PRINCIPLES OF MANAGEMENT

UNIT I - INTRODUCTION TO MANAGEMENT AND ORGANIZATIONS

UNIT II - PLANNING
UNIT III - ORGANISING
UNIT IV - DIRECTING
UNIT V - CONTROLLING

TEXT BOOK:
1. Harold Koontz & Heinz Weihrich Essentials of management Tata McGraw Hill,2004.

UNIT I - INTRODUCTION TO MANAGEMENT AND ORGANIZATIONS

Management:

Harold Koontz and Heinz Weihrich define management as the process of designing
and maintaining an environment in which individuals, working together in groups,
efficiently accomplish selected aims.

Mary Parker Follet termed management as the act of getting things done through
people.

Example:
A manager who works in IT company will contribute to the organisation goals indirectly by
directing the effort of others and not by performing the task by himself.
Some of the best managers:
1. Steve Jobs Apple
2. Jack Welch General Electric (GE)

"Management is efficiency in climbing the ladder of success; leadership determines

whether the ladder is leaning against the right wall."
Stephen R. Covey

"If you pick the right people and give them the opportunity to spread their wings and
put compensation as a carrier behind ityou almost don't have to manage them."
Jack Welch
"Make your top managers rich and they will make you rich."
Robert H. Johnson

Functions of Management: planning, organizing, staffing, leading, and controlling

Planning: setting the organizations goals and deciding how best to achieve them
Organizing: determining how best to group activities and resources
Staffing: keep on filling the positions in the organization structure
Leading: motivating members of the organization to work in the best interests of the
organization
Controlling: monitoring and correcting ongoing activities to facilitate goal attainment
Managerial Functions at Different Organizational Levels:

No basic distinction is made between managers, executives, administrators, and

supervisors

All managers carry out managerial functions. However, the time spent for each
function may differ

Time Spent in Carrying Out Managerial Functions

Top level managers:

Spend more time on planning and organizing

Creating a context for change
Developing commitment and ownership in employees
Creating a positive organizational culture through language and action
Monitoring their business environments

Middle level managers:

Plan and allocate resources to meet objectives

Coordinate and link groups, departments, and divisions
Monitor and manage the performance of subunits and managers who report to them
Implement changes or strategies generated by top managers

First level supervisors:

Manage the performance of entry-level employees

Encourage, monitor, and reward the performance of workers
Teach entry-level employees how to do their jobs
Make detailed schedules and operating plans

Managerial Skills and the Organizational Hierarchy:

Robert L. Katz identified four kinds of skills for administrators:

technical

human

conceptual

design skills

Top
Level
Managers

Conceptual and

Supervisors:
Technical skills important
Human skills helpful for frequent interactions with subordinates
Conceptual not important for this level
Design Skills not important for this level

Middle Management:
Technical skills need will be decreasing
Human skills important
Conceptual skills important
Design Skills not important

Top Management:
Technical skills some exposure
Human skills important
Conceptual skills important
Design Skills important

The Goals of All Managers and Organizations:

The aim of all managers is to make a profit.

Managers must establish an environment in which people can achieve as much as

possible of a desired goal with available resources. So that they can make profits.

Most admired companies in America

a.
b.
c.
d.

Dell Computer
Cisco Systems
Intel (semiconductors)
Wal-Mart Stores

Productivity, Effectiveness and Efficiency

Productivity:
It is defined as the output-input ratio within a time period with due consideration for quality.
Productivity = output / input (time period, quality)
Productivity by comparing the amount of a product produced to the amount of raw materials
and manpower needed to produce a product.
Effectiveness:
It is the achievement of objective.
Efficiency:
It is the achievement of the ends with least amount of resources.

Management: Science or Art?

Management - Art
Meaning of Art:
Practical way of doing specific things.
Involves the practical application of personal skills and knowledge to achieve
concrete results.
It is a personalized process and every artist has his own style.
Main elements of art are

Personal skills
Result-orientation
Creativity
Perfection

Management is an art because of the following facts.

Management process involves the use of practical knowledge and personal skills
Management seeks to achieve concrete results.
Management is creative and constructive
Management is personalized process

Management Science
Meaning of science:
It is a systematized body of knowledge pertaining to a specific field of inquiry.
It contains principles and theories developed through continuous observations,
experimentation and fact findings.
The organized body of knowledge can be taught and learnt in the classroom.

Management is science because it contains all essentials of science.

Management also deals with principles and theories.

Management is evolved only through practical experience and theoretical research.
Management theories and principles may be taught inside the classroom.
Management could be categorised as a social science since it involves the study of
human behaviour.

Management is both science and art:

Management can be learnt as science in the classroom but it requires personal skills
as art to achieve the desired result.

Managerial Roles

Identified by Professor Henry Mintzberg

One of the newest approached to management theory
Observe what managers actually do
After studying the activities of five chief executives in various organizations,
mintzberg came to conclusion that executives are not performing the managerial
functions such as planning, organizing coordinating and controlling.
Engaged in variety of other activities.
Mintzberg came to conclusion that managers fit in to the 10 roles from his research

Interpersonal Roles
1. Figurehead role: Top level manager represents the company legally and socially to
those outside of the organization. Supervisor represents higher management to
workgroup and the workgroup to the higher management.
2. Leader role: It defines the relationship between the manager and employees.
3. Liaison role: tope level manager interacts with people outside the organization and
gains information and the same has been used by the supervisor to maintain the
routine flow of work.

Informational Roles

1. Recipient role: receives information about the operation of an enterprise.

2. Disseminator role: passing the information to the subordinates.
3. Spokesperson role: transmitting information to those outside the organization.

Decisional Roles:
1. Entrepreneurial role: Manager initiates change, new projects and new ideas delegate
idea responsibility to others.
2. Disturbance handler role: Manager take corrective action during disputes or crises,
resolves conflicts among sub-ordinates.
3. Resource allocator role: Manager decides who gets the resource, schedule, budget
and set priorities.
4. Negotiator Role: Dealing with various person or group of persons.

Evolution of Management:
Different Approaches
1. Classical
Scientific Management
Administrative Management Theory
Human Relations Movement
2. Behavioural
Group Influences
Maslows Need Theory
Theory X and Theory Y
Hawthorne Studies
3. Modern
Systems Approach
Contingency Approach
Theory Z and Quality Management

Scientific Management:
Frederick Winslow Taylor known as the father of scientific management
Focuses on how to improve the productivity of operative personnel
His experience as an apprentice, common labourer, foreman, master
mechanic, chief engineer of steel company have him an excellent opportunity
to see the possibilities for improving the quality of management
He proposed work methods designed to increase worker productivity in his
book Principles of Scientific Management
Features of Scientific Management:
1. Reorganisation of supervision
Taylor suggested two new concepts Separation of planning and doing,
functional foremanship
Each worker to plan his own work, worker himself used to select his tools and
decide the order in which the operations to be performed
Foreman will tell the worker what jobs to perform and not how to do them
Taylor suggested that foreman should plan the work and the worker should
concentrate on doing the work as per directions given by the foreman
Many foreman should be involved to control the work either directly or
indirectly
2. Job Analysis
Every job should be analyzed properly and the best method for doing each
job is to be determined
a) Time Study: Each movement of the job is timed out and the movement which
takes minimum time is selected
b) Motion Study: Unwanted movements in the working situations are eliminated
and the necessary movements are only performed
c) Fatigue Study: Determines the amount and frequency of rest required for the
employees in their working environment
3. Standardization
Standards must be achieved and maintained for the working environments
such as instruments, tools, technology, period of work, amount of work, cost
of production
4. Scientific selection and Training
Management should develop and train every worker to bring out his best and
enable him to do higher, more interesting and more profitable class of work
than he has done in the past
5. Differential Payment and Incentive Schemes
Introduced new payment plan called Differential Piece work worker gets
the normal pay if he achieves the standards and gets higher pay if he
surpasses the standards, this motivates the workers to put their maximum
efforts
6. Economy
Scientific Management enhances profit and economy. Profit and economy
can be achieved by optimum utilization of resources

7. Intimate cooperation between the management and workers

There should not be any conflict between the management and the workers,
they need to have a common interest in increasing productivity

Contributions:

Tools and physical movements: Task can be made more efficient

Scientific selection of workers: A Person cannot be expected to do his job properly
without proper training
Work design: Encouraged managers to seek one best way of doing a job

Criticism against Taylors contributions

Average workers cannot be motivated to work hard through economic incentives

Time and motion study is not accepted as entirely scientific, two individuals may time
the same job entirely different, no two individuals can be excepted to work in the
same way at the same rhythm and the same learning speed
Separation of planning and doing: Taking orders from 7 or 8 different bosses resulted
in confusion
Advances in methods and better tools and machines eliminated some workers, who
found it difficult to do their jobs

Human Relations Movement:

Human relations movement emerged because managers found that scientific
management did not quite achieve complete production efficiency
Founded by Prof. Elton Mayo
Various experiments were conducted at western electric company
Plant employed 29,000 workers to manufacture telephone parts and equipments
Four parts of experiment:
1.
2.
3.
4.

Illumination Experiment
Relay Assembly Test Room
Interviewing Programme
Bank Wiring Test Room

Illumination Experiment:

Experiment were done on a group of workers

Productivity is positively correlated with illumination was tested
Productivity was measured at various levels of illumination
Results were not up to the level
Again they set up 2 group of workers in different buildings
One group called the control group worked under constant level of illumination
Other group called the test group worked under changing levels of illumination
Post test productivity of the two groups was then compared and it was found that
illumination affected production only marginally

Relay Assemble Test Room:

Designed to evaluate rest periods and working hours on productivity
Six women operators volunteered to participate in this experiment
These women operators were isolated in a separate room away from other workers
to measure experimental conditions like output, quality of work
Specific task in this test was an electromagnetic switch that consisted of 35 parts that
had to be put together by hand
This experiment introduced a variety of changes to the workers environment
Shortened workdays / weeks, rest periods
Productivity increased by 30 percent and workers also expressed their job
satisfaction
The researchers were confused
Interviewing Programme:
Interviewed more than 20,000 workers
Direct questions were asked relating to the type of supervision, working conditions
but their replies were guarded
Technique was changed to non-directive type of interviewing in which workers were
free to talk about their favourite topics related to their work environment
Study revealed that the workers social relations inside the organisation had an
unmistakable influence on their attitudes and behaviours, members were forced to
obey
Bank Wiring Observation Room:
14 bank wiremen were placed in a separate room and told to complete their
individual tasks
The men in the room were putting automatic telephone exchange components that
consisted 3000 to 6000 individual terminals that had to be wired
Pay incentives and productivity measures were removed to see how the workers
would react
Workers started to restrict their output and an average output level was established
for the group that was below company targets

Limitations:
This experiment will not work since the experiment is done with the small group and it
will be applicable to small scale industries

Modern
Systems Approach:
System is set of interdependent parts which together form a unitary whole that
performs some function
An organisation is also a system composed of four interdependent parts namely task,
structure, people and technology
It is difficult to know which aspect is most useful and appropriate in a given situation,
conceptual framework is required that can help a manager diagnose a problem and
decide which tool or combination of tools will best do the job
Systems approach provides him this integrated approach to management problems
Systems approach is the concept of Holism
Holism means no part of the system can be accurately analysed and understood
apart from the whole system
Conversely, the whole system cannot be accurately perceived without understanding
all its parts
A system can either be open or closed
A system is considered open if it interacts with its environment, all biological, human
and social systems are open because they constantly interact with their
environments
A system is considered closed if it does not interact with the environment, physical
and mechanical systems are closed system because they are insulated from their
external environment
Information, material and energy enter the system from the environment as inputs
and leave the system as outputs
Inputs of a business organisation are raw materials, equipment, human effort,
technology and information
Organisation changes these inputs in to outputs as goods, services and satisfactions,
these change process is known as throughput
Synergy means separate departments within an organisation should cooperate and
interact so that they become more productive
Information is feedback to the appropriate people so that the work can be assessed
and if necessary corrected
Contingency Approach:
Attempts to integrate the various schools of management thought
Management principles and concepts of various schools have no general and
universal applicability under all conditions
Methods and techniques which are highly effective in one situation may not work in
other situations
Results differ because situations differ
According to this approach, the task of managers is to try to identify which technique
will, in a particular situation best contribute to the attainment of management goals
Managers to develop a sort of situational sensitivity and practical selectivity
Applicable in designing organisational structure, in planning information decision
system, in motivational and leadership approaches, in resolving conflicts and
managing change, in employee development and training programmes

Types of business organization

Organization: An organization is a group of people intentionally organized to accomplish a
common or set of goals.
1. Sole proprietorship
2. Partnership
3. Company Public and private
1. Sole Proprietorships:
Vast majority of small businesses start out as sole proprietorship
These firms are owned by one person who has day-to-day responsibility for running
the business
Own all the assets of the business and the profits generated by it
Complete personal responsibility for all its liabilities or debts in the eyes of the law
Arranges the finance, manages the business affairs, takes the profit or bear the
losses
Features of sole proprietorship

Individual ownership: Organization is owned by an individual

Individual Management & Control: Organization is managed and controlled by the
sole proprietor
Individual Financing: organization is financed mainly by the sole proprietor
Individual Accountability: Persons who manage the affairs of the business are
accountable to the sole-proprietor, sole beneficiary of the profits and he has to bear
the losses if any
Liability: Liability is unlimited for the sole proprietor, if the business assets are not
sufficient to meet the business liabilities, his private assets are to be used
Minimum Govt. Regulation: Minimum government regulations to set up such form of
organisation

Advantages of sole proprietorship

Easy and least expensive form of ownership to organize

Complete control to make all decisions
Receive all income generated by the business to keep or reinvest
Profits from the business flow directly to the owners personal tax return
Business is easy to dissolve

Disadvantages of sole proprietorship

Business and personal assets are 100% at risk

Have almost the ability to raise investment funds
limited to using funds from personal savings or consumer loans
Have a hard time attracting high-caliber employees, or those that are motivated by
the opportunity to own a part of the business

2. Partnerships:
Two or more people share ownership of a single business
Partners should have legal agreement that sets forth how decisions will be made,
profits will be shared, disputes will be resolved, how future partners will be admitted
to the partnership, what steps will be taken to dissolve the partnership when needed.
Many partnerships split up at crisis times and unless there is a defined process, there
will be even greater problems
They must decide up front how much time and capital each will contribute
According to section 4 of the Indian Partnership Act, 1932, Partnership is the relation
between two or more persons who have agreed to share the profits of a business
carried on by all or any of them acting for all.
Partnership acts specifies the minimum number of persons (i.e., two) to form
partnership
Maximum limit is defined in section 11 of the companies act, any association having
a membership of more than 10 in case of banking business or 20 in case of non
banking business must be registered as a corporate body failing which it would
become an illegal association
Advantages of a partnership
Partnerships are relatively easy to establish, however time should be invested in
developing the partnership agreement
More than one owner, the ability to raise funds may be increased
Prospective employees may be attracted to the business if given the incentive to
become a partner
Disadvantages of a partnership
Profits must be shared with others
Disagreements can occur since decisions are shared
Partnership has a limited life, it may end upon a partners withdrawal or death

3. Company:
A company chartered by the state in which it is headquartered is considered by law
to be a unique entity, separate and apart from those who own it
Owners of a company are its shareholders
Shareholders elect a board of directors to oversee the major policies and decisions
Company has a life of its own and does not dissolve when ownership changes
Companies which is formed and registered under Sec. 3(1) of the Companies Act,
1956

Advantages of a company
Shareholders can only be held accountable for their investment in the stock of the
company
Companies can raise additional funds through the sale of stock
Company may deduct the cost of benefits it provides to officers and employees

Disadvantages of a company
Corporations are monitored by federal, state and some local agencies and as a result
may have more paperwork to comply with regulations
Incorporating may result in higher overall taxes. Dividends paid to shareholders are
not deductible from business income, thus this income can be taxed twice
Classification of Environmental Factors
Internal Environment
External Environment
Internal Environment:
Internal environment is the environment that has direct impact on the business
Internal factors are generally controllable because the company has control over
these factors, factors are resources, capabilities and culture
1. Resources:
company resources is to look at tangible, intangible and human resources
Tangible resources are the easiest to identify and evaluate financial resources and
physical assets are tangible resources
Intangible resources are largely invisible reputational assets (brands, image etc)
Human resources are the productive services being offer the firm in terms of their
skills, knowledge, reasoning and decision making abilities
2. Capabilities:
Human resources collaborate closely together within teams for a particular productive
activity

3. Culture:
Specific collection of values and norms that are shared by people and groups in an
organization and that helps in achieving the organizational goals

External Environment:
Refers to the environment that has an indirect influence on the business, factors are
uncontrollable by the business
Two types of external environment : micro and macro environment
Micro Environment
External factors close to the company that have a direct impact on the organization
process
Factors include shareholders, suppliers, distributors, customers, competitors and
media
1. Shareholders: Any person or company that owns at least one share (a percentage of
ownership) in a company is known as shareholder. Shareholder may also be referred
to as stockholder. As organization requires greater inward investment for growth
they face increasing pressure to move from private ownership to public
2. Suppliers: An individual or an organization involved in the process of making a
product or service available for use or consumption by a consumer or business user
is known as supplier
3. Distributors: Entity that buys non competing products, warehouses them and resells
them to retailers or direct to the end users is known as distributor, they also provide a
range of services (such as product information, estimates, technical support, aftersale services) to their customers
4. Customers: A person or company which buys goods and services produced by
another person or company is known as customer
5. Competitors: A company in the same industry which offers a similar product or
service is known as competitors
6. Media: Can provide positive impact of a product since it is having direct contact with
customers
Macro Environment:
Macro environment consist of nonspecific aspects in the organizations surroundings
that have the potential to affect the organizations strategies
It includes political, economic, social and technological factors
1. Political factors: It includes government regulations and legal issues such as tax
policy, employment laws, environmental regulations etc
2. Economic factors: It affects the purchasing power of potential customers and the
firms cost of capital. Example: interest rates, exchange rates etc
3. Social factors: It affects the customer needs and the size of potential market such as
health consciousness, population growth rate, age distribution etc
4. Technological factors: Technological factors can lower barriers to entry, reduce
minimum efficient production levels and influence outsourcing decisions such as
R&D activity, automation etc

UNIT II - PLANNING
Planning:
Planning is concerned with defining goals for future organizational
performance and deciding the tasks and resources required to attain them
The management function that includes decisions and actions to insure future
results Peter Drucker
The process of thinking through and making explicit the strategy, action and
relationships necessary to accomplish /overall future objective or purpose David Cleland
and William King
Planning involves selecting mission and objectives and the actions to achieve
them, it requires decision making that is choosing from alternative courses of action Harold
Koontz and Heinz Weihrich
Nature and Importance of planning:
I.

Planning improves focus and flexibility

Focus and Flexibility both of which are important for performance success
An organisation with focus does the best, knows the need of its customers
and knows how to serve them well.
An organisation with flexibility is willing and able to change and adapt to
changing circumstances and operates with an orientation towards the future
rather than the past

II.

Planning improves action orientation

It is a way for people and organisations to stay ahead of the competition and
always become better in accomplishing the things
A good planning makes us more result oriented, priority oriented, advantage
oriented and change oriented

III.

Planning improves coordination

Individuals, groups and subsystems in organisations are doing different things
at the same time

IV.

Planning improves time management

Time is allocated for the activities based on their priorities
Most of the people face difficulties in balancing available time with many
commitments and opportunities
It is important to distinguish between things that must be done (top priority,
low priority)
Planning improves control
When planning is done, it facilitates control, making it easier to measure
performance results and take action to improve things as necessary

V.

Planning Process
1. Being aware of opportunities
Being aware of the external and the internal environment is the real starting
point of planning
Managers should anticipate the future opportunities for their organizations,
know where they stand in the light of their strength and weaknesses,
understand what problems they wish to solve and why and know what they
expect to gain
2. Establishing objectives
Establish objectives for entire enterprise and for each employee for long term
as well as short term
Objectives specify the results expected and indicate the end points of what is
to be done, where the primary emphasis is to be placed and what is to be
accomplished by the various types of plans
3. Developing premises
It is about the environment in which the plan activities will be undertaken
4. Determining alternative course of actions
To search and examine alternative course of action based on the
organizational objectives and planning premises
Particular objective can be achieved through a number of ways
Most common problem is not finding alternatives but reducing alternatives
Some alternatives can be rejected at the preliminary stage itself by
considering some criteria such as minimum investments required, market
conditions, work forces, technology availability etc
5. Evaluating alternative courses
Each alternative course is evaluated on the basis of profitability, capital
investment, risk involved etc
One course of alternative may appear to be more profitable but it may require
large cash outlay and may have a slow payback, another may look less
profitable but may involve less risk
6. Selecting a course
Plan is adopted
If there are more than one alternative, then any of the alternatives may be
chosen for execution
When situation changes and the selected plan does not prove to be the best,
the other alternative may be tried
7. Formulating derivative plans
Subdivided plans required to support and execute the basic plans are known
as derivative plans
8. Plans quantifying with numbers by budgeting
Budgets to be fixed once the decisions are made and plans are finalized
Overall budget of an enterprise represents the sum total of income and
expenses

Types of plans

1. Breadth
Strategic plan
A strategic plan is an outline of steps designed with the goals
of the entire organization as a whole in mind rather than with
the goals of specific divisions or departments

Operational Plan
Production plans: It deals with the methods and technology needed by
the people at work
Financial plans: It deals with money required to support various
operations in the business
Facilities plans: It deals with the work layouts
Marketing plans: It deals with the requirement of selling and
distributing goods and services
Human Resource plans: It deals with recruitment, selection and
placement of people at various jobs
2. Time frame
Short range plans: Plans that are done for a period of one year or less
Long range plans: Plans that are done for a period of three or more years
Intermediate range plans: Plans that are done for a period from one to two
years

3. Specificity
Directional plans: Plans that are flexible and that set out with general
guidelines
Specific plans: Specific plans are plans that are clearly defined and which
leave no room for interpretation
4. Frequency of use
Standing plans
Single plans
Standing plans
They are recurring plans which are used repeatedly in similar situations.
Standing plans in the form of organizational policies and procedures are designed for use
over and over again
Policy: It communicates broad guidelines for decision making and taking action in specific
circumstances
Procedure: It describes what actions are to be taken in specific situations. Procedures are
guides to action rather than thinking. It can be found throughout the organisation. Various
procedures are placing orders for material and equipment, sanctioning different types of
employees leave.
Procedures are repetitive activity so that steps are followed each time when that activity is
performed.

Single plans
Plans that are used only once, serving the needs and objectives of well
defined situations in a time bound manner. Programme, project, methods, schedule, budget
are examples of single plan
Programme: It is a comprehensive plan designed to implement the policies and accomplish
the objectives
Project: It will have clear beginning and end points. Project management involves making
sure that the activities required to complete on time, within budget to make sure that it meets
objectives
Methods: It is formalized and standardised ways of accomplishing repetitive and routine jobs
Schedule: A schedule is a timetable of work. It specifies the date when a task is to begin and
the time needed to complete each task
Budget: Plans that commit resources to activities or programs. It is expressed in terms of
other units such as in terms of man hour, unit of products, machine hours etc

Objectives: Objectives are the aims, purposes or goals that an organization wants to achieve
over varying periods. Objectives decide where we want to go and what we want to achieve
It provides a direction for the organization goal and quality of work to be accomplished within
a given period of time
Objectives in the key areas are the instrument panel necessary to pilot the business
enterprise. Without them the management files by the seat of the pants without landmarks,
without maps and without having flow route before - Peter F. Drucker
A systematic manner and that is consciously directed toward that effective and efficient
achievement of organizational and individual objectives Harold Koontz and Heinz Weihrich
Characteristics of the objectives:

Objectives are pre-determined

Objectives must be realistic
Objectives must be measurable
Objectives must have social sanction
All objectives must be interconnected and mutually supportive
Objectives have a time span. Objectives are long-range, short range and medium
range
Objectives form a hierarchy
Objectives may be tangible or intangible

Types of objectives:
1. Major objectives: It is designed for the main purpose of an organization
2. Minor objectives: These are secondary and dependent on the major objectives
3. Long-term objectives: Objectives that focus on maximization of profits or in
accordance with the mission undertaken by the organisation
4. Short-term objectives: It helps the organization to concentrate more on customer
satisfaction by providing products and or services at competitive prices in tune with
the long-term objective
5. Economic objectives: It represent the goals with respect to the market place
6. Social objectives: It refers to the companys intentions towards its stakeholders which
include employees, shareholders and the public
Setting Objectives:
1. Top-down Approach:
Upper level managers determine the objectives for their subordinates
Entire organization needs direction through corporate objectives provided by
the chief executive officer
2. Bottom-up approach:
Subordinates initiate the settings of objectives for their positions and present
them to their superior
Subordinates are likely to be highly motivated or committed to the goals they
initiate

Management by Objectives (MBO):

The term Management by objectives was first popularized by Peter Drucker in his
book The Practice of Management
MBO is defined as A formal set of procedures that establishes and reviews
progress toward common goals for managers and subordinates
MBO refers to a formal set of procedures that begins with goal settings and continues
through performance reviews
Managers and their subordinates act together to set common goals
Each persons major area of responsibility are clearly defined in terms of measurable
and expected results used by staff members in planning their work
Elements of the MBO system
1. Commitment to the program:
At every organizational level, managers commitment for achieving
organizational objectives is required for all effective program
Managers must meet and discuss with their staff they supervise, first to set
objective and then review the progress towards these objectives
2. Top-level goal setting:
Top level managers will set the preliminary goals
Managers and staff members will get the clear idea of what the top
management hopes to accomplish and gives directions to them as to how
their work directly relates to the achievement of organizational goals
3. Individual goals:
Each member of the organization will set their goals by clearly knowing their
job responsibilities and objectives
Employees will understand clearly what they are expected to accomplish and
to help each individuals to plan and achieve his or her targeted goals
4. Participation:
General participation of both managers and employees in setting of goal is
essential for the success of the MBO program
5. Autonomy in implementation of plans:
Once the objectives have been agreed upon, the individual enjoys the
autonomy in choosing the means to achieve them without the interference of
the higher ranking managers
6. Performance review:
Managers and employees periodically meet to review progress towards
attaining the objectives
During the review they decide what problems exist and what they can do to
resolve them
Advantages of MBO

It produces measurable goals. A network of goals is created and appropriate actions

are formulated for goal achievement
It helps the managers to clarify organizational roles, authority and responsibility
It provides personal satisfaction for the employees. When the individuals are involved
in goal setting, they feel highly satisfied

It reduces organizational conflicts

It promotes teamwork

Limitations of MBO

Most of the executives are not fully aware of the significance and benefits of MBO
MBO emphasis only the short term objectives rather than the long term objectives
MBO is not a flexible process
MBO is also a time consuming process. Setting the objectives by both the managers
and staff members involves several meetings and thus a considerable amount of
time is lost
There is an increase in paperwork in organizations, which reduces the effectiveness
of MBO process

Policies:
Policy is a verbal, written or implies overall guide setting up boundaries that supply the
general limits and direction in which managerial action will take place George Terry
Importance of policy:
i.
ii.
iii.
iv.
v.
vi.

They are standing plans formulated to guide and direct the future course of
managerial action in specific areas of activity
They clarify and crystallize the real values and intentions of the top management
They facilitate uniformity of action and coordination of effort
They minimize the destruction of decision making process
They communicate to outsiders the general attitude and approaches of the
organization on specific matters of common interest and concern
They provide guidance, a sense of direction and understanding to managers in their
action

Policy Content: Policy documents usually contain certain standard components including
Purpose Statement:
A purpose statement specifies what the organization is issuing the
policy and what its desired effect is
Applicability and scope statement:
It describes whom the policy affects and what action are impacted
by the policy. It may exclude certain people, organizations or actions from the policy
requirements
Effective date: an effective date indicates when the policy comes in to force.
Responsibilities section:
It indicates which parties and organization are responsible for
carrying out individual policy statements. Responsibilities may include identification of
oversight and or governance structures.

Types of policies:
1.
2.
3.
4.

Originated policies
Appealed policies
Implied policies
Externally imposed policies

Steps involved in the process of policy formulation

1.
2.
3.
4.
5.
6.

Identification of the need for policy

Defining the problems and issues that the proposed policy is required to cover
Collection of relevant information which may serve as bases for formulation of policy
Formulation of alternative policy proposals
Evaluation of alternative policy proposals through discussion of the proposals
Making choice from among alternative polices through a process of progressive
elimination
7. Testing the policy in action and removing bugs if any
8. Incorporation of policy in the policy manual
Factors influencing formulation policy
Internal factors
i.
ii.
iii.
iv.
v.

Organizational goals and strategies

Managers own system or personal values, perceptions and preferences
Organizational resources such as manpower, finance, physical equipment and
facilities
Organizational structure
Organizational politics such as internal power, dynamics, rivalry for authorities,
status, vested interest

External factors
i.
ii.
iii.

Social-political factors such as government policy on environment

Product market factors such as nature of demand and competitions, types of
customers, structure of industry
Resource market factors such conditions of labour market, conditions of capital
market

Forecasting:
It is technique of anticipating future problems and events. It involves generation of a number,
set of numbers or scenario that corresponds to a future occurrence. It is absolutely essential
for short range and long range planning. A forecast is based on past data , as opposed to a
prediction which is more subjective and based on instinct, gut feeling or guess.
Planning Premises:
It is defined as the anticipated environment in which plans are expected to operate
Koontz and Weihrich

Strategic Management:
It is set of decisions and actions used to formulate and implement strategies that will provide
a competitively superior fit between the organisation and its environment so as to achieve
organisational goals.
Strategic planning process:
1.
2.
3.
4.
5.
6.

Mission
Objectives
Situation analysis
Strategy formulation
Implementation
control

Strategic Analysis
Two popular planning tools Porters five force analysis and SWOT analysis
Porters five force analysis:

Entry of competitors
Threat of substitutes
Bargaining power of suppliers
Bargaining power of customers
Rivalry among the existing players

SWOT analysis:
Identifies an organizations internal strength and weakness as well as
threats and opportunities in the internal environment
Aim of analysis is to reveal competitive advantages, analyze prospects,
prepare for problems and allow for development of contingency plans
Strengths to be maintained, weaknesses to be remedied, opportunities to be
prioritized, threats to be minimized or managed

Decision Making:
Decision: It is a choice made between two or more alternatives
Decision making: It is a process of choosing the best alternative for reaching objectives

Types of decisions
1. Programmed decisions:
It is a decision made in response to a situation that has occurred
often enough to enable decision rules to be developed and applied in future
2. Non-programmed decisions:
These decisions are made in response to situations that are
unique, poorly defined and largely unstructured and have important consequences
for the organizations.
Decision making process:
i.
ii.
iii.
iv.
v.
vi.
vii.

Define the problem

Identify limiting factors
Develop potential alternatives
Analyze the alternatives
Select the best alternative
Implement the decision
Establish a control and evaluation system

UNIT III - ORGANISING

Organizing:
It is the process of identifying and grouping of activities, delegating authority and creating
responsibility and establishing relationships for the people to do the work effectively.
Organization:
Organizations are groups of people with ideas and resources working toward common goals.
Nature of organization:
i.
ii.

Common goals: Goals are the products of decision making process and
Division of work or specialization: The total work load of an organization is divided in
to tasks that can be logically and comfortably performed by individuals or groups
Authority of structure: The reporting authorities are specified within the organization
and this linking of various departments results in an organizational hierarchy
Co-ordination: A mechanism for integrating various departmental activities and parts
of an organization is developed and the process is known as co-ordination
Communication: They are essential for mutual understanding and cooperation
among the members of the organization
Rules and regulation: It is designed by the management which ensure smooth
functioning of the organization

iii.
iv.
v.
vi.

Importance of organizations:
1.
2.
3.
4.
5.
6.

Encourages specialization
Increases the efficiency of management
Stimulates creative thinking and initiates
Facilitates growth and diversification
Facilitates co-ordination and communication
Facilitates the development of managerial ability

Forms of organization
1.
2.
3.
4.

Line organization
Line and staff organization
Functional organization
Group or committee organizations

Formal and Informal organizations

Formal organizations:
It is an official structure of activities, roles and authority
relationships, which is deliberately planned and executed by management for achieving
organisational goals

Characteristics of formal organizations:

1.
2.
3.
4.
5.
6.

Properly planned
Based on the principle of delegation of authority
Authority, responsibility and accountability at all levels are clearly defined
Formal organization charts are drawn to clearly explain the relationships
Unity of command is maintained
There is division of labor

Advantages of formal organization

1. Definite boundaries of each worker are clearly defined and this automatically reduces
conflict among the employees of the organization
2. Overlapping of responsibility is avoided. The gaps between the responsibilities of the
employees are also filled up
3. Clear and well defined standards of performance are established to motivated the
employees
4. A sense of security arises from classification of the tasks
5. There is no chance for favouritism in evaluation and placement of the employees
6. It makes the organization less dependent on one person
Informal organization:
It is organizational structure that establishes relationship among
the employees based on the likes and dislikes of managers without considering the rules,
regulations and procedures. These types of relationships are not recognized by the
management. It is a network, unrelated to the firms formal authority structure of social
interactions among its employees. It is the personal and social relationships that arise
spontaneously as people associate with one another in the work environment. The
supervisor must realize that informal organization affects the formal organization.
Reasons for informal organization

Informal standards
Informal communication
Informal group
Informal leaders

Characteristics of formal organizations:

1.
2.
3.
4.
5.
6.
7.

It arises without any external cause

It is a social structure formed to meet personal needs
It has no place in the organizational chart
It acts as an agency for social control
It can be found at all levels within the managerial hierarchy
It is a part of an organization
Rules and traditions of informal organization are not written but are commonly
followed
8. It has no structure

Advantages of informal organization

1.
2.
3.
4.
5.

It fills the gap and deficiency of formal organization

It gives satisfaction to the workers and maintains the stability of work
It is useful channel of communication
It encourages the executives to plan the work correctly and also act accordingly
It also fills the gaps among the abilities of the managers

Organization Chart
It is a picture of formal structure of an organization showing the relationship between
positions within the formal organization. It is a graphic portrayal of the various positions in
the enterprise and the formal relationships among them
Organizational chart is a diagrammatical form, which shows important aspects of an
organization including the major functions and their respective relationships, the channels of
supervision and the relative authority of each employee who is in charge of each respective
functions George Terry
Types of organizational chart
1. Vertical chart: It shows the organizational chart in the form of pyramid, the lines of
command from top to bottom in vertical lines.
2. Horizontal chart: The highest position is shown at the extreme left and the lowest
position at the extreme right. In between each successive subordinate position
extends from left to right.
3. Concentric chart or circular chart: The highest position is located in the centre and
the lowest position at the outermost circle.
4. Skeleton chart: It is a graphic presentation of the hierarchical framework, which
contains the principal units and sub units in the form of squares or rectangles
5. Functional chart: It comprises sub units wherein boxes represent divisions and
sections. Each box states the duties and functions of the respective division or
sections.
6. Personnel chart: it follows the same process of functional chart, but the boxes
contain personnel information such as job title and position held in the organization
Principles of organizational chart

The chart should have a clear title

It should show the lines of authority and responsibility
Positions of equal rank should be shown at the same level
Colours may be used carefully
Solid line indicates the flow of authority, dotted line specifies staff relationship

Benefits of organization chart:

Extremely effective way to communicate organizational, employee and enterprise

information
Easier for people to understand large amounts of information as a visual picture
rather than as a table of names and numbers

Provides the greatest value when used as a framework for managing change and
communicating current organizational structure
It allows managers to make decisions about resources, provide a framework for
managing change and communicate operational information across the organization
Provides managers with specific departmental information that can be used as a
baseline for planning, budgeting and workforce modelling
Managers may also use organizational charts to communicate and solicit feedback
from their employees to build future plans
A good chart also allows you to organize your team with clear responsibilities, titiles
and line of authority

Organizational structure:
It is the formal decision making framework by which job tasks are
divided, grouped and co-ordinated. It is the formal representations of working relationships
that defines tasks by positions and units and indicates how they will be coordinated.
Authority:
Authority is the legitimate power, of a supervisor to direct
subordinates to take action within the scope of the supervisors position
Forms of authority:
1. Line authority:
It is a direct supervisory authority from supervisor to subordinates.
Authority flows in a direct chain of command from the top of the company to bottom.
It is the line on which orders and decisions are passed down from top to bottom of
the hierarchy.
2.

Staff authority:
Authority that is based on expertise and which usually involves
advising line managers. They are not directly involved in primary objectives such as
manufacturing or selling but are still very important to the success of the company.

3. Team authority:
Team authority is granted to committees or work teams involved in
an organizations daily operations.