government legislation in regulating wages.

4.7.6 TYPES OF WAGE PAYMENT SYSTEMS

The following are the two fundamental methods of wage payments.
1. Time rate system (Payment by hour or day)
2. Incentive system (Payment by results)

4.7.7 TIME RATE SYSTEM (Payment by Hour or Day)

This is the most commonly used method of wage payment. Under this system, the worker is paid
in proportion to the time spent by him on the work. Wage does not depend upon the quantity of output.
The worker is paid at an hourly, daily, weekly or monthly rate. For example is R is the rate per hour and T
is the number of hours worked, then the worker’s earnings E = RF

Merits of Time Rate System

1. The method is simple and easy for calculation of wages.
2. No discrimination is made between one Worker and another. Hence not among workers.
3. The workers do not hurry up to work and hence the quality may be maintained.
4. This method is suitable for jobs which cannot be standardized and correctly measured. (Eg.
Repair work, Supervision, Maintenance work)
5. There will be no loss to the worker, even if there is production breakdown.

Demerits of Time Rate System

1. There is no distinction between more efficient and less efficient worker. Hence efficient workers
loose interest
2. Possibility of evasion of work and wasting time.
3. More supervision is necessary which results in more overheads.
4. Workers have no inspiration to produce more.

4.7.8 PAYMENT BY RESULTS (INCENTIVE SYSTEM)

Payment made to the workers according to their performance (i.e production) is known as
Payment by Results.
Under this system, a standard output level is fixed and a minimum wage is guaranteed. When a
worker fails to produce the standard output, he will be paid the minimum guaranteed wage. When a
worker produces more than the standard output, he will paid more than the minimum guaranteed wage.
This extra amount paid is known as incentives.

Advantages of payment by results:

 1. Productivity increases and hence production cost decreases.
2. The workers will have increased earnings.
3. Less supervision is sufficient, resulting in less overheads.
4. Since the workers will try for maximum output, there will be less idle time and effective use of
equipments.
5. Efficient workers are rewarded and slow workers are encouraged to produce more.

Disadvantages of payment by results:

1. Quality of products may go down.
2. To maintain quality effective inspection is necessary. This will increase expenses.
3. The workers may over strain themselves and affect their health.
4. There will be unhealthy competition and jealousy among workers.
5. The risk of accidents may in due to increased speed of wor and neglect of safety, regulations.

4.7.9 SYSTEMS OF PAYMENT BY RESULTS

The following are a few of the main systems of Payment by Results
l. Straight Piece Work System
2. Standard Hour System
3. Halsey’s 50% Plan System
4. Rowan Plan System
5. Emersion 66 Efficiency Plan

4.7.10 STRAIGHT PIECE WORK SYSTEM

In this system, the worker is paid at a specified piece rate, for the number of pieces produced by
him. The standard out put is set and the worker is guaranteed a minimum wage. This means if a worker
producesless than the standard output, he will get the minimum guaranteed wage. If another worker
produces more than standard output, he is paid a wage in direct proportion to the number of pieces
produced by him.

Example:
Let us assume an output standard of 16 bolts per day of 8 w hours and a guaranteed wage rate
of Rs.4 per hour.
Therefore piece rate = 4 x (8/16) = Re.2 per bolt
The minimum guaranteed wages = 4 x 8 = Rs.32 per day
1. If produces less than 16 bolts per day (standard output), he is paid the guaranteed minimum
wages of Rs.32 per day.
2. If a worker produces more than the standard output, say 25 bolts, he will be paid at a piece
rate = 25 x2 = Rs.50 per day.

4.7.11 STANDARD HOUR SYSTEM

 A standard time is set for each operation. A specified rate per hour is set for each type of work
and standard hours produced by a worker is calculated. The worker receives wages at specified hourly
rate for the standard hours of work produced by him. This system also guarantees minimum wage.

Example:
Let us assume the standard time set for a job is 30 minutes and the hourly rate is Rs.4.
If a worker produces 20 jobs a day of 8 working hours, the standard hours of work produced by
the worker.
= 20 x 30 = 600 minutes = 10 hrs.

Therefore the earning of worker = 10 x 4 = Rs.40.

If a worker produces less than 8 standard hours, that is less than 16 pieces in a day of 8 hours,
he is paid his guaranteed minimum wage.

Advantages standard hour system

1. The method is simple to understand and calculate wages
2. The worker gets entire benefit of his work.
3. The efficient worker is encouraged to do his best ai earn more.
4. Slow workers will not suffer because of guaranteed minimum wage.
5. It helps to boost production.

Disadvantages standard hour systems

1. The workers may overstrain themselves and affect their health.
2. Risk of accidents may increase due to increased speed of work.
3. The system is not suitable for group incentive scheme
4. Product quality may go down.
5. To maintain quality effective inspection is required.

4.7.12 HALSEY’S 50% PLAN

Under this plan, a standard time is set for completion of a job. If a worker completes the job in the
standard time, he is paid at his guaranteed time rate. If a worker completes the job in less than standard
time, he is paid a bonus in addition to his base wage at the guaranteed time rate. The amount of the
bonus paid is 50% of the time saved. The other 50% goes to the employer.
Let S is the standard time allowed for the job, T is the time taken by the worker to complete the
job, R is the hurly rate. Then under 50% Halsey plan, the earnings E of the worker will be

Example
If the allowed time for a job is 10 hours and the hourly rate is R Calculate the earnings of worker if
he completes the job in 10 hrs b) 12 hrs and c) 8 hrs.
I Case:
The work is completed in the allowed time and hence the worker gets only his guaranteed day
rate and no bonus.

II Case:
The work is completed in the more than allowed time and hence the worker gets only his
guaranteed day rate and no bonus.

III. Case
The work is completed in less than standard time and hence the worker gets bonus in addition to
base wage.

Advantages of Halsey Plan

1. The workmen are guaranteed minimum wage.
2. It is simple to operate and understand.
3. The workmen can easily calculate their bon
4. The employer also shares the gain of extra effort workers..
5. It is useful where accurate measurement of ii standard is not possible.
6. The workers earnings may exceed twice the day rate

Disadvantages of Halsey Plan

1. The worker does not get the entire benefit of. time saved by him.
2. The above will lead to dissatisfaction.
3. Since standards are set based on the past production records, it may not be fair an just to all
workers

4.7.13 ROWAN PLAN

In this system, an hourly rate is guaranteed and standard time for completion of a job is
established from the past production record. If the job is completed in the standard or more than the
standard time, the worker is paid the guaranteed wage. If the job is completed in less than standard time,
the worker is paid a bonus in addition to the guaranteed wage.
Let R is the hourly rate S is the standard time, T is the time taken to complete the job and E is the
total earnings of the worker, then
 a) The bonus (incentive) or premium
= (Hourly rate x Time taken) x (Time saved/Standard time)
= (R x T) x [(S -T)/S]
b) Earnings E=RT+ {[(S-T)/S] X (RT)}

Example
If the allowed time for the job is 10 hours and the hourly rate is Rs.4. Calculate the earnings of q.
worker who completes the job in the 8 hrs.

Note: If the work is completed in 10 hrs Or more tl 10 hours, worker is paid only at the guaranteed rate
for the actual hours spent on the job and no bonus is paid.

Advantages of the Rowan Plan:

1. It guarantees day rate.
2. The premium (bolus) is more than that in Halsey Plan.
3. The employer also shares the gain of worker’s effort.
4. It can be used where output standard cannot be measured accurately.

Disadvantages of Rowan Plan:

1. The Plan is difficult for the worker to understand
2. The worker cannot easily calculate his earnings.
3. The earnings of the worker can never exceed twice his day rate as in the Haisey Plan.

4.7.14 EMERSON EFFICIENCY PLAN

Under this system, a standard time is established for each job. The time taken by each worker to
complete the job is recorded. The efficiency of each worker is calculated

For example, if the standard time for a job is 8 hours and a worker takes 10 hours to complete the job, his
efficiency is 80 percent.
The worker is guaranteed his time rate. The work standard is set at a high level. If the efficiency
is 66 and below, the worker is paid his guaranteed wage and no bonus is paid. At 67% efficiency, the
worker is paid his time rate plus a small bonus, say 2%. From this point the bonus increases with
increase in efficiency. At 100% efficiency a bonus of 20% is paid. Thereafter for every one percent
increase in efficiency, the bonus is also increased by 1%.
 For example, if the efficiency is 105%, the bonus is 25%, if the efficiency is 110%, the bonus is
30% and so on.
Let R is the hourly rate, S is the standard time taken and E is the total earnings. Then
From 67% to 100% efficiency (Standard task level)
E = RT + K (RT), the value of K varies from 0.02 to 0.2
K = 0.02 for 67% efficiency
= 0.2 for 100% efficiency
= 0.2 x 0.7 = 0.14 for 70% efficiency
= 0.2 x 0.85 = 0.17 for 85% efficiency
and likewise K is determined for the other values of efficiency.

Above standard task level (that is above 100% efficiency)

E = RT + 0.2RT + (S - T) R = SR + 0.2RT
RT = Time Rate
0.2RT = Bonus for 100% efficiency
(S — T)R = Bonus for above 100% efficiency

Example:
The total standard time set for a job is 220 hrs and the wage rate is Rs.4 per hour. There are two
workers A and B who complete the job in 200 hours and 240 hours respectively. Calculate their wages.

Worker A:
Efficiency of worker = S/T = 220/200 = 110%
The worker’s efficiency is above 100% and his, total earnings are,

Worker B:
Efficiency of worker = S/T = 220/ 240 = 92%
The worker’s efficiency is below 100% and his total earnings are

Note: If the workers efficiency is 66 and below, he will be paid only Rs.4 per hour.

Advantages of Emerson plan

1. It guarantees minimum day rate and hence slow worker do not suffer.
2. High producers get high rate of incentive.
 3. Small bonus is paid even to works who produce below standard and hence workers are
encouraged to do their best.

Disadvantages of Emerson plan:

1. The system is not easy to understand by the workers.
2. It is difficult for the worker to calculate his earnings.
3. It involves more clerical work to calculate wages.

4.7.15 CHARACTERISTICS OF INCENTIVE PLAN

1. It should be simple and easy to understand.
2. It should guarantee a minimum wage.
3. It should be beneficial both for the employer and employees.
4. The worker should get enough incentive for their productive effort.
5. No limit should be put on worker’s incentive earnings.
6. Standardization (of work methods, working conditions etc) shall be the basis for all incentive
plans.
7. Standards of output should be fairly set based on Time study.
8. The must be installed only with the mutual agreement between employees and employer.
9. It must result in increase of productivity, increase in earnings of workers and decrease in
labour cost of the product.
10. Once installed, the incentive system should be rigidly maintained.

REVIEW QUESTIONS
1. Distinguish between wage and salary.
2. What are components of wages Explain.
3. Explain the following terms.
a. Nominal Wage d. Fair Wage
b. Living Wage e. Real Wage
c. Minimum Wage f. Take home pay
4. What is wage board and what are its functions.
5. What are the major factors to be considered in wage fixation.
6. What are the two systems of wage payment. Explain with merits and demerits.
7. Mention a few important systems of payment by result. Explain any one in detail, bringing out
the merits and demerits.
8. Explain straight piece work system and standard hour system of wage payment. What are the
advantages and Disadvantages of the systems.
9. Explain Rowan plan of wage payment by results with merits and demerits.
10. Explain Emerson’s efficiency plan of wage payment. Give their merits and demerits.
11. Explain Halsey’s 50% sharing wage plan with merits and demerits.
12. What are the requirements or characteristics for a good system of payment by results?