Principles and Practices of Management - …jnujprdistance.com/assets/lms/LMS JNU/MBA/MBA - Marketing...Principles and Practices of Management 2/JNU OLE 1.1 Introduction to Management

Principles and Practices of Management

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JNU, JaipurFirst Edition 2013

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Index

ContentI. ...................................................................... II

List of FiguresII. ..........................................................VI

List of TablesIII. ......................................................... VII

AbbreviationsIV. ......................................................VIII

Case StudyV. .............................................................. 106

BibliographyVI. ......................................................... 112

Self Assessment AnswersVII. ................................... 115

Book at a Glance

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Contents

Chapter I ....................................................................................................................................................... 1Introduction to Management Principles .................................................................................................... 1Aim ................................................................................................................................................................ 1Objectives ...................................................................................................................................................... 1Learning outcome .......................................................................................................................................... 11.1 Introduction to Management .................................................................................................................... 21.2 Brief History of Management .................................................................................................................. 41.3 Management Techniques .......................................................................................................................... 51.4 Approaches of Management .................................................................................................................... 5 1.4.1 Systems Approach .................................................................................................................... 5 1.4.2 Contingency or Situational Approach ...................................................................................... 8Summary ..................................................................................................................................................... 10References ................................................................................................................................................... 10Recommended Reading ............................................................................................................................. 10Self Assessment ............................................................................................................................................11

Chapter II ................................................................................................................................................... 13Managerial Planning ................................................................................................................................. 13Aim .............................................................................................................................................................. 13Objectives .................................................................................................................................................... 13Learning outcome ........................................................................................................................................ 132.1 Introduction to Planning ........................................................................................................................ 14 2.1.1 Types of Plans ........................................................................................................................ 152.2 Forecasting ............................................................................................................................................. 172.3 Objectives .............................................................................................................................................. 18 2.3.1 Management by Objectives (MBO) ....................................................................................... 182.4 Decision Making .................................................................................................................................... 21Summary ..................................................................................................................................................... 24References ................................................................................................................................................... 24Recommended Reading ............................................................................................................................. 24Self Assessment ........................................................................................................................................... 25

Chapter III .................................................................................................................................................. 27Organisation ............................................................................................................................................... 27Aim .............................................................................................................................................................. 27Objectives .................................................................................................................................................... 27Learning outcome ........................................................................................................................................ 273.1 Introduction to Organisation .................................................................................................................. 283.2 Classification of Organisation ................................................................................................................ 283.3 Theories of Organisation ........................................................................................................................ 29 3.3.1 Classical Theory..................................................................................................................... 29 3.3.2 Neo-Classical Theory............................................................................................................. 31 3.3.3 Modern Theory ...................................................................................................................... 323.4 Types of Organisations ........................................................................................................................... 32 3.4.1 Line Organisation................................................................................................................... 33 3.4.2 Functional Organisation ......................................................................................................... 33 3.4.3 Line and Staff Organisation ................................................................................................... 34 3.4.4 Matrix Organisation ............................................................................................................... 353.5 Delegation of Authority ......................................................................................................................... 363.6 Decentralisation ..................................................................................................................................... 363.7 Departmentation ..................................................................................................................................... 373.8 Span of Management ............................................................................................................................. 38

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Summary ..................................................................................................................................................... 39References ................................................................................................................................................... 39Recommended Reading ............................................................................................................................. 40Self Assessment ........................................................................................................................................... 41

Chapter IV .................................................................................................................................................. 43Staffing ........................................................................................................................................................ 43Aim ............................................................................................................................................................. 43Objectives .................................................................................................................................................... 43Learning outcome ........................................................................................................................................ 434.1 Introduction to Staffing .......................................................................................................................... 444.2 Recruitment ............................................................................................................................................ 45 4.2.1 Sources of Recruitment .......................................................................................................... 454.3 Selection ................................................................................................................................................. 464.4 Performance Appraisal ........................................................................................................................... 46 4.4.1 Methods for Performance Appraisal ...................................................................................... 474.5 Training and Development ..................................................................................................................... 474.6 Job Analysis .......................................................................................................................................... 484.7 Job Evaluation ....................................................................................................................................... 49Summary ..................................................................................................................................................... 52References ................................................................................................................................................... 52Recommended Reading ............................................................................................................................. 52Self Assessment .......................................................................................................................................... 53

Chapter V .................................................................................................................................................... 55Directing ...................................................................................................................................................... 55Aim ............................................................................................................................................................. 55Objectives .................................................................................................................................................... 55Learning outcome ........................................................................................................................................ 555.1 Introduction ........................................................................................................................................... 565.2 Motivation .............................................................................................................................................. 56 5.2.1 The Importance of Motivation ............................................................................................... 56 5.2.2 Theories of Motivation .......................................................................................................... 57 5.2.3 Maslow’s Hierarchy of Needs ................................................................................................ 58 5.2.4 Herzberg’s Theory of Needs .................................................................................................. 59 5.2.5 Motivational Factors .............................................................................................................. 59 5.2.6 Maintenance Factors .............................................................................................................. 60 5.2.7 Requirements of a Sound Motivational System .................................................................... 605.3 Leadership .............................................................................................................................................. 60 5.3.1 Theories of Leadership .......................................................................................................... 60 5.3.2 Functions and Qualities of Leader ......................................................................................... 62 5.3.3 Types of Leaders .................................................................................................................... 62 5.3.4 Leadership Styles ................................................................................................................... 635.4 Communication ...................................................................................................................................... 65Summary ..................................................................................................................................................... 69References ................................................................................................................................................... 69Recommended Reading ............................................................................................................................. 69Self Assessment .......................................................................................................................................... 70

Chapter VI .................................................................................................................................................. 72Controlling .................................................................................................................................................. 72Aim ............................................................................................................................................................. 72Objectives .................................................................................................................................................... 72Learning outcome ........................................................................................................................................ 726.1 Introduction to Controlling .................................................................................................................... 73

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6.2 Techniques of Control ............................................................................................................................ 73 6.2.1 Features of Control Function ................................................................................................. 75 6.2.2 Advantages of Control ........................................................................................................... 766.3 Budget Control ....................................................................................................................................... 766.4 Coordination .......................................................................................................................................... 776.5 Management Audit ................................................................................................................................. 786.6 Business Ethics ...................................................................................................................................... 78Summary ..................................................................................................................................................... 80References ................................................................................................................................................... 80Recommended Reading ............................................................................................................................. 80Self Assessment .......................................................................................................................................... 81

Chapter VII ................................................................................................................................................ 83Globalisation and the Manager ................................................................................................................ 83Aim .............................................................................................................................................................. 83Objectives .................................................................................................................................................... 83Learning outcome ........................................................................................................................................ 837.1 The Process of Globalisation ................................................................................................................. 84 7.1.1 The Spread of Market Based Systems ................................................................................... 84 7.1.2 Falling Barriers to Trade and Investment .............................................................................. 84 7.1.3 Tumbling Communication and Transport System ................................................................. 857.2 Implications of Globalisation ................................................................................................................. 85 7.2.1 The Globalisation of Production ............................................................................................ 85 7.2.2 The Globalisation of Markets ................................................................................................ 85 7.2.3 Technology: the Great Facilitator .......................................................................................... 857.3 Constraints on Globalisation .................................................................................................................. 86 7.3.1 Protectionist Countertrends .................................................................................................... 86 7.3.2 National Behaviour in Consumer Behaviour ......................................................................... 86 7.3.3 National Differences in Business Systems ............................................................................ 86 7.3.4 Differences in Social Culture ................................................................................................. 877.4 The Benefits of Going Global ................................................................................................................ 87 7.4.1 Expanding the Markets .......................................................................................................... 87 7.4.2 Realising Scale Economies .................................................................................................... 88 7.4.3 Realising Location Economies .............................................................................................. 88 7.4.4 Global Learning ..................................................................................................................... 887.5 Management Challenges in the Global Enterprise ................................................................................. 88 7.5.1 Global Standardisation or Local Customisation .................................................................... 89 7.5.2 Entry Mode ............................................................................................................................ 89 7.5.3 Locating Activities ................................................................................................................. 89 7.5.4 Managing People in the Multinational Firm .......................................................................... 89Summary ..................................................................................................................................................... 91References ................................................................................................................................................... 91Recommended Reading ............................................................................................................................. 91Self Assessment ........................................................................................................................................... 92

Chapter VIII ............................................................................................................................................... 94Organisational Changes and Development ............................................................................................. 94Aim ............................................................................................................................................................. 94Objectives .................................................................................................................................................... 94Learning outcome ........................................................................................................................................ 948.1 Organisational Change ........................................................................................................................... 95 8.1.1 Total Quality Management (TQM) ........................................................................................ 96 8.1.2 Forces of Change in Organisation.......................................................................................... 968.2 Resistance to Change ............................................................................................................................. 978.3 Organisational Development (OD) ........................................................................................................ 98

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8.3.1 OD Interventions .................................................................................................................... 98 8.3.2 Effectiveness of OD Programming ........................................................................................ 998.4 Innovation in Organisation..................................................................................................................... 99Summary ................................................................................................................................................... 103References ................................................................................................................................................. 103Recommended Reading ........................................................................................................................... 103Self Assessment ......................................................................................................................................... 104

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List of Figures

Fig. 1.1 Time spent in carrying out managerial functions ............................................................................. 3Fig. 1.2 Skills versus management levels ...................................................................................................... 4Fig. 1.3 Input output model............................................................................................................................ 5Fig. 1.4 Management model .......................................................................................................................... 6Fig. 2.1 Process of planning ......................................................................................................................... 15Fig. 2.2 Process of defining MBO’s............................................................................................................. 19Fig. 2.3 Process of decision making ............................................................................................................ 21Fig. 3.1 Line organisation ............................................................................................................................ 33Fig. 3.2 Chart of functional organisation ..................................................................................................... 34Fig. 3.3 Line and Staff organisation structure .............................................................................................. 35Fig. 3.4 Matrix organisation structure .......................................................................................................... 35Fig. 4.1 Components of job analysis ............................................................................................................ 49Fig. 5.1 Maslow’s need hierarchy theory ..................................................................................................... 59Fig. 5.2 Mount and Blake leadership model ............................................................................................... 64Fig. 5.3 Process of communication ............................................................................................................. 66Fig. 5.4 Cluster chain ................................................................................................................................... 67Fig. 6.1 Steps of controlling ......................................................................................................................... 73Fig. 6.2 Fixed and variable costs ................................................................................................................. 74Fig. 6.3 Break even point ............................................................................................................................. 74Fig. 6.4 Workforce performance management cycle ................................................................................... 75Fig. 6.5 The process for budgetary control .................................................................................................. 76Fig. 8.1 Organisational change .................................................................................................................... 95Fig. 8.2 Process of change ........................................................................................................................... 97Fig. 8.3 A sequential process ...................................................................................................................... 101Fig. 8.4 A partly parallel process ............................................................................................................... 101

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List of Tables

Table 2.1 Differences between planning and forecasting ............................................................................ 18Table 3.1 Differences between formal organisation and informal organisation .......................................... 29

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Abbreviations

CPM - Critical Path MethodFDI - Foreign Direct InvestmentMBO - Management by ObjectivesMNE - Multinational EnterpriseOD - Organisational DevelopmentPERT - Program Evaluation and Review TechniqueTQM - Total Quality Management

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Chapter I

Introduction to Management Principles

Aim

The aim of this chapter is to:

explain the concept of management•

discuss the evolution and development of management thoughts•

elucidate the current management scenario•

Objectives

The objectives of this chapter are to:

explain various management functions•

describe the management models that are followed in an organisation•

comprehend the history of evolution of management•

Learning outcome

At the end of this chapter, you will be able to:

identify the characteristics of management•

analyse the theories of management evolution•

recognis• e the policies, procedures and methods followed in organisation


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1.1 Introduction to ManagementManagement is “the art of getting things done by a group of people with the effective utilisation of available resources”. With the development of an organisation, the complexities also increase and there arises the need of an effective management system. This is the requirement of every organisation, not necessarily a business organisation only, for example banks, schools, hospitals and many more.

Managers are charged with the responsibility of taking actions that will make it possible for individuals to make theirbestcontributionstogroupobjectives.Managementthusappliestosmallandlargeorganisations,toprofitandnot-for-profitenterprises,tomanufacturingaswellasserviceindustries.Theterm“enterprise”referstobusiness,government agencies, hospitals, universities, and other organisations.

Characteristics of managementManagement is an art as well as a science.•It is an activity of effective utilisation of available resources.•It is a continuous process.•Each activity in management is directed towards the achievement of objectives.•

Functions of managementThevariousmanagementfunctionsareclassifiedbelow:

Planning:• It refers to future course of action and is a primary function of management.Organising:• It is the distribution of work in a group or a section for effective performance.Staffing:• It consists of activities related to the selection and placement of right people for right jobs.Directing:• Thisisaprocesswherethemanagerinfluencestheworkofhissub-ordinates.Itincludesguidance,supervision and motivational aspects of the employees.Co-ordinating:• It is a process of synchronising activities of various people in the organisation in order to achieve goals.Motivating:• Motivation is one of the key factors for the speedy and effective performance of employees, which is taken care of by resourceful leaders.Controlling:• It deals with the process of verifying that the achieved goals are in order with the pre-planned objectives. In case of deviation corrective measures are taken.Innovation:• It includes developing new services, techniques, products and so on, in order to cater to the changing need of the consumers and the market.Representation:• It helps in functioning of organisations as every employee has to take certain decisions on everyday basis.Communication:• It refers to the exchange of information for the frictionless regulation of job and coordination of the activities.

Management at different organisational levels Managers are charged with the responsibility of taking actions that will make it possible for individuals to make their best contributions to group objectives to be sure, a given situation may differ considerably among various levels in an organisation or various types of enterprises. Similarly, the scope of authority held may vary and the types of problems dealt with may be considerably different. Furthermore, the person in a managerial role may be directing peopleinthesales,engineering,orfinancedepartment.Butthefactremainsthat,asmanagers,allobtainresultsbyestablishing an environment for effective group endeavour.

All managers carry out managerial functions. However, the time spent for each function may differ. Fig. 1.1 shows an approximation of the relative time spent for each function. Thus, top-level managers spend more time on planning and organisingthanlowerlevelmanagers.Leading,ontheotherhand,takesagreatdealoftimeforfirst-linesupervisors.The difference in time spent on controlling varies only slightly for managers at various levels.

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Top-level Managers

Middle-level Managers

First-level Managers

Plan

ning

Org

anis

ing

Lead

ing

Con

trolli

ng

Organisational Hierarchy Percent effort 100%0%

Fig. 1.1 Time spent in carrying out managerial functions(Source: http://media.wiley.com/product_data/excerpt/08/08186800/0818680008.pdf)

Managerial skills and the organisational hierarchyRobertL.Katzidentifiedthreekindsofskillsforadministrators,tothesemaybeaddedafourth—theabilitytodesign solutions.

Technical skill• isknowledgeofandproficiencyinactivitiesinvolvingmethods,processes,andprocedures.Thusitinvolvesworkingwithtoolsandspecifictechniques.Forexample,mechanicsworkwithtools,andtheirsupervisorsshouldhavetheabilitytoteachthemhowtousethesetools.Similarly,accountantsapplyspecifictechniques in doing their job.Human skill• is the ability to work with people; it is cooperative effort; it is teamwork; it is the creation of an environment in which people feel secure and free to express their opinion.Conceptual skill• istheabilitytoseethe“bigpicture,”torecognisesignificantelementsinasituation,andtounderstand the relationships among the elements.Design skill• istheabilitytosolveproblemsinwaysthatwillbenefittheenterprise.Tobeeffective,particularlyat upper organisational levels, managers must be able to do more than see a problem. If managers merely see the problem and become “problem watchers,” they will fail. They must have, in addition, the skill of a good design engineer in working out a practical solution to a problem.

The relative importance of these skills may differ at various levels in the organisation hierarchy. As shown in Fig.1.2, technical skills are of greatest importance at the supervisory level. Human skills are also helpful in the frequent interactions with subordinates. Conceptual skills, on the other hand, are usually not critical for lower level supervisors. At the middle management level, the need for technical skills decreases; human skills are still essential; and the conceptual skills gain in importance. At the top management level, conceptual and design abilities and human skills are especially valuable, but there is relatively little need for technical abilities. It is assumed, especially in large companies,thosechiefexecutivescanutilisethetechnicalabilitiesoftheirsubordinates.Insmallerfirms,however,technical experience may still be quite important.


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Conceptual & design

skills

Human skills

Technical skills

Top Management

MiddleManagement

Supervisor

Fig. 1.2 Skills versus management levels(Source: http://media.wiley.com/product_data/excerpt/08/08186800/0818680008.pdf)

1.2 Brief History of ManagementManagement is required where a group of people are working to achieve any objective. Henry Fayol introduced the management theory in (1916), which was based on his experiences in a mining company. This management theorywascompiledinabooknamed“TheGeneralandIndustrialManagement",which“describedandclassifiedadministrative management roles and processes then became recognised and referenced by others in the growing discourse about management”.

Heclassifiedtheelementsofmanagementintofivecategoriesasmentionedbelow:planning•organising•commanding•co-ordination•control•

OtherimportantcontributionwasmadebyFrederickWinslowTaylor(19thcentury)whogavethetheoryofscientificmanagement. This involved the following principles:

Science is not a rule of thumb:• Where the worker is allotted fair work, standardised and proper system of payment which discarded the old method of working.Harmony in group action:• There should be peace and friendship in the group action and any kind of dissatisfaction should be eliminated.Co-operation:• There should be cooperation between management and workers; this is achieved by mutual understanding and change in thinking.Maximum output:• It is achieved through division of work and responsibility by the management and workers together.Improvement of workers:• Workers should be well examined on the physical, educational and psychological parameters and should be provided with the training for their growth.

SomeothermajorworksinthemanagementfieldweredonebyPeterF.Drucker,MaxWeberandGeorgeEltonMayo.

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1.3 Management TechniquesTechniques are essentially ways of doing things, methods of accomplishing a given result. They certainly are in managing, even though few really important managerial techniques have been invented. Among them are budgeting, cost accounting, network planning and control techniques like the Program Evaluation and Review Technique (PERT) or the critical path method (CPM), rate-of-return-on-investment control, various devices of organisational development,managingbyobjectives,totalqualitymanagement(TQM).Techniquesnormallyreflecttheoryandare a means of helping managers to undertake activities most effectively.

1.4 Approaches of ManagementThere are many approaches in management thought where each approach tries to explain the nature and content of management separately with different beliefs and views. Few important management theories are discussed below:

1.4.1 Systems ApproachSystemsapproachwasdevelopedsometimeafter1950’sandinitiallydevelopedbyWeinerandlatermanysignificantcontributions were made by other people as well.

The systems approach to management is a concept, which views a company as an interconnected purposive system that consists of several business sections. It is a management approach, which enables the leadership to see the companyasaunifiedpartoramajorsectionofthelargeroutsidecorporateenvironment.Evenasmallactivityinapart has a substantial effect on other sections in the company. Such a system may be biological, physical or social; andmayenablethemanagementtoefficientlydeterminethelong-termgoalsofthecompany.Thesystemsapproachstates that for realising the operations of an entity, it is essential to see the entity as a complete system.

System “is a set of inter-connected and inter-related elements, which are arranged in order and operate together to achieve certain goals.”

The parts of a system are input, process and output

Inputs Transformation process

External environment

Output

Re-energising the system

Fig. 1.3 Input output model(Source: http://media.wiley.com/product_data/excerpt/08/08186800/0818680008.pdf)

Inputs and stakeholdersThe inputs from the external environment may include people, capital, and managerial skills, as well as technical knowledge and skills. In addition, various groups of people make demands on the enterprise. For example, employees wanthigherpay,morebenefits,andjobsecurity.Ontheotherhand,consumersdemandsafeandreliableproductsat a reasonable price. Suppliers want assurance that their products will be bought. Stockholders want not only a high return on their investment but also security for their money. Similarly, the community demands that enterprises be “good citizens,” providing the maximum number of jobs with a minimum of pollution. Other claimants to the enterprisemayincludefinancialinstitutionsandlabourunions;evencompetitorshavealegitimateclaimforfairplay. It is clear that many of these claims are incongruent, and it is the managers’ job to integrate the legitimate objectives of the claimants.


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The managerial transformation process Managershavethetaskoftransforminginputs,effectivelyandefficiently,intooutputs.Thetransformationprocesscanbeviewedfromdifferentperspectives.Thus,onecanfocusonsuchdiverseenterprisefunctionsasfinance,production,personnel, and marketing. Writers on management look on the transformation process in terms of their particular approaches to management. Writers belonging to the human behaviour school focus on interpersonal relationships; social systems theorists analyse the transformation by concentrating on social interactions; and those advocating decision theory see the transformation as sets of decisions. However, we believe that the most comprehensive and usefulapproachfordiscussingthejobofmanagersistousethemanagerialfunctionsofplanning,organising,staffing,leading, and controlling as a framework for organising managerial knowledge as in Fig. 1.4.

Staffing ControllingPlanning

Organising Leading

Management

Fig. 1.4 Management model(Source: http://media.wiley.com/product_data/excerpt/08/08186800/0818680008.pdf)

The communication systemCommunication is essential to all phases of the managerial process: It integrates the managerial functions and links the enterprise with its environment. A communication system is a set of information providers and information recipients and the means of transferring information from one group to another group with the understanding that the messages being transmitted will be understood by both groups. For example, the objectives set in planning are communicated so that the appropriate organisation structure can be devised. Communication is essential in theselection,appraisal,andtrainingofmanagerstofilltherolesinthisstructure.Similarly,effectiveleadershipand the creation of an environment conducive to motivation depend on communication. Moreover, it is through communication that one determines whether events and performance conform to plans. Thus, it is communication that makes managing possible.

The second function of the communication system is to link the enterprise with its external environment, where many of the claimants are. Effective managers will regularly scan the external environment. While it is true that managers may have little or no power to change the external environment, they have no alternative but to respond to it. For example, one should never forget that the customer, who is the reason for the existence of virtually all businesses, is outsideacompany.Itisthroughthecommunicationsystemthattheneedsofcustomersareidentified;thisknowledgeenablesthefirmtoprovideproductsandservicesataprofit.Similarly,itisthroughaneffectivecommunicationsystem that the organisation becomes aware of competition and other potential threats and constraining factors.

OutputsManagers must secure and utilise inputs to the enterprise, to transform them through the managerial functions with due consideration for external variables to produce outputs. Although, the kinds of outputs will vary with the enterprise,theyusuallyincludeacombinationofproducts,services,profits,satisfaction,andintegrationofthegoalsof various claimants to the enterprise.

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The organisation must indeed provide many “satisfactions” if it hopes to retain and elicit contributions from its members. It must contribute to the satisfaction not only of basic material needs (for example, earning money to buy foodandshelterorhavingjobsecurity)butalsoofneedsforaffiliation,acceptance,esteem,andperhapsevenself-actualisation. Another output is goal integration. As noted above, the different claimants to the enterprise have very divergent—andoftendirectlyopposing—objectives.Itisthetaskofmanagerstoresolveconflictsandintegratethese aims.

Re-energising the system or providing feedback to the systemFinally, we should notice that in the systems model of operational management, some of the outputs become inputs again.Thus,thesatisfactionofemployeesbecomesanimportanthumaninputtotheenterprise.Similarly,profits,the surplus of income over costs, are reinvested in cash and capital goods such as machinery, equipment, buildings, and inventory.

Types of systemClosed system:• This system works without any external requirement and interference and works on the principles of unity of command span of control and equal authority and responsibility.Open system:• This system is dependent upon the outside environment for feedback and resources and for the disposaloffinishedproducts.General system:• This approach to management has a relation with formal organisation.Specialised system:• This system includes the areas of organisation structure, job design, and computerised information.

Elements in systemsThere are six elements in a system:

Identify goals:• Thefirststep indevelopingasystemis to identify thegoalsof thesystem.It isextremelyimportant that this step should be undertaken with the goals of entire system in mind and that care must be taken toassurethatrealgoalsbespecified.Defineobjectives:• Thesecondstepistotranslatethegeneralgoalsinthespecificobjectives,definingeachobjective in precise terms that can be accomplished at a level below the total system level.Generate alternatives:• For each objective we generate a number of possible solutions. It is very important thatwedonotpermitpreconceivedsolutionstostiflenewapproachesandthatallfeasiblealternativesforthesolution of the problems be considered.Evaluate alternatives and select solution:• Next we screen the alternatives that have been proposed, evaluate eachone,basingourevaluationonthegoalsandobjectivespreviouslydefined;selectthebeatalternativefromthosethatareunderconsideration.Itisatthisstageoftheprocessthatthetoolsofquantitativeanalysisfindtheir most frequent use. The models from management science can be used to excellent advantage in measuring the effectiveness of various courses of action in meeting the goals and objectives. Integrate the solutions: • At this point it is essential that we examine the solutions to sub-problems and assure ourselvesthattheyfittogetherintoaunifiedsolutiontotheoverallproblem.Thisprocessofintegratingthesolutions to the pieces of the overall problem assures that new problems with interfaces between the parts do not render the total solution ineffective.Implement the solution:• Oncethebestalternativesforsolvingtheproblemhavebeenidentified,thesolutionmust be implemented.


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Features of management as a systemsocial system•open system•adaptive•multidisciplinary•dynamic•integrated approach•multidimensional•multivariable•probability•

Advantages of system approachhelps in studying the functions of complex organisations•highlights interdependence between various elements in an organisation•provides clue to the complex behaviour of the people•analyse problems in relation to other problems•

Disadvantages of system approachcannot be easily applied to large and complex organisation•not suitable for smaller organisation•no tools and techniques are provided to the managers•

ThesedrawbacksweremodifiedandleadtotheemergenceofContingency/SituationalApproach.

1.4.2 Contingency or Situational ApproachThis approach was developed on the basic theme that there is no single best solution to the problems arisen in all situations. It was developed by J.W.Lorsch and P.R.Lawrence in the 1970’s, which states that “behaviour of one sub-unit is dependent on its environment and relationship to other units or sub-units that have some control over the sequences desired by the sub-unit”.

Features of contingency approachthere is no best way of doing things•management action is situational and is susceptible to outside the system or sub-system•management policies and practices are subject to change as per the changes in the outside world•no action is universal that varies with situation•human relations skill is necessary for managers to accommodate and stabilise change•

Historical viewClassicalmanagementtheoristssuchasHenriFayolandFrederickTayloridentifiedandemphasisedmanagementprinciplesthattheybelievedwouldmakecompaniesmoresuccessful.However,theclassicistscameunderfireinthe1950sand1960sfrommanagementthinkerswhobelievedthattheirapproachwasinflexibleanddidnotconsiderenvironmental contingencies. Although the criticisms were largely invalid (both Fayol and Taylor, for example, recognised that situational factors were relevant), they spawned what has come to be called the contingency school of management. Research conducted in the 1960s and 1970s focused on situational factors that affected the appropriate structure of organisations and the appropriate leadership styles for different situations. Although the contingency perspective purports to apply to all aspects of management, and not just organising and leading, there has been little development of contingency approaches outside organisation theory and leadership theory.

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Contingency perspective and organisation theoryEnvironmentalchangeanduncertainty,worktechnology,andthesizeofacompanyareallidentifiedasenvironmentalfactors impacting the effectiveness of different organisational forms. According to the contingency perspective, stable environments suggest mechanistic structures that emphasise centralisation, formalisation, standardisation, and specialisationtoachieveefficiencyandconsistency.Certaintyandpredictabilitypermittheuseofpolicies,rules,and procedures to guide decision making for routine tasks and problems. Unstable environments suggest organic structures,whichemphasisedecentralisationtoachieveflexibilityandadaptability.Uncertaintyandunpredictabilityrequire general problem solving methods for non-routine tasks and problems. Paul Lawrence and Jay Lorsch suggest that organisational units operating in differing environments develop different internal unit characteristics, and that the greater the internal differences, the greater the need for coordination between units.

Organisational size is another contingency variable thought to impact the effectiveness of different organisational forms. Small organisations can behave informally while larger organisations tend to become more formalised. The owner of a small organisation may directly control most things, but large organisations require more complex and indirect control mechanisms. Large organisations can have more specialised staff, units, and jobs. Hence, a divisional structure is not appropriate for a small organisation but may be for a large organisation.

Inadditiontothecontingenciesidentifiedabove,customerdiversityandtheglobalisationofbusinessmayrequireproduct or service diversity, employee diversity, and even the creation of special units or divisions. Organisations operating internationally may have to adapt their organisational structures, managerial practices, and products or services to differing cultural values, expectations, and preferences. The availability of support institutions and the availabilityandcostoffinancialresourcesmayinfluenceanorganisation’sdecisiontoproduceorpurchasenewproducts. Economic conditions can affect an organisation’s hiring and layoff practices as well as wage, salary, and incentivestructures.Technologicalchangecansignificantlyaffectanorganisation.Theuseofroboticsaffectsthelevel and types of skills needed in employees. Modern information technology both permits and requires changes in communication and interaction patterns within and between organisations.

Advantages of contingency approachIt improves the diagnostics skills.•It discloses the role and the performance of managers in an organisation.•A manager is expected to know all the alternative course of action before taking any action.•The managerial principles and functions to be followed as per the discretion of the situation.•


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SummaryManagement is “the art of getting things done by a group of people with the effective utilisation of available •resources”.Thevariousmanagement functionsare:planning,organising, staffing,directing,co-ordinating,motivating,•controlling, innovation, representation and communication.Managersmustpossessthesefourskillsforefficientmanagement:technicalskill,humanskill,conceptualskill•and design skill.The systems approach to management is a concept, which views a company as an interconnected purposive •system that consists of several business sections. It is a management approach, which enables the leadership to seethecompanyasaunifiedpartoramajorsectionofthelargeroutsidecorporateenvironment.System “is a set of inter-connected and inter-related elements, which are arranged in order and operate together •to achieve certain goals.”The parts of a system are: input, process and output.•Types of systems are: closed, open, general and specialised.•Elements in system includes identificationofgoals,definingobjectives,generatingalternatives, evaluating•alternatives and selecting a solution, integrating the solutions and implement the solution.Thecontingencyapproachofmanagement is definedasbehaviourofone sub-unit beingdependenton its•environment and relationship to other units or sub-units that have some control over the sequences desired by the sub-unit.

Referencesbuzzle.com, 2011. • Systems Approach to Management [Online] Available at: <http://www.buzzle.com/articles/systems-approach-to-management.html> [Accessed 2 January 2012].Thadeshwar, V., 2008• . Principles of Management [Online] Available at: <http://www.slideshare.net/thadeshvar/principles-of-management-presentation-731212> [Accessed 2 January 2012].ignousohs, 2008. • Basic Concepts and Principles of Management [Video Online] Available at: <http://www.youtube.com/watch?v=gDRrnR_44EY> [Accessed 2 January 2012].ignousoss, 2008. • Systems and Behavioural Approach Views of Chester Barnard & Herbert Simon [Video Online] Available at: <http://www.youtube.com/watch?v=O7CxsO8DYus&feature=related> [Accessed 2 January 2012].Hill, C. and McShane, S., 2006. • Principles of Management. McGraw-Hill/Irwin.Carpenter, M. and Bauer, T., 2009. • Principles of Management. Flat World Knowledge.

Recommended ReadingRobbins, S. and Cenzo, D., 2010. • Fundamentals of Management, 7th ed., Prentice Hall.Anderson, D. and Sweeney, D., 2010. • An Introduction to Management Science, 13th ed., South-Western College Pub.Pettinger, R., 2007. • Introduction to Management, 4th ed., Palgrave Macmillan.

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Self AssessmentWhich of the following systems include the areas of organisation structure, job design and computerised 1. information?

Closeda. Openb. Generalc. Specialisedd.

Which of the following statements is false?2. Managershavethetaskoftransforminginputseffectivelyandefficientlyintooutputs.a. Small organisations can behave informally while larger organisations tend to become more formalised. b. Modern information technology both permits and requires changes in communication and interaction patterns c. within and between organisations.A divisional structure is appropriate for a small organisation but may be for a large organisation.d.

Match the following3.

1. Communication system

A. It is a set of inter-connected and inter-related elements, which are arranged in order and operate together to achieve certain goals.

2. SystemB. It is a management approach, which enables the leadership to see the

companyasaunifiedpartoramajorsectionofthelargeroutsidecorporateenvironment.

3. Systems approach C. It is the art of getting things done by a group of people with the effective utilisation of available resources.

4. Concept of management

D. It is a set of information providers and information recipients and the means of transferring information from one group to another group with the understanding that the messages being transmitted will be understood by both groups.

1-B, 2-A, 3-D, 4-Ca. 1-D, 2-A, 3-B, 4-Cb. 1-C, 2-A, 3-B, 4-Dc. 1-A, 2-D, 3-B, 4-Cd.

Which of the following approach is based on the basic theme that there is no single best solution to the problems 4. arisen in all situations?

Behaviourala. Systemsb. Contingencyc. Divisionald.

Organisational size is a ____________variable thought to impact the effectiveness of different organisational 5. forms.

contingencya. specificb. divisionalc. systemsd.


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Which of the following statements is true?6. Economic conditions does not affect an organisation’s hiring and layoff practices as well as wage, salary a. and incentive structures. Human skills are not helpful in the frequent interactions with subordinates. b. The inputs from the external environment may include people, capital, and managerial skills, as well as c. technical knowledge and skills. Suppliers do not want assurance that their products will be bought.d.

Whichofthefollowingskillsisrequiredtorecognisesignificantelementsinasituation,andtounderstandthe7. relationships among the elements?

Design skilla. Conceptualisation skillb. Technical skillc. Human skilld.

____________ deals with the process of verifying that the achieved goals are in order with the pre-planned 8. objectives.

Controllinga. Co-ordinatingb. Innovationc. Planningd.

Which of the following integrates the managerial functions and links the enterprise with its environment?9. Communication systema. Hierarchyb. Formalisationc. Standardisationd.

__________skillisknowledgeofandproficiencyinactivitiesinvolvingmethods,processes,andprocedures.10. Behaviourala. Technicalb. Organisationalc. Designd.

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Chapter II

Managerial Planning

Aim


explain the concept of managerial planning•

highlight various aspects of planning•

describe the term management by objectives•

Objectives


understand the decision making skill•

examine the concepts of forecasting•

discuss the importance of planning•

Learning outcome


differentiate between forecasting and planning•

identify the problems faced in decision making •

analys• e the forecasting techniques


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2.1 Introduction to PlanningPlanning is an “intellectual process of thinking resorted to decide a course of action, which helps achieving the pre-determined objectives of the organisation in future”. Planning provides a clear sense of direction to the activities of theorganisationandtothejobbehaviourofmanagersandothers.Itstrengthenstheirconfidenceinunderstandingwhere the organisation is heading and best way to make the organisation move along the chosen path is to achieve the goals of the organisation.

Need of planningThe need of planning is universally accepted in the business as well as in other aspects of life. The following points justify the need of business planning:

Planning is needed for survival and growth of a business unit in an orderly manner.•Planning isneeded inorder to facenewproblems/difficultiesdevelopeddue togrowthofmarkets,market•competition, changes in consumer expectations and so on.Planning is needed in order to face challenges created by changing environmental factors/forces.•Planning is needed as it acts as a pre-requisite to good management. It is needed as it is the core of the whole •management process.Planning is needed in order to achieve the objectives decided by the management. It is also needed as it ensures •accuracy,economyandoperationalefficiencyinbusinessmanagement.

Importance of planning in business managementIt plays a positive role in the management of a business unit. Planning brings stability and prosperity to a business unit.Itbringsunityofpurposeanddivertsalleffortsinonedirectionfortheachievementofcertainwelldefinedobjectives. Planning also improves the performance of a business unit. In fact, in the absence of planning there will bedisorder,confusion,inefficiency,wastageofhumaneffortsandmaterialresources.Planningisrightlytreatedasthepre-requisitetoefficientmanagement.Thefactthatlargemajorityofbusinessunitsuseplanningasatoolofmanagement indicates its utility and importance. Planning brings safety to business operations. It is the only way for survival in the competitive business world.

Planning has practical utility and creative value. Planning is also a rational and intelligent activity. It is, now, rightly treated as a highly professionalised aspect of business management. Planning is important but planning alone is not adequate. It should be supplemented by suitable follow-up actions on the part of managers. Planning may not be able to solve all managerial problems, but it certainly helps the thoughtful managers in overcoming various managerial problems. A plan will remain on paper if suitable follow-up steps are not taken at different levels for its execution. Thus, planning is a means and not the end in itself.

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Planning process

Determining planning premises and constraints

Examination of alternative course of action

Selection of the best alternative course of action

Establishing the sequence of activities

Formulation of action plans

Determining secondary plans

Securing participation of employees

Follow-ups and evaluation

Analysis of external environment

Analysis of internal environment

Determination of objectives

Fig. 2.1 Process of planning

2.1.1 Types of PlansThe methods of planning are as under:

Objective plans: • Objectives are the basic foundation for planning operation. It also plays an important role in managerial work of organising, directing and controlling.Standing plans:• These plans include policies and procedures that are liable for repetitive action. These plans provide a ready guideline for solving recurring problems and not used for the special problems.Master plans:• It covers the complete course of action along with the consideration of time and strategy. Small plans are added together in a way to speed up the course of action.

Advantages of planningFacilitates quick achievement of objectives:• Planning facilitates quick achievement of business objectives. Intheplanningprocess,theobjectivestobeachievedareclearlydecided/finalisedandplansarepreparedandexecutedforachievingsuchwelldefinedobjectives.Planningensuresachievementofobjectivesinanorderlyand quick manner.Brings unity of purpose and direction:• Planning brings unity of purpose and direction before the entire organisationasitisforachievingcertainwelldefinedgoals.Planningdivertsallresourcesinonedirectionforachievingwelldefinedobjectives.


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Ensures full utilisation of resources:• Planning ensures effective/maximum utilisation of available resources such as human and material It eliminates wastages of all kinds (of material resources and human efforts) and this ensures fuller utilisation of available resources.Avoids inconsistency in efforts:• Planning avoids inconsistency in efforts and also avoids possible frictions and duplications. It ensures economy in business operations.Raises competitive capacity/strength:• Planning raises competitive potentialities of a business unit. It enables abusinessunittostandwithconfidenceinacompetitivemarket.Itkeepsreadysolutionsforpossibleproblemsandenablesabusinessunittofunctionwithconfidence.Promotesmanagerialefficiency:• Planningpromotesmanagerialefficiency.Itcoversallmanagerialfunctionsand helps management to execute future programmes in a systematic manner. It makes managerial direction and control effective.Avoids hasty decisions and actions:• Due to planning, hasty decisions and haphazard actions by managers are avoided. It also encourages systematic thinking by the managers. Planning facilitates effective delegation of authority,removescommunicationgapsandtherebyraisesoverallefficiency.Itevenencouragesinnovativethinking among managers.Ensures effective control on the organisation: • Planning ensures effective control on the whole organisation. Itfixestargetsincleartermsanddrawsplansandprogrammesforachievingthem.Thisfacilitateseffectivecontrol on the functioning of the business unit.Acts as an insurance against future uncertainties:• Planning acts as an insurance against future uncertainties. It takes care of all business uncertainties. In fact, in planning, future problems and situations are studied in advance and alternative solutions are kept ready. This enables management to face any type of critical situation witheaseandconfidence.Facilitates other managerial functions:• Planning facilitates other managerial functions. It is the basic managerial function and other managerial functions such as organising, and so on, move as per the plans prepared. It acts as a motivating force behind other managerial functions.Improves motivation: • Planning facilitates participation of managers and workers in the normal functioning of an enterprise. It develops team spirit and raises morale and motivation of employees. Workers know what isexpectedfromthem.Thisensureshighdegreeofefficiencyfromthem.Planningalsoprovidestrainingtomanagers. It serves as a tool for manpower development in an Organisation.

Drawbacks of planningVery expensive process:• Planning is the big process so it is very time consuming. The expenses on planning are directly proportional to the time spent on planning. Non availability of data:• It is one of the major problems, planning loses its value in absence of data, and moreover sometimes the desired information costs too much.Inability of planner:• Planning is a forward looking process. If a planner has a tendency to follow rather than lead then he cannot make good plans. Rigidity:• Planninginvolvesthedeterminationofacourseofactioninadvance.Itmayleadtointernalinflexibilityand procedural rigidity. For example, with the planning a business or organisation may achieve certain goals. But this way planning may create rigidity or it locks business into certain goals.Forecasting: • Planning has its limitation just as it cannot forecast anything. Planning is the roadmap to achieving certain goals. If the forecasts do not turn out to be effective, the effectiveness of planning is likely to be highly impaired. External factors:• External factorsareverydifficult topredict.Someexternal factorssuchas,governmentcontrolandpolicies,marketslumpandsoon,maymaketheimplementationofplansverydifficult.Less accurate:• Businessplanningisdonebyfast,simpleandaccuratetechniques.Inefficienttechniquesofdata collection used by planners cause accuracy problems.

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Over ambitious projections:• Sometimes business owners and professionals set over ambitious projections than reality. Outline a clear vision. Business planning should be based on real facts and it must show a realistic path to targeted goal. Make it real and alive.

Planning process includes forecasting and forms the foundation for the planning process.

2.2 ForecastingForecasting is a “systematic guessing of the future course of events with the help of analysis of past and present events”. It provides the basis of planning.

Forecasting processThe various stages in the process are described below:

Thorough preparation of foundation:• Detailed investigation and complete analysis of the company are necessary for forecasting, which in turn is based on the organisation structure of the company and its past performance.Estimation of the future:• The future of the organisation can be estimated by consulting the key executives of the company and then passing on the communication to the entire unit.Collection of results:• Relevant records are prepared and maintained to collect the results.Comparison of results:• The actual results are compared with the estimated results to know deviations. In case ofsignificantdeviationspropermeasuresaretakenanditultimatelyhelpsinforecasting.Refiningtheforecast:• Theforecastcanberefinedinthelightofdeviationsthatarethefactors,whichundergochangesduringthestudyperiodcanbeusedtorefineandimprovetheforecast.

Forecasting techniquesSimilarity events method:• In this method, forecast is made on the basis of the events happened in the past, which are most similar to the current events.Survey method:• Field survey can be conducted to collect information regarding the attitude of people. The information collected is useful for proper forecasting.Time series analysis:• In this method, the future is forecast on the assumption that past activities are good indicators of future activities.Delphi method:• The Delphi technique is another way of obtaining group input for ideas and problem-solving. It does not require face-to-face participation. It uses a series of carefully designed questionnaires interspersed with information summaries and feedback from preceding responses.Regression analysis:• Regressionanalysisisusedtofindouttheeffectofchangesoftherelativemovementsoftwo or more inter-related variables.Input and output analysis:• Forecast can be made on the basis of the relationship between input and output, if known. For instance, the power requirement of the country can be determined on the basis of the current usage rate.

Advantages of forecastingFacilitates planning•Ensures coordination•Easy controlling•

Drawbacks of forecastingForecasting is based on assumptions, which may yield wrong results.•Too much is expected of forecasting.•It involves high cost and time investment.•


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Itisnotascientificmethod.•Requires high degree of skill, but in reality experts on forecasting are rarely available.•

Differences between planning and forecasting

Planning Forecasting

Planning is based on the future course of •action.It is done at the top management level.•Planning is not a tool for forecasting.•It can be processed by any of the employees.•

Forecasting is the basis for planning.•It is done at the middle or lower level of •management.Forecasting is a tool of planning.•It is done by experts.•

Table 2.1 Differences between planning and forecasting

2.3 ObjectivesObjectivecanbedefinedas“theexpectationofendresultsforwhich,anorganisationisestablishedandwhichittries to achieve”.

Purposesofdefiningobjectivesare:Unifiedplanning•Individual motivation•Coordination•Control •Basis for Decentralisation•

2.3.1 Management by Objectives (MBO)MBO’sisdefinedasthe“establishmentofeffectivestandardsformanagerialpositionsandtheperiodicconversionof those into measurable time bound objectives linked vertically and horizontally and with future planning”.

The concept of MBO is closely connected with the concept of planning. The process of planning implies the existence of objectives and is used as a tool for achieving the objectives. Modern managements are rightly described as ‘Management by Objectives’ (MBO). This MBO concept was popularised by Peter Drucker. It suggests that objectives should not be imposed on subordinates but should be decided collectively by a concerned with the management. This gives popular support to them and the achievement of such objectives becomes easy and quick.

Management by Objectives (MBO) is the most widely accepted philosophy of management today. It is a demanding and rewarding style of management. It concentrates attention on the accomplishment of objectives through participation of all concerned persons, that is, through team spirit. MBO is based on the assumption that people perform better when they know what is expected of them and can relate their personal goals to organisational objectives. Superior subordinate participation, joint goal setting and support and encouragement from superior to subordinates are the basic features of MBO. It is a result-oriented philosophy and offers many advantages such as employee motivation, high morale, effective and purposeful leadership and clear objectives before all concerned persons.

MBO is a participative and democratic style of management. Here, ample scope is given to subordinates and is given higher status and positive/participative role. MBO is an approach (to planning) that helps to overcome these barriers. MBO involves the establishment of goals by managers and their subordinates acting together, specifying responsibilitiesandassigningauthorityforachievingthegoalsandfinallyconstantmonitoringofperformance.

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Features of MBOsSuperior-subordinate participation:• MBO requires the superior and the subordinate to recognise that the development of objectives is a joint project/activity. They must jointly agree and write out their duties and areas of responsibility in their respective jobs.Joint goal-setting:• MBOemphasises joint goal-setting that are tangible, verifiable andmeasurable.Thesubordinate in consultation with his superior sets his own short-term goals. However, it is examined both by the superior and the subordinate that goals are realistic and attainable. In brief, the goals are to be decided jointly through the participation of all.Joint decision on methodology:• MBO focuses special attention on what must be accomplished (goals) rather than how it is to be accomplished (methods). The superior and the subordinate mutually devise methodology to be followed in the attainment of objectives. They also mutually set standards and establish norms for evaluating performance.Makes way to attain maximum result:• MBO is a systematic and rational technique that allows management to attain maximum results from available resources by focussing on attainable goals. It permits lot of freedom to subordinate to make creative decisions on their own. This motivates subordinates and ensures good performance from them.Support from superior:• When the subordinate makes efforts to achieve his goals, superior’s helping hand is always available. The superior acts as a coach and provides his valuable advice and guidance to the subordinate. This is how MBO facilitates effective communication between superior and subordinates for achieving the objectives/targets set.

ProcessofdefiningMBOs

Setting subordinate objectives or targets

Matching resources with objectives

Periodical review meetings

Appraisal of activities

Reappraisal of objectives

Definingorganisationalobjectives

Goals of each section

Fixing key result areas

Fig.2.2ProcessofdefiningMBO’s

BenefitsofMBODevelops result-oriented philosophy:• MBO is a result-oriented philosophy. It does not favour management by crisis.Managersareexpectedtodevelopspecificindividualandgroupgoals,developappropriateactionplans,properly allocate resources and establish control standards. It provides opportunities and motivation to staff to develop and make positive contribution in achieving the goals of an organisation.


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Formulation of clearer goals:• Goal-setting is typically an annual feature. MBO produces goals that identify desired/expectedresults.Goalsaremadeverifiableandmeasurable,whichencouragehighlevelofperformance.They highlight problem areas and are limited in number. The meeting is of minds between the superior and the subordinates. Participation encourages commitment. This facilitates rapid progress of an organisation. Facilitates objective appraisal:• MBO provides a basis for evaluating a person’s performance since goals are jointly set by superior and subordinates. The individual is given adequate freedom to appraise his own activities. Individuals are trained to exercise discipline and self control. Management by self-control replaces management by domination in the MBO process. Appraisal becomes more objective and impartial.Raises employee morale:• Participative decision-making and two-way communication encourages the subordinate to communicate freely and honestly. Participation, clearer goals and improved communication will go a long way in improving morale of employees.Facilitates effective planning:• MBO programmes sharpen the planning process in an organisation. It compels managers to think of planning by results. Developing action plans, providing resources for goal attainment and discussing and removing obstacles demand careful planning. In brief, MBO provides better management and better results.Acts as motivational force:• MBO gives an individual or group, opportunity to use imagination and creativity to accomplish the mission. Managers devote time for planning results. Both appraiser and appraise are committed to the same objective. Since MBO aims at providing clear targets and their order of priority, employees are motivated.Facilitates effective control:• Continuous monitoring is an essential feature of MBO. This is useful for achieving better results. Actual performance can be measured against the standards laid down for measurement ofperformanceanddeviationsarecorrectedintime.Aclearsetofverifiablegoalsprovidesanoutstandingguarantee for exercising better control.Facilitates personal leadership:• MBO helps individual manager to develop personal leadership and skills usefulforefficientmanagementofactivitiesofabusinessunit.Suchamanagerenjoysbetterchancestoclimbpromotional ladder than a non-MBO type.

Drawbacks of MBOTime-consuming:• MBO is a time-consuming process. Objectives, at all levels of the organisation, are set carefully after considering pros and cons, which consumes lot of time. The superiors are required to hold frequent meetingsinordertoacquaintsubordinateswiththenewsystem.Theformal,periodicprogressandfinalreviewsessions also consume time.Reward-punishment approach: • MBO is pressure-oriented programme. It is based on reward-punishment psychology. It tries to indiscriminately force improvement on all employees. At times, it may penalise the people whose performance remains below the goal. This puts mental pressure on staff. Reward is provided only for superior performance.Increases paper-work:• MBO programmes introduce ocean of paper-work such as training manuals, newsletters, instruction booklets, questionnaires, performance data and report into the organisation. Managers need information feedback,inordertoknowwhatisexactlygoingonintheorganisation.Theemployeesareexpectedtofillina number of forms thus increasing paper-work. Creates organisational problems:• MBO is far from a panacea for all organisational problems. Often MBO creates more problems than it can solve. The subordinates try to set the lowest possible targets and superior the highest. When objectives cannot be restricted in number, it leads to obscure priorities and creates a sense of fear among subordinates. Developsconflictingobjectives:• Sometimes,anindividual’sgoalmaycomeinconflictwiththoseofanotherforexample,marketingmanager’sgoalforhighsalesturnovermayfindnosupportfromtheproductionmanager’sgoal for production with least cost. Under such circumstances, individuals follow paths that are best in their own interest but which are detrimental to the company.Problem of co-ordination:• Considerabledifficultiesmaybeencounteredwhile coordinatingobjectivesofthe organisation with those of the individual and the department. Managers may face problems of measuring objectives when the objectives are not clear and realistic.

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Lacks durability:• Thefirstfewgo-aroundofMBOaremotivating.Themarginalbenefitsoftendecreasewitheach cycle. Moreover, the programme is deceptively simple. New opportunities are lost because individuals adhere too rigidly to established goals.Problems related to goal-setting:• MBO can function successfully provided measurable objectives are jointly set and it is agreed upon by all. Problems arise when:

verifiablegoalsaredifficulttoset �goalsareinflexibleandrigid �goals tend to take precedence over the people who use it �greateremphasisonquantifiableandeasilymeasurableresultsinsteadofimportantresults �over-emphasis on short-term goals at the cost of long-term goals �

Lack of appreciation:• Lack of appreciation of MBO is observed at different levels of the organisation. This may be due to the failure of the top management to communicate the philosophy of MBO to entire staff and all departments. Similarly, managers may not delegate adequately to their subordinates or managers may not motivatetheirsubordinatesproperly.ThiscreatesnewdifficultiesintheexecutionofMBOprogramme.

2.4 Decision MakingDecision making is “a process involving information, choice of alternative actions, implementations, and evaluation that is directed to the achievement of certain stated goals”. Decision making is an essential element for effective functioning of management, and the success of the management depends upon the quality of decision.

Decision-making processThis process depends upon the nature of the problem and the type of organisation. Following is a simple process taken up for decision making:

Identificationofaproblem

Diagnosing the problem

Collect and analyse the relevant information

Figure out the alternative course of action

Analyse and screen the objectives

Selection of best alternative

Conversion of decision into action

Implementation

Verifying the decision

Fig. 2.3 Process of decision making


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Principles of decision makingMarginal theory of decision-making• : This theory is based on the view that organisation is aimed at maximising profits.Here,themanageradoptstheLawofdiminishingreturns,wherethemanagementappointsadditionallabour and uses additional capital, the production may be increased proportionately at reduced rates. A time comes when there in no increase in the production with increase in labour and capital, so this stopped and the production of the last unit is termed marginal.Principle of limiting factors• : Problem is studied, conclusion and inference is drawn on the basis of study. The manager takes decision with the help of the conclusion. Limiting factors like time, cost or resources can also be a deciding factor.Principle of participation• : This principle is based on human behaviour and relationship. Subordinates should be consulted and due weightage should be given; this will make them feel honoured.

Importance of decision making in managementBetter utilisation of resources:• Decision making helps to utilise the available resources for achieving the objectives of the organisation. The available resources are: men, money, materials, machines, methods and markets. The manager has to make correct decisions for all them; this will result in better utilisation of these resources.Facing problems and challenges: • Decision making helps the organisation to face and tackle new problems and challenges. Quick and correct decisions help to solve problems and to accept new challenges.Business growth:• Quick and correct decision making results in better utilisation of the resources. It helps the organisation to face new problems and challenges. It also helps to achieve its objectives. All this results in quick business growth. However, wrong, slow or no decisions can result in losses and industrial sickness.Achieving objectives:• Rational decisions help the organisation to achieve all its objectives quickly. This is because rational decisions are made after analysing and evaluating all the alternatives.Increasesefficiency:• Rationaldecisionshelptoincreaseefficiency.Efficiencyistherelationbetweenreturnsandcost.Ifthereturnsarehighandthecostislow,thenthereisefficiencyandviceversa.Rationaldecisionsresult in higher returns at low cost.Facilitate innovation:• Rational decisions facilitate innovation. This is because it helps to develop new ideas, new products, new process, and so on. This results in innovation, which gives a competitive advantage to the organisation.Motivates employees:• Rational decision results in motivation for the employees. This is because the employees are motivated to implement rational decisions. When the rational decisions are implemented the organisation makeshighprofits.Therefore,itcangivefinancialandnon-financialbenefitstotheemployees.

Problems in decision makingTime consuming:• A lot of precious time is consumed for decision making. Individual decisions take a lot of time because the manager has to study the merits and demerits of all the alternatives. He also has to take advice from many people before making a decision. All this consumes a lot of time. Group decisions are also time consuming. This is because it involves many meetings and each member has to give his opinion. This results in delayed decisions or no decisions.Compromised decisions:• In group decisions, there is a difference of opinion. This results in a compromised decision. A compromised decision is made to please all the members. It may not be a correct and bold decision. The quality of this decision is inferior. So, it will not give good results on implementation.Subjective decisions:• Individual decisions are not objective. They are subjective. This is because the decisions depend on the knowledge, education, experience, perception, beliefs, moral, attitude, and so on, of the manager. Subjective decisions are not good decisions.Biased decisions:• Sometimesdecisionsarebiased.Thatis,themanagermakesdecisions,whichonlybenefithimself and his group. These decisions have a bad effect on the workers, consumer or the society.

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Limited analysis:• Before making a decision the manager must analyse all the alternatives. He must study the merit and demerits of each alternative. Then only he must select the best alternative. However, most managers do not do this because they do not get an accurate date, and they have limited time. Inexperienced researchers and wrong sampling also result in a limited analysis. This limited analysis results in bad decisions.Uncontrollable environmental factors:• Environmental factors include political, social, technological and other factors. These factors are dynamic in nature and keep on changing everyday. The manager has no control over environmental factors. If these factors change in the wrong direction, his decisions will also divert and go wrong.Uncertain future:• Decisions are made for the future. However, the future is very uncertain. Therefore, it is verydifficulttotakedecisionsforthefuture.Responsibility is diluted:• In an individual decision, only one manager is responsible for the decision. However, in a group decision, all managers are responsible for the decision. That is, everybody’s responsibility is nobody’s responsibility. So, the responsibility is diluted.


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SummaryPlanningisdefinedas“intellectualprocessofthinkingresortedtodecideacourseofaction,whichhelpsachieving•the pre-determined objectives of the organisation in future”.Types of plans are objective plans, standing plans, and master plans.•Forecasting is a “systematic guessing of the future course of events with the help of analysis of past and present •events”. It provides the basis of planning.The various stages in forecasting process are: thorough preparation of foundation, estimation of future, collection •ofresults,comparisonofresults,andrefiningtheforecast.Some forecasting techniques are: similarity events method, survey method, time series method, Delphi method, •regression analysis, and input and output analysis.Objectivecanbedefinedas“theexpectationofendresultsforwhich,anorganisationisestablishedandwhich•it tries to achieve”.Managementbyobjectives(MBO)isdefinedas“theestablishmentofeffectivestandardsformanagerialpositions•and the periodic conversion of those into measurable time bound objectives linked vertically and horizontally and with future planning”.Decision making is “a process involving information, choice of alternative actions, implementations, and •evaluation that is directed to the achievement of certain stated goals”.Principles of decision making process are: marginal theory of decision-making, principles of limiting factors, •and principle of participation.

ReferencesDrucker, P., 2008. • Management Rev Ed. HarperBusiness.Aggarwala, D., 2002. • Management by Objectives (MBO). Deep & Deep Publications.nptelhrd, 2008• . Lecture-3 Management By Objectives [Video Online] Available at: < http://www.youtube.com/watch?v=p8LxBQDPvAQ> [Accessed 3 January 2012].websitedesigncreator, 2011. • Stages of decision making [Video Online] Available at: <http://www.youtube.com/watch?v=onk6QWZ9mtQ> [Accessed 3 January 2012].dilipchandra12, 2012. • PLANNING – Management principles [Online] Available at: <http://dilipchandra12.hubpages.com/hub/PLANNING---Management-priciples> [Accessed 3 January 2012].appraisals.naukrihub.com, 2007. • Management by objectives [Online] Available at: <http://appraisals.naukrihub.com/mbo.html> [Accessed 3 January 2012].

Recommended ReadingHarrison, E., 1998. • The Managerial Decision-Making Process, 5th ed., South-Western College Pub.Hale, G., 2011. • Think Fast!: Accurate Decision-Making, Problem-Solving, and Planning in Minutes a Day. Wiley.Simon, H., 1976. • Administrative Behavior: A Study of Decision Making Processes in Administrative Organization, 3rd ed., Free Press.

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Self AssessmentManagement by objectives is a participative and _________style of management.1.

democratica. autocraticb. benevolentc. effectived.

Which of the following statements is false?2. Planningdivertsallresourcesinonedirectionforachievingwelldefinedobjectives.a. Planning avoids consistency in efforts and also avoids possible frictions and duplications. b. Planningpromotesmanagerialefficiency.c. Planning ensures effective control on the whole organisation.d.

Match the following.3.

1. Planning

A. It is an establishment of effective standards for managerial positions and the periodic conversion of those into measurable time bound objectives linked vertically and horizontally and with future planning.

2. ForecastingB. It is an intellectual process of thinking resorted to decide a course of

action, which helps achieving the pre-determined objectives of the organisation in future.

3. Decision-making C. It is a systematic guessing of the future course of events with the help of analysis of past and present events.

4. Management by ObjectivesD. It is a process involving information, choice of alternative actions,

implementations, and evaluation that is directed to the achievement of certain stated goals.

1-B, 2-C, 3-A, 4-Da. 1-B, 2-A, 3-D, 4-Cb. 1-C, 2-B, 3-D, 4-Ac. 1-B, 2-C, 3-D, 4-Ad.

___________ is based on human behaviour and relationship.4. Marginal theory of decision makinga. Principle of subjective analysisb. Principle of limiting factorsc. Principle of participationd.

Which of the following method of forecasting uses a series of carefully designed questionnaires interspersed 5. with information summaries and feedback from preceding responses?

Delphi methoda. Time series analysisb. Regression analysisc. Input and output analysisd.


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Which of the following statements is true?6. Planning facilitates slow achievement of business objectives.a. Master plans are the basic foundation for planning operation. b. Planning is important but planning alone is not adequate. c. Planning ensures effective control on the whole industry.d.

Which of the following plans include policies and procedures that are liable for repetitive action?7. Objective plansa. Master plansb. Systematic plansc. Standing plansd.

Marginal theory of decision-making8. is based on the view that organisation is aimed at________________.reduced ratesa. maximisingprofitsb. increase in labourc. decreased costsd.

Management by Objectives is based on the ______________ assumption.9. tendency to follow rather than leada. internalinflexibilityandproceduralrigidityb. people perform better when they know what is expected of themc. systematic guessing of the future course of eventsd.

Regressionanalysisisusedtofindouttheeffectofchangesoftherelativemovementsoftwoormore_________10. variables.

differenta. uniqueb. inter-relatedc. futuristicd.

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Chapter III

Organisation

Aim


explain the concept of organisation•

identify the types of organisation•

analyse the formation of department•

Objectives


elucidate the delegation of authority•

examine the concept of decentralisation•

describe functions of organisation•

Learning outcome


discuss the theories of organisation•

comprehend the importance of organisation•

illustrate • the formation of department


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3.1 Introduction to OrganisationOrganisation is the “detailed arrangement of work and working conditions in order to perform the assigned activities in an effective manner”. The functions of the organisation include the following:

determination of activities•grouping of activities•allotmentofdutiestospecifiedpersons•delegation of authority•definingrelationship•coordination of various activities•

The characteristics of the organisation are:Division of labour:• The work is assigned to a person who is specialised in that particular work, which will result in the increase of quality output.Coordination:• Different people are assigned different tasks; all the tasks put together leads to the objectives so there is a need of coordination to reach the desired goal.Objectives:• Theobjectivesoftheorganisationshouldbeclearlydefined.Authority-responsibility structure:• Thepositionofeachexecutive isdefinedwithregard to theextentofauthority and responsibility vested in him to discharge the duties.Communication:• The success of the organisation depends upon the effective management system, so every employee working in the organisation should know the techniques and importance of communication.

Advantages of the organisationFacilitate administration•Increasesmanagementefficiency•Encourages creativity and initiative•Facilitates coordination •Adoption of new technology•Assistgrowthanddiversification•

3.2ClassificationofOrganisationTheorganisationcanbeclassifiedonthebasisofauthorityandresponsibilityassignedtothepersonnelandtherelationship with each other. By this concept organisation can be divided into two categories namely formal and informal organisation.

Formal organisationFormalorganisationclearlydefinestheduties,responsibilities,authorityandrelationshipsasprescribedbythetopmanagement.

Characteristics of formal organisation:Properly planned•Based on delegated authority•Provides division of labour•Organisation charts are drawn•Unity of command is maintained•Responsibilityandaccountabilityatalllevelsoforganisationisclearlydefined•

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Informal organisationInformal organisation is an organisational structure, which establishes the relationship on the basis of the likes anddislikes of officerswithout considering the rules, regulations andprocedures.Characteristics of informalorganisation:

It arises without any external cause•Social structure formed to meet personal needs•It has no place in organisation chart•Acts as agency of social control•Thereisnostructureordefinitenesstotheinformalorganisation•

Difference between formal and informal organisation are:

Formal organisation Informal organisation

Arises due to delegation of authority.•Rules, duties and responsibilities of workers •are given in writing.Formal authority flows from upwards to •downwards.It is permanent and stable.•It grows to the maximum size.•

Arises due to social interaction of people.•No written rules and duties are followed.•Informal authority flows from upwards to •downwards or horizontally.No permanent nature and stability.•It tends to remain smaller.•

Table 3.1 Differences between formal organisation and informal organisation

3.3 Theories of OrganisationOrganisation theory explains the structure, functioning and performance of organisation and the behaviour of individual and groups within it. The various organisation theories are:

3.3.1 Classical TheoryThe classical theory of organisation has held the test of many upheavals in the changes that have accrued in the management of organisation. The modern organisations in the private as well as in the public sector enterprises are facing an environment, which does not seem to be conducive to their structure that is based on the principles of classical theory of organisation. The classical school of organisation developed and pursued in the development of universal principles that would apply to all the organisations in all situations. The classical theorists conceived of organisations as mechanical devices to achieve organisation’s goals and objectives.

The era of classical theory of organisation covers the period from 1900’s to mid1930. During this period the classical theories of organisation began to emerge. Important pioneers among them are F.W. Taylor, Henri Fayol, Max Weber, and Mary Parker Follett.

This theory is based on four principles, namely:Division of labour• : The work is assigned to a person according to his specialisation and the area of interest ,which results in maximum production with minimum expenses incurred and minimum capital employed.Scalar and functional processes• : The scalar process deals with the growth of organisation vertically whereas thefunctionalprocessdealswiththegrowthoftheorganisationhorizontally.Thescalarchaindefinesthesuccessof domination by the superior on the subordinate from top to bottom of organisation.Structure• : Organisational structure is a tool for creating a relationship among the various functions, which make up the organisation. The two main issues in the design of the organisation are

Specialisation: � It is obtained when a person is asked to do a single work and it results in the increase in productivity.


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Coordination: � It is an orderly performance in operations to achieve organisational objectives.

Span of control• :Itdefinestheeffectivesupervisionofmaximumnumberofemployeesbythesupervisor.

Relevance of classical theory of organisationThe principles and the features prescribed by pioneers of classical theory of organisation were elaborate and comprehensive in nature. The major problem with these so called “proverbs” is that these principles do provide some readymade answers to the problems that are of routine type but are unable to deal with the problems that have new bearing on the working of an organisation. These principles can be used as guidelines but cannot be considered as means of providing solutions to problems faced by the organisations in the changing environment. Many of these principles are directly opposite to the very purpose for which they have advocated.

With the growing complexities, these principles are losing their relevance in the modern organisations. The eraofmodernorganisationisweighedbyinfluencesofmarketcompetitionintheprivateaswellastheprivatesector enterprises for which the classical structures are totally unsuitable. Classical theorists have always viewed organisations as a closed system, that is having no interaction with its environment. This assumption is totally uncalled for and unrealistic for a modern organisation. Change is the key word for the modern organisation.

The Twenty-First Century has been witnessing a change in working of organisations. With the advent of liberalisation, globalisation, privatisation, and disinvestment, the nature and structural needs of the organisations have under gone change. Even the role of governments are taking a new look in terms of public sector enterprises. The public sector enterprises are either being privatised or are being partially divested so that they are able to compete with the private sector. The private sector is being encouraged to set up industries in the areas, which were considered as a monopoly of the public sector.

The organisations, whether public or private, are confronted more and more with commercial aspects of consumerism, cut throat competition, and enhancing performance by achieving organisational objectives and goals at the least minimised cost. The crucial problems faced by the organisations are enumerated as follows:

Effective coordination between the employees and the management.•More capital intensive technology over labour intensive techniques.•Finding and retaining talented managers and labour force.•Continuous changes in the organisational environment.•New problems related to workforce diversity, culture, turnover, absenteeism, and social needs are being faced •by the organisation.Changing perception of individual and organisational needs.•The information explosion has blurred the boundaries between cultures, social trends, and ethics.•Threat of intense rivalry.•Threat’s of growing bargaining power of the consumer.•Threat of supplier’s growing bargaining power.•Threat of alternatives for innumerable products.•

The above problems are either related to technology, administration or structure of the organisation. The nature of organisations in the public and private sector, particularly industrial management, are becoming more complex. One alternative to deal with these problems is concerned with new structural designs accommodating some of the traditional principles and adding new ones.

Principle’s of organisations formulated in the 18th century are not able to enhance performance in the changed environment and technology. The traditional organisational principles like specialisation, scalar chain, unity of command, unity of direction, result into the formation of mechanistic organisational structures, which are insensitive to employees social and psychological needs, and contribute negatively to organisational performance.

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The principles of the classical theory of organisation are institutionally power-centred, which provides no scope for individual initiative. As such organisation tends to become less and less democratic and more and more bureaucratic.

Fayol’s principle viewed organisation as a closed system where most of the organisational factors were under the control of management. However, the modern management operates in a dynamic environment where changes are constantly adopted to suit the changes in the environment. Most of the modern organisations do not operate in vacuum as such we cannot put managers of modern organisation in strict jackets to take a particular action to solve particular problem. Thus, the modern organisations tend to provide maximum autonomy so that they are free to take actions to solve problems and to think, innovate, explore and bring about positive and effective changes.

Themodernmanagerteamsupwithhissubordinatestoachievedesiredresultseffectively.Hetriestofulfiltheneedsof the employees along with that of the organisation. The traditional bureaucratic organisation with its hierarchical system of management and an over concerned manager who tries to force performance out of his employees is no longer needed. The manager of modern organisation believes in an environment were empowerment is decentralised so that thedecisionsaremadeat thedesired level.Managementofmodernorganisationfirmlybelieves in thephilosophy that “nothing is constant except change”.

Drawbacks of classical theoryBased on authoritarian approach•Does not give two way communication•Do not care about human element in an organisation•Neglects the importance of informal groups•Ignorestheinfluenceofexternalfactorsonindividualbehaviour.•

3.3.2 Neo-Classical TheoryThe neo-classical theory (also referred as the human relations school of thought) was built on the basis of classical theory. It ismodified, added to and in someways extended classical theory. Its basic assumption is that thepsychological and social aspects of the worker as an individual and his work group ought to be emphasised. In classical view, organisation focussed on structure, order, the formal organisation, economic factors and objective rationality. On the other hand, neo classical view emphasised social factors and emotions at work. Human relation is frequently used as a general term to describe the ways in which managers interact with their employees. The essence of the human relations contributions is contained in two aspects:

Organisational situation should be viewed in social terms as well as in economic and technical terms.•Terms of clinical method is analogous to the doctor’s diagnosis of the human organism.•

Contributions made by Neo-Classical theory are as under:An individual should be the basis of an organisation•Organisation should be viewed in totality•Individual and organisational goals should be integrated•Employeesshouldbeallowedtoparticipateindefiningworkstandardsanddecisionmaking•Management should recognise the existence of informal organisation.•

The theory recognises the importance of co-ordination and communication for motivation of human resources. More attention was given on fatigue and monotony than division of labour. They are of the view that if human beings are not treated well, human problems arise. For example, if authority does not commensurate with responsibility it will lead to frustration or dis-functionality. The neo-classical theorists view that participation, recognition of human dignity andcommunicationare the cornerstonesof efficientmanagement.Simultaneously the roleof informalorganisation should not be undermined in the formal setting of organisations.


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Theneo-classicaltheoryisadefiniteimprovementovertheclassicaltheory.Itexplainsvariousnewvariablesandconcepts like informal organisation. However, the neo-classical viewpoint has also been criticised on the ground of too much cynical puppeteering of people, a short sighted perspective and lack of integration among many facets of human behaviour.

Drawbacks of Neo-Classical theoryThe theory did not provide the clear guidelines for the actual structuring of jobs and provision for •coordination.The companies found little or almost nothing useful in this theory.•

3.3.3 Modern TheoryThe modern organisation theory considers the dynamic conditions at micro and macro levels. It recognises the dramatic changes taking place in the society. The modern organisation theory is a collection of views of different thinkers of organisation. The theory is centred on the concept of a system hence it is termed synonymous with systemtheory.ForthefirsttimeChesterI.Barnard(1938)viewedorganisationasasocialsystemofcooperativeinteractions among the members; organisation, individuals and customer are parts of environment. Subsequently Mary Parker Follet (1940) emphasised on the integration of individual and organisational units through systems approach. Norbert Weiner (1948), a pioneer in cybernetics gave crystal clear views of the organisation as a system. Further operational researchers like Churcham (1957), and so on, were also among those who considered the system as an interconnected complex of functionally related components. Some more social scientists like Katz and Kahn presented a comprehensive theory of organisation using open systems approach.

Following aspects are studied in this theory:Interaction among the individuals in the system.•Interaction between an individual and the environment.•Studies an individual independently within and outside the system.•

Essentials of modern theoryViews organisation as a whole•Based on system analysis•Concentrates on both quantitative and behavioural science•Integrating in nature•Based on empirical research•

Drawbacks of modern theoryThis theory does not provide solution to the issues raised by the theory itself.•It does not provide any new concept; work on the old management theories.•

3.4 Types of OrganisationsThe types of organisations are:

line organisation•functional organisation•line and staff organisation•matrix organisation•

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3.4.1 Line OrganisationLineorganisationisthesimpleandtheoldesttypeofanorganisation,wherethedecisionmakingauthorityflowsfromtoptobottom.Asshowninthefigurebelow.

Board of Directors

General Manager

Purchase Manager Production Manager

Foreman Superintendent

Financial ManagerSales Manager

Supervisor

Workers Workers Workers

Purchase Assistants

Workers

Fig. 3.1 Line organisation

Characteristics of line organisationConsists of vertical relationships•Authorityflowsfromtoptobottomlevel•Departmental heads are given full freedom to control their departments•Operation of this system is very easy•Each member has direct command over his subordinates•The superior takes decisions within the scope of his authority•

Advantages of line organisationSimplicity•Division of authority and control•Unity of control•Discipline•Flexibility•Direct communication•Coordination•

Disadvantages of line organisationLack of specialisation

Lack of initiatives•Dictatorial•Scope of favouritism•Instability•

3.4.2 Functional OrganisationFunctional organisation was proposed by F.W.Taylor, to overcome the limitations of line organisation. This type of organisation has various specialists for various functions. The directions of work are decided by functions and not mere authority. The workers under a functional unit are accountable not only to the functional specialist but to the others specialist as well from whom they receive instructions.


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Project Mgr.

Financial Business General Manuf’s Technical

Top

Fig. 3.2 Chart of functional organisation

Characteristics of functional organisationTheworkisdividedaccordingtothespecifiedfunctions.•Authorityisgiventothespecialisttogiveorderstoaspecificfunction.•Functionalauthoritycangiveordersthroughoutthelinewithreferencetospecifiedarea.•The decisions are taken in consultation with the functional authority.•

Advantages of functional organisationBenefitofspecialisation•Efficiency•Adequate supervision•Reduce the work load•Cooperation•

Disadvantages of functional organisationComplex relationship•Centralisation•Ineffective coordination•Increase overhead expenses•Lack of responsibility•

3.4.3 Line and Staff OrganisationLine and staff organisation has tried to use the advantages of both the line and the functional type of organisation toovercometheirdemerits.Lineandstafforganisationhavelineofficersaswellasthestaffofficers.Lineofficershave the authority to take decisions and implement them to achieve the objectives of the organisation. On the other handstaffofficersassistlineofficersinframingthepolicies,plansandtakingdecisions.

Types of staff are as below:Personal staff• -A person who assist another person in the performance of a work, effectively they are appointed at top level of organisation.Specialised staff• -Theseofficersrenderservicestothelineofficersatalllevelsoftheorganisation.General staff assistant• : These are the group of people who provide service to top management in specialised matters.

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Economist Legal Advisor

ChiefExecutiveOfficer

Marketing Manager Production Manager Finance Manager

Foreman Foreman Foreman

Worker Worker Worker

Fig. 3.3 Line and Staff organisation structure

Advantages of line and staff organisationPromotesefficientworkingoflineofficers•Balanced decisions•Expert advice•Benefitofspecialisation•Unity of action•

Disadvantages of line and staff organisationLineandstaffconflicts•In case of communication gap between line and staff officers the degree of cooperation among them •decreases.Thereisnosuchauthoritywiththestaffofficers,whichcancompellineofficerstoaccepttheirdecisions.•

3.4.4 Matrix OrganisationMatrixorganisationisdefinedas“Anyorganisationthatemploysamultiplecommandstructurebutalsorelatedsupport mechanisms and an organisational culture and behaviour pattern”.

FunctionalManager

FunctionalManager

FunctionalManager

Manager ofProject Managers

ChiefExecutive

Project Managers

Project Managers

Staff Staff

StaffStaff

Staff

Staff

Staff

Staff Staff Project Managers

Fig. 3.4 Matrix organisation structure


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Characteristics of matrix organisationProject manager should report to more than one of the superiors.•There should be agreement between the managers regarding the authority of utilising the available resources.•Thereshouldbecommonwillingnessamongtheauthorityholderstofacetheconflictswithaviewtoresolve•them.

Advantages of matrix organisationAchievement of objectives•Best utilisation of resources•Appropriate structure•Flexibility•Motivation•

Disadvantages of matrix organisationComplex relationship•Struggle for power•Excessive emphasis on group decision-making•Arisingconflictresolution•Heterogeneous•

3.5 Delegation of AuthorityAuthorityisthepowertomakedecisions,whichguidetheactionofothers.Delegationofauthoritycanbedefinedas subdivision and sub-allocation of powers to the subordinates in order to achieve effective results.

Elements of delegation:Authority• -Authoritycanbedefinedas thepowerandrightofaperson touseandallocate the resourcesefficiently,totakedecisionsandtogiveorderssoastoachievetheorganisationalobjectives.Itshouldbewell-defined.Authorityshouldbeaccompaniedwithanequalamountofresponsibility.Responsibility• – A person who is given the responsibility should ensure that he accomplishes the tasks assigned to him. Responsibility without adequate authority leads to discontent and dissatisfaction among the employee.Accountability• – It is about giving explanations for any variance in the actual performance from the expectations set. Accountability cannot be delegated. It arises from responsibility.

The process of delegation of authority includes the following steps:Assignment of tasks and duties•Granting of authority •Creating responsibility and accountability •

3.6 DecentralisationDecentralisation is the delegation of decision-making authority throughout an organisation by allowing managers at various operating levels to make key decisions relating to their area of responsibility.

Adecentralisedorganisationisoneinwhichdecisionmakingisnotconfinedtoafewtopexecutivesbutratheristhroughout the organisation, with managers at various levels making key operating decisions relating to their sphere of responsibility. Decentralisation is a matter of degree, since all organisations are decentralised to some extent out of necessity.

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Advantages of decentralisationProvides the lower level managers with the opportunity to make decisions.•Greaterefficiencyandoutput.•Saves time for top management as they are more involved in strategy making rather than the routine decision •making.Added responsibility and decision making authority often result in increased job satisfaction• .

Disadvantages of decentralisationLack of coordination among autonomous managers•No proper division of work•No standardisation•Duplication of work•

3.7 DepartmentationDepartmentation is a “process by which similar activities of the business are grouped into units for the purpose of facilitating smooth administration at all levels”.

Reasons for departmentation:Specialisation of work•Simplificationofmanagerialtask•Limitation on the number of subordinates that can be directly controlled by superiors•

Process of departmentation:Identificationofwork•Analysis of details of each work•Description of the function of the organisation•Entrustingthefunctionstotheseparatepersonwhohasspecialisedintherespectivefieldandprovidinghim•with suitable staff.Fixing the scope of authority and responsibility of the departmental heads.•

Basis patterns of departmentation:By functions•By product/service•By customers•By process•By time•By numbers•By marketing channels•By regions/territory•


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3.8 Span of ManagementSpanofmanagement refers to the number of subordinates that amanager can efficientlymanage.Number ofsubordinates directly reporting to a manager is known as span. Span of management is important for:

Determining the complexity of an individual manager’s job•Determining shape and structure of the organisation•

Fewer the number of subordinates reporting to a manager larger the number of managers required.

Factors affecting the span of management:Capacity of manager•Capacity of subordinates•Nature of work•Delegation of authority•Fixation of responsibility•Methods of communication•Degree of planning•Level of management•

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SummaryOrganisation is the “detailed arrangement of work and working conditions in order to perform the assigned •activities in an effective manner”.The characteristics of the organisation are: division of labour, coordination, objectives, authority-responsibility •structure, and communication.Anorganisationcanbeclassifiedonthebasisofauthorityandresponsibilityassignedtothepersonnelandthe•relationship with each other. Formalorganisationclearlydefinestheduties,responsibilities,authorityandrelationshipsasprescribedbythe•top management.Informal organisation is an organisational structure, which establishes the relationship on the basis of the likes •anddislikesofofficerswithoutconsideringtherules,regulationsandprocedures.The classical theorists conceived of organisations as mechanical devices to achieve organisation’s goals and •objectives.Neo classical theory of management emphasise on social factors and emotions at work. •The modern organisation theory considers the dynamic conditions at micro and macro levels. •The type of line organisations are: line organisation, functional organisation, line and staff organisation, and •matrix organisation.Line organisation is the simple and the oldest type of an organisation, where the decision making authority •flowsfromtoptobottom.Functional organisation has various specialists for various functions. The directions of work are decided by •functions and not mere authority. Line and staff organisation has tried to use the advantages of both the line and the functional type of organisation •toovercometheirdemerits.Lineandstafforganisationhavelineofficersaswellasthestaffofficers.Matrixorganisationisdefinedas“Anyorganisationthatemploysamultiplecommandstructurebutalsorelated•support mechanisms and an organisational culture and behaviour pattern”.Delegationofauthoritycanbedefinedassubdivisionandsub-allocationofpowerstothesubordinatesinorder•to achieve effective results.Decentralisation is the delegation of decision-making authority throughout an organisation by allowing managers •at various operating levels to make key decisions relating to their area of responsibility.Departmentation is a “process by which similar activities of the business are grouped into units for the purpose •of facilitating smooth administration at all levels”.Spanofmanagementreferstothenumberofsubordinatesthatamanagercanefficientlymanage.•

Referencesignousohs, 2008. • Theories of Organisation [Video Online] Available at: <http://www.youtube.com/watch?v=kLk75q0JPtw> [Accessed 4 January 2011].nptelhrd, 2008. • Lecture-30 Organisation Theory -1[Video Online] Available at: <http://www.youtube.com/watch?v=6_3VHAAJddY> [Accessed 4 January 2011].Denhardt, R., 2010. • Theories of Public Organisation, 6th ed., Wadsworth Publishing.Weber, M., 1997. • The Theory of Social And Economic Organisation. Free press.Venkataramanan, T., 2012. • Organisation-theory [Online] Available at: <http://www.scribd.com/doc/4880211/Organisation-Theory> [Accessed 4 January 2011].Walonick, 1993. • Organisational Theory and Behavior [Online] Available at: <http://statpac.org/walonick/organisational-theory.htm> [Accessed 4 January 2011].


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Recommended ReadingTosi, H., 2008. • Theories of Organisation. Sage Publications.Daft, R., 2009. • Organisation Theory and Design, 10th ed., South-Western College Pub.Hatch, M., 2006. • Organisation Theory: Modern, Symbolic, and Postmodern Perspectives, 2nd ed., Oxford University Press.

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Self Assessment____________canbedefinedasthepowerandrightofapersontouseandallocatetheresourcesefficiently.1.

Responsibilitya. Authorityb. Accountabilityc. Functionalityd.

Which of the following statements is false?2. Number of subordinates directly reporting to a manager is known as span. a. Authority is the power to make decisions which guide the action of others. b. Lineandstafforganisationhavelineofficersaswellasthestaffofficers.c. Line organisation is the simple and the modern type of an organisation.d.

Organisational _______is a tool for creating a relationship among the various functions, which make up the 3. organisation.

controla. planningb. hierarchyc. structured.

The_______chaindefinesthesuccessofdominationbythesuperioronthesubordinatefromtoptobottomof4. organisation.

scalara. functionalb. matrixc. staffd.

Which of the following statements is true?5. Authority should be accompanied with an equal amount of work. a. Responsibility with adequate authority leads to discontent and dissatisfaction among the employee.b. Staffofficersassistlineofficersinframingthepolicies,plansandtakingdecisions.c. The modern organisation theory is a collection of views of different thinkers of human behaviour.d.


1. Matrix organisation structure

A. As subdivision and sub-allocation of powers to the subordinates in order to achieve effective results.

2. Delegation of authority

B. It is the delegation of decision-making authority throughout an organisation by allowing managers at various operating levels to make key decisions relating to their area of responsibility.

3. Decentralisation C. It is process by which similar activities of the business are grouped into units for the purpose of facilitating smooth administration at all levels”.

4. Departmentation D. Any organisation that employs a multiple command structure but also related support mechanisms and an organisational culture and behaviour pattern”.

1-A, 2-D, 3-B, 4-Ca. 1-C, 2-A, 3-D, 4-Bb. 1-D, 2-A, 3-B, 4-Cc. 1-A, 2-C, 3-B, 4-Dd.


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Spanof_________referstothenumberofsubordinatesthatamanagercanefficientlymanage.7. managementa. authorityb. delegationc. division of workd.

The manager of modern organisation believes in an environment where empowerment is _______________so 8. that the decisions are made at the desired level.

absenta. optionalb. decentralisedc. centralisedd.

Which of the following theory recognises the importance of co-ordination and communication for motivation 9. of human resources?

Classicala. Neo-Classicalb. Modernc. Structurald.

Fayol’s principle viewed organisation as a __________system where most of the organisational factors were 10. under the control of management.

fixeda. closedb. specificc. opend.

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Chapter IV

Staffing

Aim


explaintheconceptofstaffing•

identify various sources of recruitment•

explain performance appraisal•

Objectives


evaluate the methods of training and development in an organisation•

describe the concept of job analysis•

analyse the employee selection process in an organisation•

Learning outcome


understand the importance of training for employees•

recognise the methods of performance appraisal•

comprehend • various recruitment procedures


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4.1IntroductiontoStaffingThemanagerialfunctionofstaffinginvolvesmanningtheorganisationstructurethroughproperandeffectiveselection,appraisalanddevelopmentofthepersonnel’stofilltherolesassignedtotheemployers/workforce.

Themanagementmustensureaconstantavailabilityofsufficientnumberofefficientexecutivesinanenterprisefortheefficientfunctioningoftheenterprise.

Functionsofstaffingare:Manpower planning•Development•Fixing the employment standards•Sources•Selection and placement•Training•

Natureofstaffingfunction:Staffingisanimportantmanagerialfunction:• Staffingfunctionisthemostimportantmanagerialactalongwith planning, organising, directing and controlling. The operations of these four functions depend upon the manpower,whichisavailablethroughstaffingfunction.Staffingisapervasiveactivity:• Asstaffingfunctioniscarriedoutbyallmanagersandinalltypesofconcernswhere business activities are carried out.Staffingisacontinuousactivity:• Thisisbecausestaffingfunctioncontinuesthroughoutthelifeofanorganisationdue to the transfers and promotions that take place.Thebasisofstaffingfunctionisefficientmanagementofpersonnel:• Humanresourcescanbeefficientlymanaged by a system or proper procedure, that is, recruitment, selection, placement, training and development, providing remuneration, and so on.Staffinghelpsinplacingrightmenattherightjob:• It can be done effectively through proper recruitment proceduresandthenfinallyselectingthemostsuitablecandidateasperthejobrequirements.Staffing is performedby allmanagers• : Depending upon the nature of business, size of the company, qualificationsandskillsofmanagers,andsoon.Insmallcompanies,thetopmanagementgenerallyperformsthis function. In medium and small scale enterprise, it is performed especially by the personnel department of that concern.

Processofstaffinghasthefollowingsteps:Step1: PlanningIt includes the estimation of the number of staff members required in the company depending upon its size and policies.

Step 2: Recruitment and selectionItdealswiththeselectionofthequalifiedapplicantstofillthejobsintheorganisation.Astandardprocedureisfollowed while selecting the staff members.

Step 3: Training of developmentsIt is concerned with providing training to new staff members as well as the existing staff members to increase the workefficiency.

Step 4: Performance operationItisabouttheassessmentoftheworkperformedbythestaffmembersinanorganisation,astandardshouldbefixedinordertoevaluatetheirefficiency.

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4.2 RecruitmentRecruitmentistheprocessoffindingaptcandidatesandinducingthemtoapplyforthejobinanorganisation.Thesuccess of any recruitment depends upon the procedure followed by the company while recruiting the members.

4.2.1 Sources of RecruitmentThe source of recruitment is based on the policy followed by the company.

Internal sources:Ifthejobisfilledupoutofthepresentemployeesofthecompanyitissaidtobetheinternalsource of the company.

The internal sources of recruitment are:Transfer•Promotion•

Wheneverajobfallsvacantinanorganisation,itcanbefilledupbygivingapromotiontothepresentemployeesofthe company, as it depends upon the promotion policy of the company. In certain cases, a same cadre staff member is deputed to the job by the company this is called as transfer.

Advantages of internal recruitmentIt increases the morale among the staff members of the company.•Training and recruitment expenses are reduced to some extent.•Internal promotion helps the staff members to derive job satisfaction.•It ensures the continuity of job to the staff members and stability of the organisation.•

Disadvantages of internal recruitmentWhenthehigherpostisfilledinternallythecompanywillnotbeabletogetfreshandoriginalideasfromthe•staff members.The outsiders do not get the opportunity to showcase their talent•Employees may get promoted inspite of not being the deserving candidate.•

External sources:Whenthevacancyinanorganisationgetsfilledupfromthesuitablecandidatesavailableoutsidethe organisation.

The external sources of recruitment are:Advertisements•Recommendations•Gate applicants•Personnel consultant•Educational institutions•Employment exchange•

Advantages of external recruitmentNew outlook•Get to choose from large number of applicants•Candidates have wider range of experience•


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Disadvantages of external recruitmentExpensive•Lack of cooperation from the existing staff members•Time consuming•

4.3 SelectionSelectionisamethodusedinanorganisationtoselectasuitablepersonwhohasrequirededucationalqualifications,skills, abilities and personality.

Process of selection has the following steps:Step1: Receiving and screening of applications•Prospective employees are requested to submit the application in a given format.•Step2: Initial interview•It is a preliminary interview, which is to evaluate whether the candidate is suitable for the job.•Step3: An application form•Aspecificformatisfollowedbyanorganisationforthisselectionprocessanditvarieswiththenatureofjob.It•isusedtogettherelevantinformationregardingthequalificationsandtheskillsfromthecandidatepertainingto the job.Step4: Test: • The test id conducted by the organisation for the purpose of knowing more about the applicants to be selected or rejected.Step5: Final interview: • Thecandidateswhicharethroughthetestarecalledforfinalinterviewandthebriefingabout the organisation and the nature of the job.

Differences between recruitment and selectionAttracting maximum number of applicants so as to have more options, is recruitment and where as selection is •picking the best among them.Recruitment is known as a positive process as it contains only the process of creating the application pool. •Selection process includes rejection and fewer candidates are selected or sometimes even not a single candidate is selected.For the process of recruitment high skills are not essentials but whereas for the later process selection, high •skills are must to select only those who are suitable for the job.Output for recruitment process, creating application pool is input for the later process, selection.•

4.4 Performance AppraisalPerformance appraisal is the systematic, periodic and an impartial rating of an employee’s excellence in the matters pertaining to his present job and his potential for a better job. Performance appraisal is a systematic way of reviewing and assessing the performance of an employee during a given period of time and planning for his future. It is a powerfultooltocalibrate,refineandrewardtheperformanceoftheemployee.Ithelpstoanalysehisachievementsand evaluate his contribution towards the achievements of the overall organisational goals.

Importance of performance appraisalIt helps the management to take decision about the salary increase of an employee.•Continuous evaluation of an employee helps in improving the quality of an employee in job performance.•Minimises the communication gap between the employer and employee.•Trainingneedsofanemployeecanbeidentifiedthroughthisprocess.•The grievances of an employee are eliminated through performance appraisal.•

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4.4.1 Methods for Performance AppraisalThe various methods used for performance appraisal are:

Ranking method• : Ranking method compare one employee to another, resulting in an ordering of employees inrelationtooneanother.Rankingsoftenresultinoverallassessmentsofemployees,ratherthaninspecificjudgments about a number of job components. Straight ranking requires an evaluator to order a group of employees from best to worst overall or from most effective to least effective in terms of a certain criterion. For example, in a group of ten members all the members in the working group are ranked as on the basis of performance as best performance, worst performer and so on.Paired comparison method• : Paired comparison analysis is a good way of weighing up the relative importance of the employees. All the employees to be compared are listed. Each employee is then compared against each of the other employee. The results are tallied and the employee with the highest score is the best employee.Forced distribution method• : This is a ranking technique where raters are required to allocate a certain percentage of rates to certain categories (For example: excellent, good, better, worse) or percentiles (example: top 10 percent, bottom 20 percent and so on). Both the number of categories and percentage of employees to be allotted to each category are a function of performance appraisal design and format. The workers of outstanding merit may be placed at top 10 percent of the scale; the rest may be placed as 20 % good, 40 % outstanding, 20 % fair and 10 % fair.Grading• : This is similar to the assessment review. The manager is given a list of categories to be assessed. This is done by selecting a grade, which matches the employee’s performance. This system may ask for a simple form of grading such as:

Excellent �Very Good �Satisfactory �Poor �Very poor �

Check list• :Inthissystem,alargenumberofstatementsthatdescribeaspecificjobaregiven.Eachstatementhas a weight or scale value attached to it. While rating an employee the supervisor checks all those statements that most closely describe the behavior of the individual under assessment. The rating sheet is then scored by averaging the weights of all the statements checked by the rater. A checklist is constructed for each job by having persons who are quite familiar with the jobs. These statements are then categorised by the judges and weights are assigned to the statements in accordance with the value attached by the judges.Forced Choice method: • Aseriesofgroupsofstatementsarepreparedwhichareclassifiedaspositiveornegative.These statements describe the characteristics of an employee. The rater has to select one of the statements either out of positive and negative. Final rating is done on the basis of these statements.Critical incident method• : As per this method the manager prepares lists of statements of very effective and ineffective behavior of an employee. These critical incidents or events represent the outstanding or poor behavior of employees or the job. The manager maintains logs of each employee, whereby he periodically records critical incidents of the workers behavior. At the end of the rating period, these recorded critical incidents are used in the evaluation of the worker’s performance.

4.5 Training and DevelopmentTheefficientfunctioningofanorganisationdependsupontheefficiencyofpersonnelworkinginthatorganisation.The capability of an employee is evaluated through the performance appraisal techniques. On the basis of the performance the need of training is decided by the management.

Training is a “programme that facilitates an employee to perform the job effectively through acquiring increased knowledge and skills”.


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Types of trainingTraining methods can be devised according to the mental calibre of personnel and the need to achieve the organisational objectives.ThetypeoftrainingisclassifiedintwosectionsnamelyOn-The-JobtrainingandOff-the-Jobtraining,which are further divided into categories given below:

On-The-Job Training•Onspecificjob �Rotation of position �Special projects �Apprenticeship �

Off-The-Job Training•Special courses and lectures �Conference �Case study �Role playing �Management games �Brain-storming �

Differences between training and development:Training is for non-managerial personnel, while development is for managerial personnel.•Technicalandmechanicalfieldsareemphasisedintheprocessoftrainingwhereastheideabehindtheprocess•of development is to enhance the conceptual ideas.Training isgiven to thepersonnel forspecific job.Developmentprocess is forpreparing thepersonnel for•variety of jobs.Training is always a short-term process on the other hand development is a long-term process.•

4.6 Job Analysis Job Analysis is a “process to identify and determine in detail the particular job duties and requirements and the relative importance of these duties for a given job”.

Job analysis deals with the contents and characteristics of each job. It points out:The duties and responsibility involved in each job•The degree of skills necessary to perform each job•It discloses the conditions under which each job is performed and the elements of risk involved in them•Ithelpsthemanagementtofixthequalificationrequiredforeachjobalongwiththemethodsortechniquesto•perform each job.

Components of job analysisJobanalysisisasystematicproceduretoanalysetherequirementsforthejobroleandjobprofile.Jobanalysiscanbe further categorised into following sub components.

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Job Position

Job Description

Job Worth

Skills, knowledge,

Attitude

Role & Responsibilities

Education, Experience

JOB ANALYSIS

Fig. 4.1 Components of job analysis(Source: http://payroll.naukrihub.com/images/19.JPG)

Job position:• Job position refers to the designation of the job and employee in the organisation. Job position forms an important part of the compensation strategy as it determines the level of the job in the organisation. For example, management level employees receive greater pay scale than non-managerial employees. The non-monetarybenefitsofferedtotwodifferentlevelsintheorganisationalsovary.Job description:• Job description refers to the requirements of an organisation, which it looks for a particular job position. It states the key skill requirements, the level of experience needed, level of education required, and so on. It also describes the roles and responsibilities attached with the job position. The roles and responsibilities are key determinant factor in estimating the level of experience, education, skill, and so on, required for the job. It also helps in benchmarking the performance standards.Job worth:• Job worth refers to estimating the job worthiness that is. how much the job contributes to the organisation. It is also known as job evaluation. Job description is used to analyse the job worthiness, which is alsoknownasjobevaluation.Rolesandresponsibilitieshelpsindeterminingtheoutcomefromthejobprofile.Onceitisdeterminedthathowmuchthejobisworth,itbecomeseasytodefinethecompensationstrategyforthe position.

Therefore, job analysis forms an integral part in the formulation of compensation strategy of an organisation. Organisations should conduct the job analysis in a systematic at regular intervals. Job analysis can be used for setting up the compensation packages, for reviewing employees’ performance with the standard level of performance, determining the training needs for employees who are lacking certain skills.

4.7 Job Evaluation Job evaluation is a systematic process, which measures the relative importance and value of each job on the basis ofskills,duties,responsibilitiesandsoon.Theverypurposeofjobevaluationistofixwageratesaccordingtothejob done.

Apersonwhomeetstheminimumrequirementofajobisrecruitedbythemanagement.Jobevaluationidentifiesthe minimum and maximum requirement of each job.

Methods for job evaluationRanking method:• The simplest method of job evaluation is the ranking method. According to this method, jobs are arranged from highest to lowest, in order of their value or merit to the organisation. Jobs also can be arrangedaccordingtotherelativedifficultyinperformingthem.Thejobsareexaminedasawholeratherthanon the basis of important factors in the job; and the job at the top of the list has the highest value and obviously the job at the bottom of the list will have the lowest value.


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Jobs are usually ranked in each department and then the department rankings are combined to develop an organisational ranking.

The variation in payment of salaries depends on the variation of the nature of the job performed by the employees. The ranking method is simple to understand and practice and it is best suited for a small organisation. Its simplicity, however,workstoitsdisadvantageinbigorganisationsbecauserankingsaredifficulttodevelopinalarge,complexorganisation. Moreover, this kind of ranking is highly subjective in nature and may offend many employees. Therefore, amorescientificandfruitfulwayofjobevaluationiscalledfor.

Classificationmethod:• According to this method, a predetermined number of job groups or job classes are establishedandjobsareassignedtotheseclassifications.Thismethodplacesgroupsofjobsintojobclassesorjobgrades.Separateclassesmayincludeoffice,clerical,managerial,personnel,andsoon.Thejobclassificationmethodislesssubjectivewhencomparedtotheearlierrankingmethod.Thesystemisvery easy to understand and acceptable to almost all employees without hesitation. One strong point in favour of the method is that it takes into account all the factors that a job comprises. This system can be effectively used for a variety of jobs.

Theweaknessesofthejobclassificationmethodare:Even when the requirements of different jobs differ, they may be combined into a single category, depending •on the status a job carries.Itisdifficulttowriteall-inclusivedescriptionsofagrade.•Themethodoversimplifiessharpdifferencesbetweendifferentjobsanddifferentgrades.•When individual job descriptions and grade descriptions do not match well, the evaluators have the tendency •to classify the job using their subjective judgments.

Factor comparison method: • Amoresystematicandscientificmethodofjobevaluationisthefactorcomparisonmethod. Though it is the most complex method of all, it is consistent and appreciable. Under this method, instead of ranking complete jobs, each job is ranked according to a series of factors. These factors include mental effort, physical effort, skill needed, supervisory responsibility, working conditions and other relevant factors. Pay will be assigned in this method by comparing the weights of the factors required for each job, that is, the present wages paid for key jobs may be divided among the factors weighed by importance (the most important factor, for instance, mental effort, receives the highest weight). In other words, wages are assigned to the job in comparison to its ranking on each job factor.

Merits of factor comparison methodAnalytical and objective.•Reliable and valid as each job is compared with all other jobs in terms of key factors.•Money values are assigned in a fair way based on an agreed rank order fixed by the job evaluation •committee.Flexible as there is no upper limitation on the rating of a factor.•

Demerits of factor comparison methodDifficulttounderstand,explainandoperate.•Its use of the same criteria to assess all jobs is questionable as jobs differ across and within organisations.•Time consuming and costly.•Point method: • This method is widely used currently. Here, jobs are expressed in terms of key factors. Points are assigned to each factor after prioritising each factor in the order of importance. The points are summed up to determine the wage rate for the job. Jobs with similar point totals are placed in similar pay grades. The procedure involved may be explained thus:

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Select key jobs: � Identifythefactorscommontoalltheidentifiedjobssuchasskill,effort,responsibility,and so on.Divide each major factor into a number of sub factors: � Eachsubfactorisdefinedandexpressedclearlyin the order of importance, preferably along a scale.

Merits and demerits of point method The point method is a superior and widely used method of evaluating jobs. It forces raters to look into all keys factors and sub-factors of a job. Point values are assigned to all factors in a systematic way, eliminating bias at every stage. It is reliable because raters using similar criteria would get more or less similar answers. It accounts for differences in wage rates for various jobs on the strength of job factors. Jobs may change over time, but the rating scales established under the point method remain unaffected.

Onthenegativeside,thepointmethodiscomplex.Preparingamanualforvariousjobs,fixingvaluesforkeyandsub-factors, establishing wage rates for different grades, and so on, is a time consuming process.


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SummaryThemanagerialfunctionofstaffinginvolvesmanningtheorganisationstructurethroughproperandeffective•selection,appraisalanddevelopmentofthepersonnel’stofilltherolesassignedtotheemployers.Recruitmentistheprocessoffindingaptcandidatesandinducingthemtoapplyforthejobinanorganisation.•The sources of recruitment are categorised into two types namely: internal sources and external sources.•Ifthejobisfilledupoutofthepresentemployeesofthecompanyitissaidtobetheinternalsourceofthe•company.Whenthevacancyinanorganisationgetsfilledupfromthesuitablecandidatesavailableoutsidetheorganisation•it is said to be the internal source of the company.Selection is a method used in an organisation to select a suitable person who has required educational •qualifications,skills,abilitiesandpersonality.Performance appraisal is the systematic, periodic and an impartial rating of an employee’s excellence in the •matters pertaining to his present job and his potential for a better job. The various methods of performance appraisal are: ranking method, paired comparison method, forced distribution •method, grading, check list, forced choice method, and critical incident method.Training is a “programme that facilitates an employee to perform the job effectively through acquiring increased •knowledge and skills”.ThetypeoftrainingisclassifiedintwosectionsnamelyOn-The-JobtrainingandOff-the-Jobtraining.•Job Analysis is a “process to identify and determine in detail the particular job duties and requirements and the •relative importance of these duties for a given job”.Job evaluation is a systematic process, which measures the relative importance and value of each job on the basis •ofskills,duties,responsibilitiesandsoon.Theverypurposeofjobevaluationistofixwageratesaccordingto the job done.Methodsofjobevaluationare:rankingmethod,classificationmethod,factorcomparisonmethod,andpoint•method

ReferencesRamasamy, T., 2008. • Principles of Management. Mumbai: Himalaya publications. Jacobs, R., 2003. • Structured On-the-Job Training: Unleashing Employee Expertise into the Workplace, 2nd ed., Berrett-Koehler Publishers.Management study guide, 2008. • Staffing function of management [Online] Available at: <http://www.managementstudyguide.com/staffing-function.htm>[Accessed5January2012].HR Management, 2010. • External recruitment [Online] Available at: <http://www.humanresources.hrvinet.com/external-recruitment/> [Accessed 5 December 2012].eHow, 2008. • Human Resources: The Employee Performance Appraisal Process [Video Online] Available at: <http://www.youtube.com/watch?v=E8D4vGyK6oI&feature=bf_prev&list=PLEA44C335213B75E3&lf=results_video> [Accessed 5 December 2012].eHow, 2008• . Human Resources: What Is Employee Performance Appraisal? [Video Online] Available at: <http://www.youtube.com/watch?v=NBKZ6Puml1c> [Accessed 5 December 2012].

Recommended ReadingLaird, D., 2003. • Approaches to Training And Development. Basic Books.Swan, W., 2006• . Ready-to-Use Performance Appraisals: Downloadable, Customizable Tools for Better, Faster Reviews!. Wiley.Walter, D., 2001. • Training On the Job. ASTD Press.

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Self Assessment Which of the following options do not belong to Of-The-Job training method?1.

Conferencea. Brain-stormingb. Special projectsc. Role playsd.

Match the following2.

1. Job Analysis A. A systematic process which measures the relative importance and value of each job on the basis of skills, duties, responsibilities.

2. Performance appraisal B. A process to identify and determine in detail the particular job duties and requirements and the relative importance of these duties for a given job.

3. Job evaluation C. A method where the manager prepares lists of statements of very effective and ineffective behavior of an employee.

4. Critical incident method D. A method of systematic evaluation of the performance of an employee by an expert or his immediate superior.

1-D, 2-B, 3-C, 4-Aa. 1-B, 2-D, 3-A, 4-Cb. 1-C, 2-D, 3-A, 4-Bc. 1-A, 2-D, 3-B, 4-Cd.

TheverypurposeofJobevaluationistofix_____________accordingtothejobdone.3. work hoursa. pay scaleb. wage ratesc. performanced.

Which of the following is not a job appraisal method?4. Factor point scoringa. Checklistb. Paired comparison methodc. Gradingd.

Which of the following is not an external source of recruitment?5. Advertisementsa. Promotionb. Recommendationsc. Educational institutionsd.

Training is a programme that facilitates an employee to perform the job effectively through acquiring increased 6. ________and skills.

value a. efficiencyb. knowledge c. time d.


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Which of the following statements is false?7. Internal source of recruitment is a costly affaira. Ranking method of performance appraisal is very simple and an old formb. Planningisanimportantelementofstaffingprocessc. Training and development is a continuous processd.

Whichofthefollowingisnotastaffingfunction?8. Motivationa. Planningb. Trainingc. Recruitmentd.

Performance appraisal is the ___________of the performance of an employee by an expert or his immediate 9. superior.

selectiona. evaluationb. systematic evaluationc. measurementd.

Whichofthefollowingconceptisdefinedas“processtoidentifyanddetermineindetailtheparticularjobduties10. and requirements and the relative importance of these duties for a given job”?

Job analysisa. Selectionb. Recruitmentc. Job evaluationd.

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Chapter V

Directing

Aim


definedirecting•

highlight the importance of motivation•

recognise the need of leadership•

Objectives


explain the principles of directing•

discuss communication in an organisation•

elucidate the principles of effective communication•

Learning outcome


understand the importance of motivation•

enumerate the approaches of leadership•

enlist th• e objectives of communication


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5.1 Introduction Directing is said to be a process in which the managers instruct, guide and oversee the performance of the workers to achieve predetermined goals. Directing is said to be the heart of management process. Directing initiates action and it is from here actual work starts. Direction is said to be consisting of human factors such as providing guidance to workers. Directing is the function of guiding, inspiring, overseeing and instructing people towards accomplishment of organisational goals.

Principles of directionThe principles of direction are:

Harmony of objectives• : Direction should be such that the individuals can integrate their objectives with organisational objectives.Maximum individual contribution• : Contribution of every member of an organisation matters. So management should adopt such a technique of direction which enables the maximum contribution by members.Unit of direction• :Anemployeeshouldreceiveinstructionthroughproperchannel,whichshouldbewelldefinedotherwise it will lead to confusion.Efficiency• : Subordinates should participate in decision making; this will increase their sense of commitment andwillensuretheimplementation.ItwillincreasetheefficiencyFeedback information• : Direction does not end with issuing orders, it is also necessary to take the suggestions of the employees as well for the development of the organisation.Effective communication• : The superior must ensure that plans, policies and responsibilities are fully understood by the subordinates in the right direction.Efficientcontrol• : The management should monitor the behavior and performance of subordinates to exercise efficientcontrolovertheemployees.Efficientcontrolensureseffectivedirection.

5.2 MotivationMotivationisdefinedas“aninspirationprocess,whichimpelsthemembersoftheteamtoaccomplishthedesiredgoals”.

5.2.1 The Importance of MotivationA manager guides the people in a desired manner in order to achieve organisational objectives. Two important things necessary to perform any job are:

Ability to work•Willingness to work•

There is a need for motivation to create willingness in the minds of workers to do a job.

Performance can be expressed by the following formula:

Performance= ability x motivation

The importance of motivation can result in the following:Maximum utilisation of factors of production•Willingness to work•Reduced absenteeism•Reduced labour turnover•Increaseintheefficiencyandoutput•Sense of belonging•Improvement upon skill and knowledge•

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5.2.2 Theories of MotivationProf. Douglas Mcgregor has introduced two motivational theories namely: Theory ‘X’ and Theory ‘Y’.

X-Theory This theory states that the manager has thorough knowledge and excludes the worker from decision making process. A manager has the authority to take decisions. The workers should follow whatever decisions are taken by the manager.

The assumptions of X-theory are:Workers have an aversion to work inherently•Workers may do the job half-heartedly•Workersmayfindawaytopostponetheworkcompletioninlaziness•Fear of punishment can motivate the workers into action•The worker may know the hazards of non-performance of a work•No worker is ready to accept any responsibility•There is a need for explaining the consequences of being inactive•A worker prefers to be directed by others•Workershatetoimprovetheirefficiency•

X-theoryisregardedasthemeanstosuperviseandcontroltheworkers.Decisionmakinginallfieldsisentrustedwith managers. Workers are allowed to express their suggestions, but the decisions are taken by managers and workers are forced to follow the decisions.

Y-TheoryY-theory is just opposite to X-theory. X-theory is considered as traditional theory and Y-theory is considered as modern theory. Y-theory emphasises the importance of workers in the accomplishment of enterprise objectives.

The assumptions of Y-theory are:The average human being has the tendency to work. A job is as natural just like a play•Once the worker understands the purpose of the job, he may extends his cooperation for job completion•Worker has self direction, self motivation, self discipline and self control•The existing worker has competence to work and can take right decisions•A worker expects recognition of the successful accomplishment of task•If right motivation scheme is prepared by the management, the worker is ready to accept extra responsibility.•

According to Y-theory, a worker has integrity and readiness to work hard. He is willing to participate in the decision making process and shows a sense of creativity and imagination. So, X-Theory is said to be negative and Y-Theory to be positive.

Theory ZProf. William G. Ouchi has developed theory Z. This theory is based on the comparative study of Japanese and American management practices. It describes how Japanese management practices can be adopted to the environment of other countries especially in United States.

This theory focuses attention on the organisational behavior side of the philosophy of management. It is treated as a model for motivation. Theory-Z emphasises on external control of human behavior. Mutual trust reduces the conflictamongemployeesandensuresteamspirit.


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The features of Theory-Z are:Trust•Life time employment•Involvement of employees•Integrated organisation•Restricted Promotions•Coordination•No formal structure•Motivation•Stable working environment•

5.2.3Maslow’sHierarchyofNeedsDr.AbrahamH.Maslowclassifiedthevariousneedsofthehumanbeingsinadefiniteorder.Thisorderiswidelyaccepted.AccordingtoMaslow,humanwantsareinnumerableandneverending.Ifonewantissatisfied,anotherwantemergesinthatplace.Thesatisfiedwantsdonotmotivatetheworkers.Onlyunsatisfiedwantsinducethemantohardwork.Maslowisoftheopinionthatneedsaresatisfiedinorder.Hence,heclassifiedneedsasthelowerlevelneeds and higher level needs. The hierarchy of needs is as below:

Basic physiological needs• : The basic physiological needs are concerned with breeding, shelter, sexual gratification,clothingandsoon.Theseneedsareinherentinnature.Ifthesearenotsatisfied,otherneedswillnot emerge.Safety and security needs• : Safety needs are concerned with physical danger or loss of existing basic physiological needs, like loss of job, support and so on. Therefore, the workers attempt to get job security, insurance, pensioner benefitsandsoon.Belonging and social needs• : Man is a social animal. He wants to love and be loved in a society or in a family. Exchange of feelings and grievances, love, sociability, recognition, conversation and belongingness are some of the social needs.Esteem and status need• :These needs are also referred to as ego needs. Self-confidence, independence,competence, knowledge, status, recognition and appreciation are some of the esteem and status needs.Self-actualisation needs• : These are also called as self-realisation needs. It refers to the desire to become everything that one is capable of becoming, a maximum level of excellent performance is done by the individual.

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breathing, food, water, sex, sleep. excretion

Safety -- security of body, of employement, of resources, of morality, of family, of health, of property

friendship, family, sexual intimacy

Morality, creativity, sensitivity,

problem solving, lack of prejudice,

acceptance of facts

selfesteem,confidence,achievement, respect of others,

respect by others

Self -actualisation

Esteem

Love/belonging

Safety

Physiological

Fig.5.1Maslow’sneedhierarchytheory(Source: http://dinamehta.com/blog/2010/01/12/twitter-maslows-hierarchy-of-needs-nay-hierarchy-of-tweets/)

Fromtheabovementionedfiveneeds,thefirstthreeneedsthatisbasicphysiological,safetyandsocialneedsaretermed as lower level needs by Maslow. The remaining two needs that is esteem and self-actualisation needs are termedashigherlevelneeds.Thelowerlevelneedsaresatisfiedbymonetaryandnon-monetarycompensation.Thehigherlevelneedsaresatisfiedthroughallowingindecision-makingprocess,delegatingauthorityandresponsibilityand so on.

5.2.4Herzberg’sTheoryofNeedsFrederick Herzberg had conducted a study on motivation in late 1950s, this study developed a theory of work motivation. This theory is known as Herzberg Motivation theory OR Maintenance OR Hygiene OR Two-factor theory of motivation. Herzberg tried to understand from his studies the motivation problem and to identify the human behavior, nature and needs, which are invaluable to organisation and individuals. The studies reveal that the factors responsible for job satisfaction are quite different from those responsible for job dissatisfaction. According to Herzberg, motivational factors are responsible for job satisfaction. Hygiene or maintenance factors are responsible for job satisfaction.

5.2.5 Motivational FactorsThe presence of some factors creates motivation to workers and at the same time absence of such factors does not cause dissatisfaction. These are called motivation factors. Some of the motivational factors are:

Achievement•Recognition•Advancement•Work•Possibility of growth•


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5.2.6 Maintenance FactorsThe presence of some set of factors motivates the workers but the absence of these factors caused serious dissatisfaction. These factors are called as maintenance of hygiene factors. Some of the hygiene factors are:

Company policy and administration•Technical supervision•Inter personal relations with sub-ordinates•Salary•Job security•Personal life•Working conditions•Status•

5.2.7 Requirements of a Sound Motivational SystemThe motivational system should:

balance the objectives and philosophy of organisation workers•be understood by the members of the organisation in the right direction•cover all the activities of the workers•have corresponding relationship with efforts and rewards•beflexible,andchangesshouldbeincorporatedfromtimetotime•

5.3 LeadershipLeadership is defined as the “process of influencing people so that they will strive willingly towards the achievement of group goals”. The success of an organisation is dependent upon the ability of its leadership. The leaders are not only responsible for directing the followers but also for the attainment of goals of the organisation.

The importance of leadership includes:Perfect organisation structure•Directing group activities•Technological, economic and social changes•Better utilisation of manpower•Avoiding imbalances•Sources of motivation•Reconciliation of goals•Developing good human relations•Promoting the spirit of coordination•

5.3.1 Theories of LeadershipThe theories of leadership include:

Traitist’stheoryThistheorystatesthattheleadershipbehaviorisinfluencedbycertainqualitiesofaleader.Researchersfoundouta number of qualities of leadership from their study. The qualities are:

Good personality•Tirelessness•Ability to take quick decision•

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Courage to face competitors •Persuasion•Intelligence •New outlook•Reliability•Physicalfitness•

The drawbacks of trait’s theory include:No common equalities list•Measurement of quality•No scope for future development•No consideration for situational factors•No need of uniform traits•

Behavioral theoryThis theory is based on the fact that how management viewed the workers and the focus now shifted to leader’s behavior from leader’s qualities. Behavior theory assumes that people are lazy and irresponsible by nature. So there is a need of an instrument to give motivation to workers, here leadership acts as an instrument. Manager is an instrument holder.

Autocratic, democratic or supervisory styles are some of the leadership styles. Behavioral approach developed these leadershipstyles,whichproducedifferentandconflictingresults.Differentandconflictingresultswereobtaineddue to changes in the behavior of leaders and followers.

Situationlist theoryThe usefulness of traits and behaviors is tested in a particular situation where the two of the above theories lack. As per the situation theory, a leader is strongly affected by the situation in which he works. Situation helps the person to develop their leadership qualities. Here, traits and behavior are supporting elements to leaders.

Situation theory believes that there is interlink between the group of workers and its leaders. Some groups of workers have aspirations. They follow the leaders who are capable of realising their aspirations.

Follower’soracceptancetheoryFollower’s theory states that only followers decide whether a person is a leader or not. Followers take a decision analyzingthequalitiesofthepersonwhohelpstohavetheirneedsfulfilled.Here,thereisaneedforformingagroupand fulfilling someneedsof suchagroup.Modernmanagersareof theopinion thatAcceptance theoryplaysasignificantroleinmanagingpeopleatpresent.Theneedsofthegrouparethecrucialandguidingfactorindetermining the leader.

System or path-goal theorySystem theory is focused on a person’s act rather than his traits or behavior. A leader coordinates the efforts of his followers. The process of coordination is done by a person (leader). It is termed as person’s act. The process of coordination stimulates the people to achieve the goal in a particular situation.

System theory consider all variables, these variables include leader, followers, situation, leadership traits, environment goals and group nature and so on. This theory is considered modern theory of leadership.


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5.3.2 Functions and Qualities of LeaderThe functions of a leader are:

Taking initiative•Representation•Guide•Encouraging others•Arbitrator and mediator•Planner•Rewards and punishments•Integration•Communication•

The qualities of leadership are:Physical appearance and strength•Mental vigour•Emotional stability•Sense of judgment•Goodwill•Motivation•Communication skill•Guiding ability•Sociability•Technical knowledge•

5.3.3 Types of LeadersThetypeofleadersisclassifiedonthebasisofbehaviorofleaders.Theyarebrieflyexplainedbelow:

Autocratic leader• : An autocratic leader is one who wants to run the organisation all by him. He frames the objectives of the organisation and requires the followers to achieve the objectives.

He thinks that his followers do not have much ability to do a job effectively. �He avoids discussions with his followers regarding job completion. �He doesn’t delegate any authority to his followers. �He has close supervision and control over his followers. �Followers are rewarded and punished as per their performance. �

Intellectual leader• :Aleaderwinstheconfidenceofhisfollowersbyhisintelligence.Heprovidesanexpertadvice depending upon his area of expertise and get the work done through others.Liberal leader• : A leader is one who permits his followers to do their job howsoever they want to do. The leader has not framed any policy or procedure, which the followers are expected to follow in their jobs.

Theliberalleaderwouldnotexerciseanyinfluenceoverhisfollowersandvice-versa �Wide scope and opportunities are available for free discussion, which aims at performing the job �effectivelyFollowers should have a high degree of maturity �

Democratic leader:• A leader acts according to the wishes of his followers. He frames the policy or procedure according to the opinion of the majority of his followers and act as a representative of his followers to management. He is loyal to his followers and involved in protecting the interests of his followers.

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5.3.4 Leadership StylesThe leadership styles include:

Blake Mouton Managerial GridA popular framework for thinking about a leader’s ‘task versus person’ orientation was developed by Robert Blake and Jane Mouton in the early 1960s known as the Managerial Grid, or Leadership Grid, it plots the degree of task-centerednessversusperson-centerednessandidentifiesfivecombinationsasdistinctleadershipstyles.Themanagerialgrid is based on two behavioral dimensions:

Concern for people:• This is the degree to which a leader considers the needs of team members, their interests, and areas of personal development when deciding how best to accomplish a taskConcern for production:• This is the degree to which a leader emphasises concrete objectives, organisational efficiencyandhighproductivitywhendecidinghowbesttoaccomplishatask.

Usingtheaxistoplotleadership‘concernsforproduction’versus‘concernsforpeople’,BlakeandMoutondefinedthefollowingfiveleadershipstyles:

Country club leadership - high people/low production:• This style of leader is most concerned about the needs and feelings of members of team. These people operate under the assumption that as long as team members are happy and secure then they will work hard. What tends to result is a work environment that is very relaxed and fun but where production suffers due to lack of direction and control.Produce or perish leadership - high production/low people:• Also known as Authoritarian or Compliance Leaders, people in this category believe that employees are simply a means to an end. Employee needs are alwayssecondarytotheneedforefficientandproductiveworkplaces.Thistypeofleaderisveryautocratic,has strict work rules, policies, and procedures, and views punishment as the most effective means to motivate employees. Impoverished leadership - low production/ low people:• This leader is mostly ineffective. He/she has neither a high regard for creating systems for getting the job done, nor for creating a work environment that is satisfying and motivating. The result is a place of disorganisation, dissatisfaction and disharmony. Middle-of-the-road leadership - medium production/medium people:• This style seems to be a balance of thetwocompetingconcerns.Itmayatfirstappeartobeanidealcompromise.Thereinliestheproblem,whenthere is a compromise, you necessarily give away a bit of each concern so that neither production nor people needs are fully met. Leaders who use this style settle for average performance and often believe that this is the most anyone can expect. Team leadership - high production/high people:• These leaders stress production needs and the needs of the people equally highly. The premise here is that employees are involved in understanding organisational purpose and determining production needs. When employees are committed to, and have a stake in the organisation’s success, their needs and production needs coincide. This creates a team environment based on trust and respect, which leads to high satisfaction and motivation and, as a result, high production.


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High TeamLeader

CountryClub

Impoverished Produceor Perish

Concern for Production

Con

cern

for

Prod

uctio

n

LOWLOW

High

Middleof the Road

Fig. 5.2 Mount and Blake leadership model (Source: http://www.mindtools.com/pages/article/newLDR_73.htm)

Lewin’sleadershipstylesKurtLewindidleadershipdecisionexperimentsin1939andidentifiedthreedifferentstylesofleadership,inparticulararound decision-making which are explained as under:

Autocratic• : In the autocratic style, the leader takes decisions without consulting with others. The decision is made without any form of consultation. In Lewin’s experiments, he found that this caused the maximum level of discontent. An autocratic style works when there is no need for input on the decision, where the decision would not change as a result of input, and where the motivation of people to carry out subsequent actions would not be affected whether they were or were not involved in the decision-making.Democratic:• In the democratic style, the leader involves the people in the decision-making, although the process forthefinaldecisionmayvaryfromtheleaderhavingthefinalsaytothemfacilitatingconsensusinthegroup.Democratic decision-making is usually appreciated by the people, especially if they have been used to autocratic decisions with which they disagreed. It can be problematic when there are a wide range of opinions and there isnoclearwayofreachinganequitablefinaldecision.Laissez-Faire:• The laissez-faire style is to minimise the leader’s involvement in decision-making, and hence allowing people to make their own decisions, although they may still be responsible for the outcome. Laissez-faire works best when people are capable and motivated in making their own decisions, and where there is no requirement for a central coordination, for example in sharing resources across a range of different people and groups.

Likert’sleadershipstyleRensisLikertidentifiedfourmainstylesofleadership,inparticulararounddecision-makingandthedegreetowhichpeople are involved in the decision.

Exploitive authoritative:• In this style, the leader has a low concern for people and uses such methods as threats and other fear-based methods to achieve conformance. Communication is almost entirely downwards and the psychologically distant concerns of people are ignored.

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Benevolent authoritative:• When the leader adds concern for people to an authoritative position, a ‘benevolent dictatorship’ is formed. The leader now uses rewards to encourage appropriate performance and listens more to concerns lower down the organisation, although what they hear is often rose-tinted, being limited to what their subordinates think that the boss wants to hear. Although, there may be some delegation of decisions, almost all major decisions are still made centrally.Consultative• :Theupwardflowofinformationhereisstillcautiousandrose-tintedtosomedegree,althoughthe leader is making genuine efforts to listen carefully to ideas. Nevertheless, major decisions are still largely centrally made.Participative• : At this level, the leader makes maximum use of participative methods, engaging people lower down the organisation in decision-making. People across the organisation are psychologically closer together and work well together at all levels.

5.4 CommunicationCommunication is a process “through which an information, idea or opinion is transferred to more number of people”. The importance of communication includes:

An aid to manager performance•Achieving coordination•Helps in smooth working•Increasemanagerialefficiency•Helps in decision making•Maintaining industrial peace•Saves time•Aid to job satisfaction•Aid to leadership•

The elements of communication are:Information •Sender•Receiver•Communication channel•Symbols•Feedback•

(a) Barriers of communicationThe barriers to communication are:

Noise•Missing information•Alteration of information•Overloading•Lack of facility•Inadequate policies, rules and procedures•Status patterns•Lack of attention•Quick conclusion•Lack of time•Technical language•


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The methods of overcoming the communication barriers are:Themanagementshouldclearlydefineitspolicytotheemployees.•The management sets up a system through which only essential information could be supplied.•All the information should be supplied through a proper channel.•Every person in the management shares the responsibility of good communication.•Adequate facilities should be provided by the management.•There should be mutual understanding.•

(b) Characteristics of effective communicationThe characteristics of effective communication are:

Complete communication•Understanding in the same sense•Message to have substance•Vital to managerial function•Continuous process•Mutual understanding•Communication may be oral, written or gestural•Communication may be formal or informal.•

(c) Process of communicationThe communication process consists of a message being sent and received.The message may be verbal or non-verbal. Effective communication involves a message being sent and received.

Sender Encoding Message Decoding Receiver

Noise

Feedback

Fig. 5.3 Process of communication (Source:http://www.passia.org/seminars/2000/conflict/wanis-6.html)

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(d) Principles of communicationThe principles of communication include:

Language•Clarity•Purpose of communication•Consultation•Content of message•Follow-up action•Time and opportunity•Action support communication•Personnel cooperation•

(e) Media of communicationThe media of communication include:

Bulletin•Announcements•Meeting•Suggestions/ grievance boxes•Company publications•

(f) Types of communicationCommunication is categorised on different basis, which include:

On the basis of organisational relationship•Formal communication � :Thecommunicationflowsthroughtheformalchannel.Formalchannelreferstothe way in which the information is passed and it has a recognised position in the organisation structure.Informal communication � : Information is not passed in accordance with any formalities and rules and regulations of an organisation. Most of the informal communication is done verbally. Personal matter are also discussed and passed under informal communication which is also known as ‘Grapevine’. Grapevine is the primary source of upward communication. Under this system of communication there is no clear cut way for transmitting the information. It operates like a cluster chain as shown below.

Receivers

Receivers

Sender

Receivers

Receivers

Fig. 5.4 Cluster chain(Source: http://marcbowles.com/courses/frontline/fmb7/fmb7b.htm)


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Onthebasisofdirectionofflowofcommunication•Downward communication � : A communication which starts from the top level executive and ends with the lower functionaries through middle management is known downward communication. While communicating scalar chain is followed, this ensures proper communication.Upward communication � : Upward communication is just the reverse of downward communication. Passing of information starts with the lowest level and ends with the chief-executive. There are two types of upward communication

There is a feedback of information in response to original communication. -Information is given by the subordinates voluntarily -

On the basis of way of expression•Oral communication: � Oral communication is also known as verbal communication. This mode of communications is generally adopted when there is lack of time to send the written communication. Forms of oral communication are:

Conferences -Meetings -Interviews -Calling -Lectures -

Written communication: � This type of communication is followed to transmit any information. This is an essential form of communication for an organisation. The forms of written communication include:

Notes -Circulars -Reports -Bulletin -Manuals -Diagrams -Graphs -

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SummaryDirecting is said to be a process in which the managers instruct, guide and oversee the performance of the •workers to achieve predetermined goals.Directing is the function of guiding, inspiring, overseeing and instructing people towards accomplishment of •organisational goals.Motivation isdefinedas“an inspirationprocess,which impels themembersof the teamtoaccomplish the•desired goals”.Prof. Douglas Mcgregor has introduced two motivational theories namely: Theory ‘X’ and Theory ‘Y’.•X-theory is regarded as the means to supervise and control the workers.•X-theory is considered as traditional theory and Y-theory is considered as modern theory.•Y-theory emphasises the importance of workers in the accomplishment of enterprise objectives.•Prof. William G. Ouchi has developed theory Z.•Dr.AbrahamH.Maslowclassifiedvariousneedsofthehumanbeingsinadefiniteorder.•Frederick Herzberg had conducted a study on motivation in late 1950s, this study developed a theory of work •motivation.The presence of some factors creates motivation to workers and at the same time absence of such factors does •not cause dissatisfaction. These are called motivation factors.The presence of some set of factors motivates the workers but the absence of these factors caused serious •dissatisfaction. These factors are called as maintenance of hygiene factors.Leadership is defined as the “process of influencing people so that theywill strivewillingly towards the•achievement of group goals”.Autocratic, democratic or supervisory styles are some of the leadership styles.•Situation theory believes that there is interlink between the group of workers and its leaders.•Follower’s theory states that only followers decide whether a person is a leader or not.•Communication is a process “through which an information, idea or opinion is transferred to more number of •people”.

ReferencesRamasamy, T., 2008• . Principles of Management, Himalaya publications, pp.20-40.Morden, T., 2004. • Principles of management, Ashgate Publishing, Ltd., p.576.Managementstyleguide.com, 2008. • Directing function of management [Online] Available at: <http://www.managementstudyguide.com/directing_function.htm> [Accessed 8 October 2010].Changingminds.org, 2010. • Lewin’s leadership style [Online] Available at: <http://changingminds.org/disciplines/leadership/styles/lewin_style.htm> [Accessed 8 October 2010].parainocs, 2011.• Roles and function of directing.wmv [Video Online] Available at: <http://www.youtube.com/watch?v=38Nx2pnfbvw> [Accessed 8 October 2010].leadershipmentor, 2009.• Leadership Styles for New Leader Success [Video Online] Available at: <http://www.youtube.com/watch?v=kDIrNItEiuc> [Accessed 8 October 2010].

Recommended ReadingGriffin,R.W.,2006.• Principles of Management, Cengage Learning.Griffin,R.W.,2007.• Fundamentals of Management, Cengage Learning.Lussier, R. N., 2008.• Management Fundamentals:Concepts, Applications, Skill Development, Cengage Learning.


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Self Assessment Which of these is not a maintenance factor?1.

Technical supervisiona. Working conditionsb. Statusc. Possibility of growthd.

Which of these is not a motivational factor?2. Personal lifea. Recognitionb. Advancementc. Workd.

According to Herzberg, motivational theory which of the following factors is responsible for job satisfaction?3. Maintenance factorsa. Behavioral factorsb. Motivational factorsc. None of thesed.

Grapevine is primary source of ____________ communication.4. upwarda. downwardb. internal c. externald.

Whichofthefollowingqualitiesisamarkofaninefficientleader?5. Emotional instabilitya. Sense of judgmentb. Goodwillc. Motivationd.

Which of the following leadership styles is not a part of the Likert’s leadership style?6. Exploitivea. Democraticb. Benevolentc. Participatived.

Which leadership style work on the criteria where leader’s involvement in decision-making is minimum and 7. people take their own decisions, although the leaders are still responsible for the outcome?

Autocratica. Democraticb. Laissez-fairec. Benevolentd.

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Theory-Z of motivation emphasises on __________.8. worker’sefficiencya. self- motivationb. self- controlc. external control of human behaviord.

Which of the following statements is false?9. Motivationisdefinedasthe“processofinfluencingpeoplesothattheywillstrivewillinglytowardsthea. achievement of group goals”.The leaders are not only responsible for directing the followers but also for the attainment of goals of the b. organisation.The success of an organisation is dependent upon the ability of its leadership.c. The importance of leadership includes directing group activities.d.

Which of the following statements is false?10. An intellectual leader is one who wants to run the organisation all by him.a. Aleaderwinstheconfidenceofhisfollowersbyhisintelligence.b. A leader is one who permits his followers to do their job howsoever they want to do.c. A leader acts according to the wishes of his followers.d.


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Chapter VI

Controlling

Aim


definecontrolling•

discuss the importance of coordination•

identify the need of business ethics•

Objectives


enlist the requirements of effective control system•

discuss the concept of management audit •

explain the principles of business ethics•

Learning outcome


recognise the importance of coordination process•

enumerate the techniques of control•

discus• s the principles of coordination

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6.1 Introduction to ControllingControlling is “determining what is being accomplished, that is evaluating the performance and if necessary, applying corrective measures so that the performance takes place according to plans”.

Steps in control processControl points out the deviations of the plans and suggests remedial action to improve future plans. Some of the procedures are found to be defective due to human limitations. Here, the control function is put to action. The steps for control are as follows:

Establishing standards•Measuring performance•Comparison of actual with standards (correction of deviation)•Taking corrective action (follow through action)•

Establishing standards

Measuring performance

Correction of deviation

Follow through action

Fig. 6.1 Steps of controlling(Source: http://homeworkhelpexperts.blogspot.com/2011/09/controlling-and-its-steps.html)

Requirements of effective control systemThe requirements of effective control system include:

Feedback•Objective•Suitability•Prompt reporting•Forward looking•Pointing out exceptions•Flexible•Economy•Motivation•

6.2 Techniques of ControlThe techniques of control include:

Break even analysisItisalsotermedascostvolumeprofitanalysis.Itanalysetherelationshipamongcostofproduction,volumeofproduction,volumeofsalesandprofits.Totalcostisdividedinto fixedcostandvariablecost.Fixedcostneverchanges according to the changes in the volume of production, whereas, variable cost varies according to the volume of production.


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Fixed costs

Costs, incl. rent & salaries of full-time staff

Don’t vary with sales levels

Direct costs, eg-cost of food and beverage

Increase & decrease as sales levels vary

Variable costs

Fig. 6.2 Fixed and variable costs(Source: http://www.businesstools.failteireland.ie/Accommodation/Hotels/Know-your-Break-even-Point.aspx)

This analysis helps in determining the volume of production or sales and the total cost which is equal to the revenue. Theexcessofrevenueovertotalcostistermedasprofit. The point at which sales is equal to the total cost is known as‘BreakEvenPoint’(BEP),thisisapointatwhichthereisnoprofitorloss.

The formula for BEP is: BEP = Fixed cost Selling price per unit – variable cost per unit

Sales

Profit

Total costs

Break-Even Point

Loss

Units

$

Fig. 6.3 Break even point(Source: http://en.wikipedia.org/wiki/Break-even_(economics))

Performance evaluation and review technique ( PERT) and Critical path method (CPM)Pert was developed by Booz, Allen and Hamiltan. This technique is used to solve problem which crops up once a while not for the continuous once. It helps the organisation to closely watch the entire performance of the project tofindoutthedeviationsifany.PERTisusedtoassistinreducingthetimerequiredforcompletionofaproject.Ittakes care of the time aspect of the project.

A project is broken down into individual tasks that must be performed. A network is drawn showing the sequence of activitiesfromstarttofinalcompletion,thusdefiningtheworktobedone.CPMtechniquealsofollowstheprincipleof PERT. CPM concentrates on cost rather than duration. It assumes that duration of every activity is constant. Time estimate is made for each activity. PERT and CPM is the best suitable technique for the following projects.

Large weapon system•Ship building•Planning and launching a new project•

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Air port facilities building•Creation of road facilities•

Management information system (MIS)Relevant information is collected and transferred to all the persons who are responsible to take decisions. A communication system is developed through which all levels of employees are informed about the growth of the organisation. Whenever deviation is found, the corrective measure or control action is taken by the person in charge. MIS emphasise the need for adequate information in time for taking the best decision. Thus ,MIS helps the management in managerial decision-making by giving the right information at the right time and in the right form.

Scenario Modelling

Analysis and reporting

Data Collection and storage

Management Information

System

Performance measurement

Labour KPI definitions

Workforce Management

objective

Fig. 6.4 Workforce performance management cycle(Source: http://cubewise.com/workforce-management-77.php)

6.2.1 Features of Control FunctionThe features of control function include:

Controlling process: • Controlling is a continuous process, the head has continuous watch over the entire operations and ensures that all the efforts are made to achieve the desired objectives. In case of any deviations takes control action to correct them.Universal:• Control is applied at all levels of management and irrespective of the organisation. The nature , scope and limit of the control exercised by the manager vary according to the levels of management.Control involves management• : Control recommends the future course of action on the basis of evaluation and measurement.An essence of action• : The correction action should be taken by the management on the basis of information available.


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6.2.2 Advantages of ControlThe advantages of control include:

Verificationofpolicy•Managerial accountability•Psychological pressure•Maintaining morality•Coordination•Efficiency•Adjustment in operations•

6.3 Budget ControlBudget is a “pre-determined statement of management policy during a given period which provides a standard for comparison with results annually achieved”. Budgetary control is a tool used by the management to obtain the objectives expressed as in the form of budget. It isaprocessoffindingoutwhatisbeingdoneandcomparingtheseresultswiththecorrespondingbudgetdatainorder to approve accomplishment or to remedy differences by either adjusting the budget estimates or correcting the cause of difference.

Does performance meet the standards

set?

Corrective action

required

No action required

Budget planning set standards

Check performance

No

Yes

Fig. 6.5 The process for budgetary control(Source: http://marcbowles.com/courses/frontline/fmf25/fmf25c.htm)

The objectives of budgetary control include:

Fixation of the income and expenditure department wise•Definingthegoalsorobjectivesoftheorganisationforastipulatedperiod•Forecastingthefinancialpositionofthecompany•Centralising the management control•Establishes measure of performance for each division•

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The advantages of budgetary control include:Tool for planning the activities•Coordination of efforts•Control of expenditure•Resolvingfinancialissues•Better utilisation of resources•Promotionofefficiency•Promoters balanced activities•Criteria of self examination•

6.4 CoordinationCoordination is a process which ensures smooth interplay of the functions of management. Common objectives are achieved without much wastage of time, efforts and money with the help of coordination.

The features of coordination include:Managerial responsibility•Provides unity of action•Coordination is necessary at all levels of organisation•Relevant for group efforts•Continuous and dynamic process•System concept•

The methods used for coordination include:Clearlydefinedobjectives•Effective chain of command•Coordination through group meetings•Harmonious policies and procedures•Effective communication•Sound organisational structure•Coordination by leadership•

The types of coordination include:Internal coordination• : Coordination within the organisation among the various levels of employees. It is further divided into two categories

Vertical coordination � : It refers to the coordination in which a superior authority coordinates his work with that of his sub-ordinates and vice-versa.Horizontal coordinates � : It refers to the establishment of a relationship between the persons of the same status.

External coordination• : It refers to the coordination between the employees of an organisation and the outsiders. These outsiders could be the general public, market agencies, competitors and so on.


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The steps for effective coordination include:Proper delegation of authority and responsibility at all levels of management•Establishment of employees grievances cell•Proper reporting system•Skilled workers are to be rewarded adequately•Effective communication system•Preparation and adherence to rigid rules and regulations, procedures, polices and so on.•

6.5 Management AuditManagement audit is the process of examining various policies and action of the management on the basis of certain specifiedobjectives.Itisconductedtocriticallyevaluatetheactivitiesandefficiencyofthemanagement.Itisanindependent appraisal activity.

The objectives of management audit include:To identify the level of achievement of the key objectives of the organisation•To identify the defects or irregularities of management executives•Helpthemanagementtodoefficientadministrationoftheoperations•Toimprovetheprofitabilityoftheorganisation•To suggest to the management the ways to achieve the objectives •

The advantages of management audit are:To identify the present and potential strength and weaknesses in management•Establishing and reviewing the system of planning in an organisation•Improving the communication and control system•Review the decision making and quality of decision•Protects the interests of the organisation by continuous review of all the aspects of the organisation •

6.6 Business EthicsBusiness ethics is the behaviour of a businessman while conducting a business, by observing morality in his business activities. It is an art for maintaining , harmonious relationship with society, its various group and institutions as well as reorganising the moral responsibility for the business conduct.

The need for business ethics include:Survival of business unit•Growth of business unit•Earning goodwill•Improvingtheconfidence•Maintaining inter-relationship•Dealing with social problems•

The regulations of business ethics include:Legislative measures•Goodwill of business unit•Social status of businessman•Trade union•Business association•Consumer movement•

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The factors affecting business ethics are:Unhealthy competition•Abnormalprofitmotive•Political interference•Political uncertainty•Unjust legislation•Corruption•Lack of education•Lack of ethical attitude•Red-tapism•


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SummaryControlling is “determining what is being accomplished, that is evaluating the performance and if necessary, •applying corrective measures so that the performance takes place according to plans”.Control points out the deviations of the plans and suggests remedial action to improve future plans.•Break even analysis is• alsotermedascostvolumeprofitanalysis.Fixed cost will never change according to the changes in the volume of production.•Variable cost varies according to the volume of production.•CPM technique also follows the principle of PERT. CPM concentrates on cost rather than duration.•Pert was developed by Booz, Allen and Hamiltan andPERT is used to assist in reducing the time required for •completion of a project. Budget is a “pre-determined statement of management policy during a given period, which provides a standard •for comparison with results annually achieved”.Budgetary control is a tool used by the management to obtain the objectives expressed as in the form of •budget.Coordination is a process, which ensures smooth interplay of the functions of management.•Management audit is the process of examining various policies and action of the management on the basis of •certainspecifiedobjectives.Business ethics is the behaviour of a businessman while conducting a business, by observing morality in his •business activities.

ReferencesRamasamy, T., 2008• . Principles of Management, Himalaya publications, pp.20-40.Koontz, 1998. • Essentials of Management 8E, Tata McGraw-Hill Education, p.464.Morden, T., 2004. • Principles of management, Ashgate Publishing, Ltd., p.576. Controlling• Lesson:-08 [pdf] Available at: <http://managementconsultingcourses.com/Lesson08Controlling.pdf> [Accessed 5 January 2012].Scribd. • Controlling and Process of Controlling [Online] Available at: <http://www.scribd.com/doc/47011734/Controlling-and-Process-of-Controlling> [Accessed 5 January 2012].ADMCVideos, 2009.• Break Even Analysis [Video Online] Available at: <http://www.youtube.com/watch?v=Du07z79T-Js> [Accessed 5 January 2012].SHSUOnline, 2011.• CPM and PERT Method [Video Online] Available at: <http://www.youtube.com/watch?v=CzKmLvvuYBU> [Accessed 5 January 2012].

Recommended ReadingDuBrin, A. J., 2008. • Essentials of Management, Cengage Learning, p.630.Sharma, S. C., 2006.• Operation Research: Pert, Cpm & Cost Analysis, Discovery Publishing House, p.314.Bateman, R. N., 2008.• Management 8E (Sie), Tata McGraw-Hill Education, p.819.

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Self Assessment _____________ is a process, which ensures smooth interplay of the functions of management.1.

Controllinga. Coordinationb. Management auditc. Management information systemd.

PERT technique of controlling takes care of the _______ aspect of the project.2. costa. planningb. timec. effectivenessd.

Break even analysis is a point at which there is _____________.3. noprofitnolossa. lossb. profitc. excess lossd.

PERT stands for ___________.4. Performance evaluation and review techniquea. Preview evaluation and review techniqueb. Performance evaluation and report techniquec. People evaluate review techniqued.

____________ is the process of examining various policies and action of the management on the basis of certain 5. specifiedobjectives.

Budget controla. Management auditb. PERTc. CPMd.

Which of the following statements is false?6. Verticalcoordinationisaprocesswhichflowsfromsuperiortosubordinates.a. Budgetary control is used by the management to obtain the objectives expressed as in the form of budget.b. The total cost in Break even analysis consist of direct and indirect cost.c. One of the objectives of management audit is to identify the defects or irregularities of management d. executives.

____________ helps the management in managerial decision-making by giving the right information at the 7. right time and in the right form.

Management information systema. Coordinationb. Controllingc. Management auditd.


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______________ is determining what is being accomplished, that is evaluating the performance and if necessary, 8. applying corrective measures so that the performance takes place according to plans.

Directinga. Controllingb. Motivatingc. Staffingd.


1. CoordinationA. It is an art for maintaining, harmonious relationship with society, its various

group and institutions as well as re-organising the moral responsibility for the business conduct.

2. Business ethics B. A process which ensures smooth interplay of the functions of management.

3. Management audit C. A process of examining various policies and action of the management on the basisofcertainspecifiedobjectives.

4. Budgetary control D. A pre-determined statement of management policy during a given period ,which provides a standard for comparison with results annually achieved.

1-A, 2-B, 3-C, 4-Da. 1-B, 2-A, 3-C, 4-Db. 1-D, 2-C, 3-B, 4-Ac. 1-A, 2-C, 3-B, 4-Dd.

CPM stands for____________.10. Critical path meansa. Central path methodb. Critical path methodc. Central peace methodd.

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Chapter VII

Globalisation and the Manager

Aim


introduce the concept of globalisation•

explain the implications of globalisation•

discuss three key reasons for the spread of globalisation•

Objectives


identify the constraints of globalisation•

recognisethebenefitsofglobalisation•

analyse the barriers to international trade•

Learning outcome


understand the challenges faced by management in a global enterprise•

enlist the entry modes of a foreign market•

locate the • appropriate location for the enterprise


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7.1 The Process of GlobalisationGlobalisation is the process whereby national economies and business systems are becoming deeply interlinked with each other. The world is moving away from relatively independent national economies toward a single global system. The process of globalisation, however, has markedly accelerated since the 1980s. There are three main reasons for this:

the spread of market-based economic systems•the decline of barriers to international trade and foreign direct investment•falling costs of communication and transportation•

7.1.1 The Spread of Market Based SystemsIn a market economy, such as that of the United States, most businesses are privately owned; prices are set by the interaction of supply and demand; and government regulation is limited to ensuring that competition between individual enterprises is free and fair and that the system does not produce outcomes judged to be unacceptable by society.

The shift toward market-based systems has four main elements: privatisation of state owned enterprises•dismemberment of former state-owned monopolies•deregulation of markets (including abandonment of price controls and laws restricting investment by foreign •enterprises)establishment of a legal system that supports private enterprise and protects property rights•

For example, in Brazil the state-owned telecommunications monopoly was privatised and split into 12 separate companies that could compete with each other; the government also allowed foreign telecommunications companies to enter the Brazilian market.

The worldwide shift toward market-based economic systems has supported globalisation. Market economies are more open to foreign investment and international trade than the socialist alternative. Moreover, the transformation of economies such as China’s and India’s to more open systems has created a plethora of opportunities and threats for Western businesses. Outsourcing of manufacturing and service activities to these nations has accelerated, as have investments in these nations. China in particular has become an engine of global economic growth, a major market for many imports (particularly commodities such as oil), and a source of substantial exports.

7.1.2 Falling Barriers to Trade and InvestmentA key opinion of market-based economic systems is the belief that removing barriers to international trade and foreign direct investment is in the best interests of all nations that participate in a global economic system. International trade occurs whenever a good or service is sold across national borders. Foreign direct investment refers to investments by a company based in one nation in business activities in another nation. The global shift toward market-based systems has been accompanied by a decline in barriers to international trade and foreign direct investment, a surge in such trade and investment, and an increase in the economic interdependence between nations.

Trade barriers take two main forms namely: The application of tariffs to imports from a foreign country •Quotas•

Tariffs are taxes on imports, which raise their prices and make them less attractive. Quotas are limits on the number of items of a good that can be imported from a foreign nation.

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7.1.3 Tumbling Communication and Transport SystemThe lowering of barriers to international trade and FDI made globalisation a theoretical possibility; technological change has made it a tangible reality. Over the past 30 years, global communications have been revolutionised bydevelopmentsinsatellite,opticalfibre,andwirelesstechnologies,aswellastheInternet.Thecostsofglobalcommunications are plummeting, which lowers the costs of coordinating and controlling a global organisation.

The rapid growth of the World Wide Web is the latest expression of this development. Included in the expanding volumeofWeb-basedtrafficisagrowingpercentageofcross-bordertrade.Viewedglobally,theWebisemergingas an equaliser. It rolls back some constraints of location, scale, and time zones. The Web makes it much easier for buyersandsellerstofindeachother,wherevertheymaybelocatedandwhatevertheirsize.TheWeballowsbothsmall and large businesses to expand their global presence at a lower cost than ever before.

In addition to developments in communication technology, several major innovations in transportation technology have occurred since the 1950s. The most important are probably the development of commercial jet aircraft and super-freightersandtheintroductionofcontainerisation,whichsimplifiestrans-shipmentfromonemodeoftransportto another.

7.2 Implications of GlobalisationThe implications of the trends are profound. First, these trends have resulted in a massive surge in the volume of international trade and foreign direct investment.

7.2.1 The Globalisation of ProductionThe globalisation of production refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production (such as labour, energy, land, and capital).Bydoingthis,firmshopetolowertheiroverallcoststructureandimprovethequalityorfunctionalityoftheir products, allowing them to compete more effectively.

7.2.2 The Globalisation of MarketsThe globalisation of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace. Falling barriers to international trade have made it easier to sell internationally. It has been argued for some time that the tastes and preferences of consumers in different nations are beginning to converge, thereby helping to create a global market. Consumer products such as Citigroup credit cards, Coca-Cola soft drinks, Sony PlayStation video games, McDonald’s hamburgers, and Starbucks coffee are frequently cited as examples of thistrend.FirmssuchasCitigroup,Coca-Cola,McDonald’s,Starbucks,andSonyaremorethanjustbeneficiariesof this trend; they have also facilitated it. By offering the same basic products worldwide, they help create a global market.

Inmanyglobalmarketsthesamefirmsfrequentlyconfronteachotherascompetitorsinnationafternation.Ifonefirmmoves into a nation that is not currently served by its rivals, those rivals are sure to follow to prevent their competitor fromgaininganadvantage.Asfirmsfolloweachotheraroundtheworld,theybringwiththemmanyoftheassetsthatservedthemwellinothernationalmarkets—includingtheirproducts,operatingstrategies,marketingstrategies,andbrandnames—creatingsomehomogeneityacrossmarkets.Thusgreateruniformityreplacesdiversity.

7.2.3 Technology: the Great FacilitatorDue to technological innovations the real costs of information processing and communication have fallen dramatically. These developments allow managers to create and then manage a globally dispersed production system, further facilitating the globalisation of production. A worldwide communication network has become essential for many international businesses. The Internet has been a major force facilitating international trade in services.


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In addition to the globalisation of production, technological innovations have also facilitated the globalisation of markets. Low-cost global communication networks such as the World Wide Web are helping to create electronic global marketplaces. Inexpensive transportation has made it more economical to ship products around the world, thereby helping to create global markets.

7.3 Constraints on GlobalisationGlobalisation is not inevitable. Powerful countervailing forces are constraining the pace at which production and markets are becoming global. These constraints limit the ability of managers to disperse production activities to locations in the world where they can be performed at the lowest cost, as well as managers’ ability to treat the entire world as a single homogeneous marketplace.

7.3.1 Protectionist CountertrendsThe worldwide march toward market-based economic systems with few or no barriers to cross-border trade and investmentisnotguaranteedtocontinue.Historyisfullofreversalsawayfromprogressivetrends.Thefirstbloomof modern global trade in the late 1800s and early 1900s was brought to an end by protectionist policies in major trading nations during the 1920s and 1930s, which led to a slump in international trade and helped usher in the Great Depression.

The gains from international trade are widely distributed, but the pain is concentrated in a few sectors where people lose their jobs. Despite the substantial theory and evidence in support of free trade, some politicians would like to engineer a return to the days of high barriers to cross-border trade and investment, which would inhibit the process of globalisation. Indeed, there is still substantial protectionism in the world economy.

The rise of China as a major export power is also straining the world trading system, much as the rise of Japan did in the 1980s, and is leading to renewed calls for protectionism against “unfair” competition. If some of the advances of the last 50 years are turned back and barriers to cross-border trade and investment are raised, national markets will once more be segmented from each other, and the globalisation of production and markets will stall. Such a scenario seems unlikely at present but is not impossible.

7.3.2 National Behaviour in Consumer BehaviourIt is important not to overstate the globalisation of markets. Many enterprises have discovered (at their cost) that foreign consumers differ from domestic consumers, and that accounting for these differences requires them to customise goods and services to better match local demand. In other words, truly global markets may be some way off.

For example, the American automobile market is very different from the European market. Driving in Europe you see few of the large SUVs so beloved by Americans. There are two good reasons for this: Gas prices are much higher in Europe, so fuel economy is valued over vehicle size and power, and smaller roads and parking spots in Europe’s historiccitiesandtownsmakesasmallercarmorepractical.Thus,eventhoughautomobilefirmssuchasToyotaand Ford might like to design cars they can sell the same way worldwide to realise substantial scale economies, reality requires that cars and their marketing be tailored to different regions.

7.3.3 National Differences in Business SystemsThere are still major differences between nations in business systems, legal systems, infrastructure, and overall level of economic development, and this works against treating the world as a single global marketplace. In the pharmaceutical industry, for example, Americans are used to seeing advertisements for drugs on television; but in many nations direct advertising of drugs to consumers is prohibited by law (the belief being that such advertising interferes with the doctor–patient relationship). Thus, pharmaceutical companies have to use different marketing strategies in different countries. Moreover, in many nations pharmaceuticals are still subject to government price controls,sofirmschargedifferentpricesindifferentnations(pricestendtobehigheriftheyarenotcontrolledbythe government). Competition can also vary from nation to nation.

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Distributionchannelsmayvarysignificantlyfromnationtonation,andthiscanrequiredifferentapproaches.WhereasCoca-Cola cans are distributed by trucks in much of the world, in parts of rural China they are distributed on the backs of motorcycles, and in Nepal on the backs of yaks or human porters.

Differences in income levels also have a major impact. In the West Unilever sells shampoo and soap in the larger bottles we are used to seeing in our supermarkets; but in poor nations such as India and much of Africa, it sells the same products in much smaller containers because local consumers cannot afford to purchase the larger ones.

Handling these differences requires adaptation, and the process of adaptation (customising the product offering, marketing message, sales strategy, pricing, and distribution system) runs counter to viewing the world as a single homogeneous global marketplace.

7.3.4 Differences in Social CultureIt is important to realise that differences in social culture across nations are often profound. As such, they make itharderforfirmstoviewtheworldmarketashomogeneousandmoredifficulttomanageoperationsindifferentcountries. By social culture we mean the system of values and norms that are held in common by people living in a society. Values are abstract ideas about what a group believes to be good, right, and desirable; they are shared assumptions about how things ought to be. Norms are the social rules and guidelines that prescribe appropriate behaviour in particular situations.

Managers need to be sensitive to cultural differences across nations, and they need to understand how cultural differences can require adaptation not only of marketing and sales strategy, but also of basic management practices.

7.4TheBenefitsofGoingGlobalAs globalisation progresses, an increasing number of businesses are expanding across national borders, becoming multinational enterprises in the process. A multinational enterprise (MNE) is any business that has productive activities in two or more countries. There are four main reasons why the managers of many enterprises, both large and small, seek to expand their operations across national borders:

afirmexpandthemarketforitsproducts•realise scale economies•location economies•benefitfromgloballearning•

7.4.1 Expanding the MarketsInternationalexpansionenlargesthemarketafirmcanaddress,enablingittoincreaseitssalesandprofitsfaster.

Many enterprises develop a core skill at home and then try to earn greater returns from that competency by applying it to foreign markets where indigenous competitors lack the same skills. Thus McDonald’s developed a core competency in managing fast-food franchise operations in the United States and then earned greater returns from that competency by entering foreign markets that lacked American-style fast-food restaurants. Similarly, Procter & Gamble established core competencies in the development and mass marketing of household consumer products, including shampoos, detergents, and diapers, and it has earned greater returns from those competencies by applying themtoforeignmarketsthatlackedenterpriseswiththesameskillset.Inshort,whenthemanagersatafirmhavebuilt a valuable competency or skill, going global is often the best way to maximise the return on their investment in that skill.


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7.4.2 Realising Scale EconomiesThe larger sales base associated with serving a global market can allow enterprises to attain economies of scale, lowertheircosts,andboosttheirprofits.Intheautomobileindustry,forexample,anefficientlyscaledfactoryisonedesignedtoproduceabout200,000unitsayear.Automobilefirmswouldprefertoproduceasinglemodelfromeach factory because this eliminates the costs associated with switching production from one model to another. If domestic demand for a particular model is only 100,000 units a year, the inability to attain a 200,000-unit output willdriveupaverageunitcosts.However,byservinginternationalmarketsandexportingsomeproduction,thefirmmay be able to push production volume up to 200,000 units a year, thereby reaping greater scale economies.Moregenerally,byservingdomesticandinternationalmarketsafirmmaybeabletoutiliseitsproductionfacilitiesmore intensively.

7.4.3 Realising Location EconomiesDifferent locations around the world are more or less suitable for performing different business activities. For example, Bangalore is a great location for performing software testing and debugging due to a high supply of software engineers, relatively low wage rates, the widespread use of English, and the fact that Bangalore is 12 timezonesawayfromtheAmericanWestCoast,wheremanysoftwarefirmsareconcentrated.Thus,softwarecodewritten during the day on the West Coast can be tested and debugged by engineers at night in Bangalore and sent back to programmers in America in the morning. As a result of these factors, Bangalore is home to India’s rapidly developingsoftwareindustryanditstwolargesthigh-technologyfirms:WiproandInfosys.

Location economies arise from exploiting such differences; they are the economies that arise from performing a business activity in the optimal location for that activity, wherever in the world that might be (transportation costs and trade barriers permitting). Locating a business activity in the optimal location can have one of two effects:

It can lower the costs of performing that activity.•Itcanenablethefirmtoaddvaluetoitsfinalproductofferingandthusbetterdifferentiateitsofferingfromthat•of competitors.

Thetaskfacingmanagersinaglobaleconomyistolookatthevariousactivitiesofafirmanddecidewhereintheworld they should be located to realise location economies.

Intheory,afirmthatrealiseslocationeconomiesbydispersingeachofitsdifferentactivitiestotheoptimallocationshouldhaveacompetitiveadvantageoverafirmthatbasesallofitsvaluecreationactivitiesatasinglelocation.Itshould be able to better differentiate its products and keep its cost structure lower than its single-location competitor. In a world where competitive pressures are increasing, such a strategy may become imperative for survival.

7.4.4 Global LearningSkills can be created anywhere within a multinational’s global network of operations, wherever people have the opportunity and incentive to try new ways of doing things. The creation of skills that help lower the costs of production, enhance perceived value, and support higher product pricing is not the monopoly of the corporate centre.

Leveraging the skills createdwithin subsidiaries and applying them to other operationswithin afirm’s globalnetwork may create value.

7.5 Management Challenges in the Global EnterpriseManagingaglobalenterpriserepresentsasignificantchallenge.Whenafirmgoesglobal,itencountersawholesetof decisions that managers in purely domestic enterprises do not face. These decisions include:

whether to treat theworldasa singlemarketorcustomise thefirm’sproducts to reflectdifferencesacross•nationsthe best mode for entering a foreign market•where to locate different business activities•how best to manage subsidiaries•

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7.5.1 Global Standardisation or Local CustomisationOne of the most important decisions managers face is whether to treat the world as a single market or customise productsfordifferentnations.Whenafirmtreatstheworldmarketasasingleentity,sellingthesamebasicproductaround the globe, we say that it is pursuing a global standardisation strategy. Alternatively, when an enterprise varies some aspect of its products or marketing messages to take country or regional differences into account, we say that itispursuingalocalcustomisationstrategy.Theglobalstandardisationstrategyenablesafirmtorealisesubstantialscale economies by mass-producing a standardised output and using the same marketing strategy worldwide. However, such a strategy ignores local differences in consumer tastes and preferences, local business systems and culture,andsoon.Ifsuchdifferencesareprofound,thefirmmaydobetterwithalocalcustomisationstrategy,eventhough that may mean fewer scale economies and higher costs. Choosing between these strategic postures is not easy,andfirmsoftenseekabalancebetweenstandardisationandcustomisation.

7.5.2 Entry ModeTherearefivemainmodesforenteringaforeignmarket:exporting,licensing,franchising,enteringajointventurewith a local enterprise, and setting up a wholly owned subsidiary. Exporting involves producing a good at home andthenshippingittoanothercountry.Licensinginvolvesanenterpriselicensingaforeignfirmtoproduceitsproduct in a country or region in return for royalty fees on any sales that the licensee makes. Franchising is similar to licensing, but here what is licensed to the foreign enterprise is not the right to produce a physical good, but the right to offer a service in a particular format. Franchising is popular among fast-food enterprises (like McDonald’s andKFC)aswellasinternationalhotelchains.Jointventuresareagreementsbetweenafirmanditsforeignpartnerto establish a new enterprise, the joint venture, in which they each take an equity stake. Wholly owned subsidiaries areforeignsubsidiariesthatare100percentownedbythefirm.

7.5.3 Locating ActivitiesAnother key decision is where to locate the various activities of the enterprise. Making the right choice involves two steps:

First,managershavetobreaktheoperationsofthefirmintodiscretestepsoractivities—suchasproductdesign,•purchasing, production, marketing, sales, service and customer care, and so on. Secondly, each activity has to be located in the best place given a consideration of factors such as country •differences in labour costs and infrastructure, transportation costs, tariff barriers, likely currency exchange rates, and strategic orientation. Managers need to evaluate the cost of performing an activity at a given location and howmuchvaluecanbeaddedtoaproductatacertainlocation—whichisnoteasy.

Moreover, the attractiveness of key locations changes over time. The attractiveness of locations varies over time as local economies advance (or decline), labour costs change, infrastructure is added, and exchange rates shift.

7.5.4 Managing People in the Multinational FirmManagingpeopleinamultinationalfirmrepresentsoneofthemostdifficulttasksfacingmanagers.Considerthemature multinational enterprise with activities in several different nations. Managers have to decide how best to staff foreignoperations—andspecificallywhetherseniormanagersshouldbenationalsoftheforeign(orhost)countrywhereoperationsarebasedorcomefromthehomecountryoftheenterprise.Ifafirmuseshomecountrypersonnelor expatriates as they are commonly known, it must prepare them for the foreign posts and make sure that their eventual return to the home country is well managed.

The inability of expatriate managers to adjust to foreign posts seems to be caused by a lack of cultural skills on the part of the managers being transferred.

Inaddition,managershavetodecidehowtovarythecompensationstructurefromnationtonationtoreflectdifferentlocal norms. They also have to think hard about how cultural differences will impact management practices in a nation.


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Managersalsohavetodecidewhatstaffingandmanagementdevelopmentprogramstoputinplacetomakethebestuseoftheirhumancapital.Nowadaysmanymultinationalfirmsaregravitatingtowardageocentricstaffingpolicythat seeks the best people for key jobs throughout the organisation, regardless of nationality. This can be compared to anethnocentricstaffingpolicy,inwhichallkeymanagementpositionsarestaffedbyhomecountrynationals,andapolycentricstaffingpolicy,wherekeymanagementpositionsinasubsidiaryarestaffedbyhostcountrynationals.

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SummaryThe worldwide shift toward market-based economic systems has supported globalisation. Market economies •are more open to foreign investment and international trade than the socialist alternative. A key opinion of market-based economic systems is the belief that removing barriers to international trade and •foreign direct investment is in the best interests of all nations that participate in a global economic system. Foreign direct investment refers to investments by a company based in one nation in business activities in •another nation.Tariffs are taxes on imports, which raise their prices and make them less attractive. •Quotas are limits on the number of items of a good that can be imported from a foreign nation.•The globalisation of production refers to the sourcing of goods and services from locations around the globe to •take advantage of national differences in the cost and quality of factors of production. The globalisation of markets refers to the merging of historically distinct and separate national markets into •one huge global marketplace.As Globalisation progresses, an increasing number of businesses are expanding across national borders, becoming •multinational enterprises in the process. Leveragingtheskillscreatedwithinsubsidiariesandapplyingthemtootheroperationswithinafirm’sglobal•network may create value.Therearefivemainmodesforenteringaforeignmarket:exporting, licensing,franchising,enteringa joint•venture with a local enterprise, and setting up a wholly owned subsidiary.

ReferencesGhauri, P., 2008. • Globalisation (Essential Managers). Dorling Kindersley.Okpara, J., 2008. • Globalisation of Business: Theories and Strategies for Tomorrow’s Managers. Adonis & Abbey Publishers Ltd.BBTVworldwide, 2008. • Globalization and Culture [Video Online] Available at: <http://www.youtube.com/watch?v=ztwpylKc840> [Accessed 11 January 2012].kakabadse, 2009. • What is the global manager? [Video Online] Available at: <http://www.youtube.com/watch?v=e6XDm8eeMt0&feature=results_main&playnext=1&list=PLA6AA76B67FCAE40F> [Accessed 11 January 2012].Reference for Business, 2012. • Globalization [Online] Available at: <http://www.referenceforbusiness.com/management/Ex-Gov/Globalization.html#b> [Accessed 11 January 2012]. KeepArticles.com, 2012. • What is Globalisation And its Impact On The Manager’s job [online] Available at: <http://www.keeparticles.com/what-is-globalisation-and-its-impact-on-the-managers-job_a13449.htm> [Accessed 11 January 2012].

Recommended ReadingRhinesmith, S., 1996. • A Manager’s Guide to Globalization: Six Skills for Success in a Changing World. McGraw-Hill Companies.Michie, J., 2003• . Handbook of Globalisation. Edward Elgar Pub.Knley, D., 2009. • Civilising Globalisation: Human Rights and the Global Economy. Cambridge University Press.


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Self AssessmentThe globalisation of markets refers to the merging of historically distinct and separate national markets into 1. one huge ________marketplace.

domestica. globalb. economicc. operationald.

The globalisation of production refers to the sourcing of goods and services from locations around the globe to 2. take advantage of national differences in the cost and quality of factors of __________.

productiona. processingb. distributionc. transportationd.

Which of the following statements is false?3. The worldwide shift toward market-based economic systems has supported globalisation. a. A worldwide communication network has become essential for many international businesses. b. The worldwide march toward market-based economic systems with few or no barriers to cross-border trade c. and investment is guaranteed to continue. Internationalexpansionenlargesthemarketafirmcanaddress,enablingittoincreaseitssalesandprofitsd. faster.

The inability of expatriate managers to adjust to foreign posts seems to be caused by a lack of ________skills 4. on the part of the managers being transferred.

technicala. interpersonalb. culturalc. businessd.

Theglobalstandardisationstrategyenablesafirmtorealisesubstantial________economiesbymass-producing5. a standardised output and using the same marketing strategy worldwide.

locationa. scaleb. market-basedc. investmentd.

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1. Tariffs A. It is the process whereby national economies and business systems are becoming deeply interlinked with each other.

2. Quotas B. These are taxes on imports, which raise their prices and make them less attractive.

3. Globalisation C. It refers to investments by a company based in one nation in business activities in another nation.

4. Foreign direct investment D. These are limits on the number of items of a good that can be imported from a foreign nation.

1-A, 2-D, 3-B, 4-Ca. 1-B, 2-D, 3-A, 4-Cb. 1-C, 2-D, 3-A, 4-Bc. 1-D, 2-B, 3-A, 4-Cd.

Which of the following are the economies that arise from performing a business activity in the optimal location 7. for that activity, wherever in the world that might be?

Scale economiesa. Global economiesb. Market economiesc. Location economiesd.

Which of the following statements is true?8. Amultinationalenterprise(MNE)isanybusinessthathasproductiveactivitiesinfiveormorecountries.a. The creation of skills that help lower the costs of production, enhance perceived value, and support higher b. product pricing is the monopoly of the corporate centre.Thetaskfacingmanagersinaglobaleconomyistolookatthevariousactivitiesofafirmanddecidewherec. in the world they should be located to realise scale economies.Norms are the social rules and guidelines that prescribe appropriate behaviour in particular situations.d.

In _________ economic systems is the believed that removing barriers to international trade and foreign direct 9. investment is in the best interests of all nations that participate in a global economic system.

market-baseda. production-basedb. need-basedc. product-basedd.

Leveragingthe___________createdwithinsubsidiariesandapplyingthemtootheroperationswithinafirm’s10. global network may create value.

planninga. skillsb. tasksc. interestsd.


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Chapter VIII

Organisational Changes and Development

Aim


explain the concept of organisational change•

identify the types of changes•

discuss the concept of ‘Total Quality Management’ (TQM)•

Objectives


explain the term organisational development•

evaluate the importance of innovation in an organisation•

analyse the types of organisation development (OD) interventions•

Learning outcomes


recognise the forces behind organisational change•

comprehend the change process•

enlist various • resistances to change

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8.1 Organisational ChangeOrganisational development efforts, whether facilitated by an outside expert or institutionalised and conducted on an ongoing basis, bring about planned change within organisations and teams. However, they are but one type of change that occurs in organisations, for change can be both, planned and unplanned and can occur in every dimension of the universe.

Planned change takes conscious and diligent effort on the part of the educator or manager. Kanter (1983) originated the concept of the change master: a person or organisation adept at the art of anticipating the need for and of leading productive change. Change will not occur unless the need for change is critical. Because individuals and organisations usually resist change, they typically do not embrace change unless they must. Organisational change is the “process by which organisations move from their present state to same desired future state to increase their effectiveness”.

Characteristics of change are as underA process and constant•Normal and constant•Vital if a company were to avoid stagnation•Is interdependent on organisational environment or culture•Fast and likely to increase further in the present competitive business•Vital if a company were to avoid stagnation•

Levels of changesIndividual-level change•Group-level change•Organisation-level change•

Importance of changeAn organisation should keep moving with the change. Even if the management does not want to change, external pressures force it to change. Change is inevitable and as well as pervasive.

PROCESSES

Leadership & Direction

PlanningNeed for change

Organisation & Resources

Behaviours

Systems & Controls

External Events

Readiness for

change

Implementing change

Fig. 8.1 Organisational change(Source:http://www.emeraldinsight.com/content_images/fig/1060190604009.png)


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Types of changes:Change falls into two broad categories:

Evolutionary change• :Thischangeisgradual,incrementalandspecificallyfocusedRevolutionary change:• This change is sudden, drastic and organisation-wide

Total quality management (TQM) is a type of change process through which organisations attempt to manage incremental improvements in the way work gets done.

8.1.1 Total Quality Management (TQM)TQMisatechniquedevelopedbyEdwardDemmingtoimprovetheefficiencyofflexibleworkteams.Thebroadgoal of TQM is continuous improvement. TQM aims to impress upon workers the importance of continuously improvingtheefficiencyoftheproductionprocessinordertoreducecosts,improvequality,andreducewaste.

TQM is a rational technique which is driven by hard statistical data on the need for change. TQM seeks to introduce change through four key components:

Systems• : The need for change in the system is revealed by statistical process control and benchmarking. Statistical processcontrolistheaccurateandcontinuousmeasurementofqualityandistypifiedbythemeasurementoffrequency of failures. Benchmarking is the activity of using the achievements of some other organisation that is very successful in delivering quality as a model of what the company can achieve.Processes: TQM • regards every activity of the organisation as a point of a process. In so doing, it encourages the constant review of processes through project improvement, waste elimination, and process chain re-engineering.People: TQM • Organisations value their employees both as individuals as well as for their contribution to the growth of the organisation. The value placed on the quality of individuals is demonstrated through hiring the best, enabling life-long learning, elimination of specialisation and so on.Management: TQM • requires at the top management vision and mission for the organisation, commitment for quality, empowering employees, and open mind for recognising and appreciating achievers.

8.1.2 Forces of Change in OrganisationChangehasbecomethenorminmostorganisations.Theyareclassifiedintotwocategoriesasbelow:

External forces•Globalisation �Workforces diversity �Technological change �Managing ethical behaviour �Government politics �Competition �Scarcity of resources �

Internal forces•Organisational silence �Failing effectiveness �Crisis �Changing employee expectation �Change in the work climate �

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8.2 Resistance to ChangeThere are many sources of resistance to change in organisations. The forces which resist the changes are categorised into four sources as listed below.

Organisation-level resistance to change•Organisational structure �Organisational culture �Organisational strategy �Over-determination �

Sub-unit-level resistance to change•Differences in orientation �Powerandconflict �

Group-level obstacles to change•Group norms �Group cohesiveness �Groupthink �

Individual-level resistance to change•Cognitive biases �Uncertainty �Fear of loss �Selective Perception �Habit �Logical reasons �

The change processThechangeprocessconsistsofsixstages,asshowninthefigurebelow:

Planning the change

Implementing the change

Following up on the change

Becoming aware of the pressure for change

Recognising the need for change

Diagnosing the problem

Fig. 8.2 Process of change


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8.3 Organisational Development (OD)Organisationaldevelopment(OD)isafieldofstudythataddresseschangeandhowitaffectsorganisationsandtheindividuals within those organisations. Effective Organisational development can assist Organisations and individuals to cope with change. Strategies can be developed to introduce planned change, such as team-building efforts, to improve Organisational functioning. Organisational development assists organisations in coping with the turbulent environment, both internally and externally, frequently doing so by introducing planned change efforts.

Organisational development is a relatively new area of interest for business and the professions.While the professional development of individuals has been accepted and fostered by a number of organisations for some time, there is still ambiguity surrounding the term organisational development. The basic concept of both professional development and organisational development is the same, however, with an essential difference in focus. Professional development attempts to improve an individual’s effectiveness in practice, while organisational development focuses on ways toimproveanorganisation’soverallproductivity,humanfulfilment,andresponsivenesstotheenvironment.Thesegoalsareaccomplishedthroughavarietyofinterventionsaimedatdealingwithspecificissues,aswellasthroughongoing processes.

Basic characteristics of ODPlanned change•Comprehensive change•Emphasis upon work groups•Long-range change •Participation of a change agent•Emphasis on intervention•Collaborative management•Organisational culture•Action research•

Pre-requisites for ODPerceptions of organisational problems by key people and the relevance of behavioural sciences in solving •these problems.The introduction into the system of a behavioural science consultant•Participation of work teams, including the formal leader.•An open, educational philosophy about the theory and technology of OD•Acknowledgement of the congruency between OD and many previous effective management practices•Development of internal OD resources and facilitative skills•Effective management of the OD process and stabilisation of changes•Monitoring the process and the measuring of results.•

8.3.1 OD InterventionsOD interventions are also called as techniques which have following characteristics:

They are based on valid information about the functioning of the organisation, usually collected by the •employees.The intervention provides employees with opportunities to make their own choices regarding the nature of the •problems and their preferred solutions.Interventions are aimed at gaining the employees personal commitment to their choices.•

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There are four categories of interventions:Human process interventions: • The OD techniques in this category aim at improving employees’ interpersonal skills. The most widely used technique here is called sensitivity or T-group training. The objectives of sensitivity training are to provide the employees with increased awareness of their own behaviour and how others perceive them, greater sensitivity to the behaviour of others, and increased understanding of group processes.Techno structural interventions: • Experts in OD are increasingly relying on efforts to change the structures, methods, and job designs of organisations. It generally utilises the traditional OD action research approach, butfocusmoredirectlyonproductivityimprovementandefficiency.Theinterventionsthatarecommonlyputto use are:

Quality circles �TQM �Quality of work life programmes �

Human resource management interventions: • OD practitioners are increasingly involved in using action researchtoenableemployeeandchangetheirfirm’spersonnelpractices.Targetofchangeincludethefirm’sappraisal system, reward system, and workforce diversity programmes.Strategic interventions: • Integrated strategic management consists of four steps as listed below

Analysing current strategy and organisation design �Choosing a desired strategy and organisation design �Designing a strategic change plan �Implementing a strategic change plan �

8.3.2 Effectiveness of OD ProgrammingInanyorganisation,therearenumerousfactorstobeconsideredbeforeanyactionistakentoresolveaspecificproblem.Todeterminewhetheranactiontakenwaseffectiveornotisthereforedifficult.AsfarasODisconcerned,itisgenerallynotpossibleatthistimetoaccuratelytracechangesinorganisationaleffectivenessbacktospecificOD programmes. There are several reasons for this:

Itisdifficulttomeasurethenumber,nature,andmagnitudeofconfoundingvariables.•Pre-intervention measures of behaviour are not taken.•Those doing the evaluation of OD programmes have a vested interest in proving success.•

8.4 Innovation in OrganisationAcreative ideaneedstobeconvertedintoaproductso that it fulfilsneedsandwantsofusers.Theprocessofconvertingacreativeideaintoausefulproductiscalledinnovation.Specificallyinnovationmaybedefinedasthesuccessful implementation of creative ideas within an organisation.

In many ways, innovation is the most important source of competitive advantage for a business organisation. This is because innovation can create new products that better satisfy customer needs, improve the quality of existing products, or reduce the costs of making products customers want. The ability to develop innovative new products, processes, or business models gives a business a major competitive advantage, allowing it to differentiate its products and charge a premium price or lower its cost structure below that of its rivals. Competitors, however, attempt to imitate successful innovations and often succeed. Therefore, maintaining a competitive advantage requires a continuing commitment to innovation.

Generating successful innovationsManagers can take a number of steps to build innovation skills in their organisations and avoid failure. Six of the most important steps seem to be:

Buildingskillsinbasicandappliedscientificresearch.•Developing a good process for project selection and project management.•Using cross-functional integration.•


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Creating product development teams.•Implementing partly parallel development processes.•Placing a radically new technology in an autonomous organisation unit.•

Building skills in basic and applied research Building skills in basic and applied research requires the employment of research scientists and engineers and the establishment of a work environment that fosters creativity. A number of top companies try to achieve this by setting up university-style research facilities, where scientists and engineers are given time to work on their own research projects in addition to projects that are linked directly to ongoing company research. At Hewlett-Packard, for example, company labs are open to engineers around the clock. Hewlett-Packard even encourages its corporate researchers to devote 10 percent of company time to exploring their own ideas and does not penalise them if they fail.

Project selection and management project management It is the overall management of the innovation process, from generation of the original concept through development andintofinalproductionandshipping.Projectmanagementrequiresthreeimportantskills:

The ability to generate as many good ideas as possible.•The ability to select among competing projects at an early stage of development so that the most promising •receive funding and potential costly failures are killed off.The ability to minimise time to market.•

Cross-functional integration Tight cross-functional integration between R&D, production, and marketing can help a company to ensure that:

Product development projects are driven by customer needs.•New products are designed for ease of manufacture.•Development costs are kept in check.•Time to market is minimised.•

Close integration between R&D and marketing ensures that product development projects are driven by the needs ofcustomers.Acompany’scustomerscanbeoneofitsprimarysourcesofnewproductideas.Theidentificationofcustomerneeds—particularlyunmetneeds—cansetthecontextwithinwhichsuccessfulproductinnovationtakesplace. As the point of contact with customers, the marketing function can provide valuable information. Moreover, integrating R&D and marketing is crucial if a new product is to be properly commercialised. Otherwise a company runs the risk of developing products for which there is little or no demand.

Integration between R&D and production can help managers ensure that products are designed with manufacturing requirementsinmind.Designformanufacturinglowersmanufacturingcostsandleaveslessroomformistakes—andthus can lower costs and increase product quality. Integrating R&D and production can help cut development costs and speed products to market. If a new product is not designed with manufacturing capabilities in mind, it may provetoodifficulttobuild.Inthatcasetheproductwillhavetoberedesigned,andbothoveralldevelopmentcostsandtimetomarketmayincreasesignificantly.

Product development teams One of the best ways to achieve cross-functional integration is to establish product development teams composed of representatives from R&D, marketing, and production. The objective of a team should be to take a product development project from the initial concept development to market introduction. A number of attributes seem to be important for a product development team to function effectively and meet all its development milestones.

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Partly parallel development processes One way to compress the time it takes to develop a product and bring it to market is to use a partly parallel development process. Traditionally product development processes have been organised sequentially, as illustrated in Fig.8.2. A problem with this kind of process is that product development proceeds without manufacturing issues in mind. Because the basic product design is completed prior to the design of a manufacturing process and full-scale commercialproduction,thereisnoearlyevaluationofmanufacturability.Consequentlythecompanymayfindthatitcannotefficientlymanufacturetheproductandhavetosenditbackforredesign.Cycletimelengthensasaproductbounces back and forth between stages.

Opportunity identification

Concept development

Product design

Process design

Commercial product

Fig. 8.3 A sequential process

To solve this problem, organisations can use a process similar to that illustrated in Fig.8.3. In a partly parallel development process, development stages overlap so that, for example, work starts on the development of the production process before the product design is complete. By reducing the need for expensive and time-consuming productredesign,suchaprocesscansignificantlyreducethetimeittakestodevelopanewproductandbringittomarket

Opportunity identification

Concept development

Product design

Process design

Commercial production

Fig. 8.4 A partly parallel process

Creating an autonomous unit When a firmdevelops a quantum innovation—one thatmight usher in a technological paradigm shift in itsindustry—thereisadangerthatmanagerswithinthefirmmayfeartheconsequencesofunleashingthisinnovationontheestablishedbusinessoftheenterprise.Theymayworrythattheinnovationwillcannibalisesalesofthefirm’sestablished business.

In addition, a quantum innovation often requires a radically different business model. It may require a different manufacturing system, a different distribution system, and different pricing strategies from those used by the established business. For example, the business model associated with digital cameras is radically different from thebusinessmodelassociatedwithKodak’straditionalfilmbusiness.Researchsuggeststhatitisalmostimpossiblefor two distinct business models to coexist within the same organisation. Almost inevitably the established business model will suffocate the business model associated with the disruptive technology.


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The solution to these problems is to separate the new technology and place it in its own autonomous division. For example, during the early 1980s Hewlett-Packard built a successful laserjet printer business. Then HP invented inkjet technology. Some people in the company believed inkjet printers would cannibalise sales of laserjets and consequently argued that HP should not produce inkjets. Fortunately for HP, senior managers at the time saw inkjettechnologyforwhatitwas:apotentiallypowerfuldisruptivetechnology.TheyallocatedsignificantR&Dfunds toward its commercialisation. Furthermore, when the technology was ready for market introduction, they established an autonomous inkjet division at a different geographic location with its own manufacturing, marketing, and distribution activities. HP managers accepted that the inkjet division would take sales away from the laserjet division and decided that it was better to have an HP division cannibalise the sales of another HP division than have those sales taken by another company.

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SummaryOrganisational change is the “process by which organisations move from their present state to some desired •future state to increase their effectiveness”.Change falls into two broad categories, namely: evolutionary and revolutionary changes.•Total Quality Management (TQM) is a type of change process through which organisations attempt to manage •incremental improvements in the way work gets done.TQM seeks to introduce change through four key components: systems, processes, people, and management.•There are many sources of resistance to change in organisations. The forces which resist the changes are •categorised into four sources as: organisation-level resistance to change, sub-unit level resistance to change, group-level obstacles to change, and individual-level resistance to change.OrganisationalDevelopment(OD)isafieldofstudythataddresseschangeandhowitaffectsorganisationsand•the individuals within those organisations. Organisational Development interventions are the set of structured activities where selected organisational •units gets engaged with task or set of tasks that are either directly or indirectly related to the development of the organisation. Innovationmaybedefinedasthesuccessfulimplementationofcreativeideaswithinanorganisation.•Managers can take a number of steps to build innovation skills in their organisations and avoid failure. Six of •themostimportantstepsare:buildingskillsinbasicandappliedscientificresearch,developingagoodprocessfor project selection and project management, using cross-functional integration, creating product development teams, implementing partly parallel development processes, and placing a radically new technology in an autonomous organisation unit.

Referencesignousoms., 2008. • Organisational Design Development and Change part-1 [Video Online] Available at: <http://www.youtube.com/watch?v=mhyVhUMnKsU> [Accessed 5 January 2012].ignousoms., 2008. • Organisational Design Development and Change part-2 [Video Online] Available at: <http://www.youtube.com/watch?v=7kz0ZaIKD80> [Accessed 5 January 2012].Cummings, T., 2008. • Organisation Development and Change, 9th ed., South-Western College Pub.Collins, D., 1998. • Organisational Change: Sociological Perspectives. Routledge.Rouda, R. and Kusy, M., 1995. • Organisation Development The management of change [Online] Available at: <http://alumnus.caltech.edu/~rouda/T3_OD.html> [Accessed 5 January 2012].jeritt.msu.edu., • Organisational Change and Develeopment [pdf] Available at: <http://jeritt.msu.edu/documents/TallmanWithoutAttachment.pdf> [Accessed 5 January 2012].

Recommended ReadingMiller, D., 2011. • Successful Change: How to Implement Change Through People. BookPOD.French, W. and Bell, C., 1998. • Organisation Development: Behavioral Science Interventions for Organisation Improvement. Prentice Hall.Huse, E., 1989. • Organisation Development and Change, 4th ed., West Publishing Co.


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Self Assessment________ aims to impress uponworkers the importance of continuously improving the efficiency of the1. production process in order to reduce costs, improve quality, and reduce waste.

Total quality managementa. Organisational developmentb. Organisational changec. Resistance to changed.

The process of converting a creative idea into a useful product is called ___________.2. developmenta. inventionb. innovationc. managementd.

Which of the following is not an external change to the organisation?3. Globalisationa. Workforces diversityb. Crisesc. Managing ethical behaviourd.

The objectives of ___________ are to provide the employees with increased awareness of their own behaviour 4. and how others perceive them.

organisational developmenta. action researchb. sensitivity trainingc. TQMd.

TQM is a rational technique which is driven by hard _________ data on the need for change.5. methodicala. rationalb. numericalc. statisticald.

___________ process by which organisations move from their present state to same desired future state to 6. increase their effectiveness.

Organisational developmenta. Organisational changeb. Innovationc. OD interventiond.

___________ generally utilises the traditional OD action research approach, but focus more directly on 7. productivityimprovementandefficiency.

Human process interventionsa. Techno-structural interventionsb. Human resource management interventionsc. Strategic interventionsd.

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Which of the following statement is FALSE?8. The broad goal of TQM is continuous improvement a. TQM organisations value their employees both as individuals as well as for their contribution to the growth b. of the organisation Difference in orientation is an organisation-level resistance to changec. Innovationcanbedefinedasthesuccessfulimplementationofcreativeideaswithinanorganisation.d.

__________the activity of using the achievements of some other organisation that is very successful in delivering 9. quality as a model of what the company can achieve.

Benchmarkinga. Action researchb. Sensitivity trainingc. Statistical processd.

WhichofthefollowingdoesnotfitasaprerequisiteforOrganisationalDevelopment?10. Development of internal OD resources and facilitative skillsa. Fast and likely to increase further in the present competitive businessb. Monitoring the process and the measuring of resultsc. Participation of work teams, including the formal leaderd.


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Case Study I

PrakashisanengineerinalargedesignengineeringfirmcalledADPEngineers.Hebelongstoapoorbutdisciplinedfamily. The family has a rural background. Prakash is intelligent, capable and hard working. But his main drawback is that he does not want to take risks. He hesitates to take decisions on his own, and often brings routine and petty problems to his boss or to peers for decisions. He lacks in decision making and planning of routine work. As the planning of work is not carried out properly, the whole production process gets hampered. Prakash takes longer time for making decisions and is not aware how to carry out quick decisions. That is why, the production process gets affected.Wheneverhedoesadesignjoin,hebringsitinroughdrafttohisbossforapprovalbeforefinalisingit.

Since Prakash is capable person, his boss wants to motivate him to be more independent in his work. The boss believes that this approach will improve Prakash’s performance, relieve the boss from extra routine, and give Prakash more selfconfidence.However,thebossisnotsurehowtogoaboutmotivatingPrakashtotakeinitiativeinhiswork.

QuestionsHad you been Prakash’s boss, how would you have motivated Prakash? 1. AnswerPrakash as an engineer is hard working and intelligent. However, he lacks in decision making and planning of routine work. The boss wants to motivate him, and reduce the extra burden on him.As a boss, I would motivate Prakash by devising the following motivation plan:

IwouldtakePrakashintoconfidenceandconveyhiminverycleartermsthatheisacapable,hardworking �and intelligent engineer and he should take decisions on his own.Iwouldassurehimthatasaboss,Iwouldfirmlysupporteverydecisiontakenbyhimindividually. �I will provide him with financial benefits, job security and promotion for his successful working �achievements.Asaboss,Iwouldassurehimthat,thecompanyhasfullconfidenceinhiscapacityandintelligence. �I would tell Prakash that his rural background won’t act as hindrance in his way of his progress. �

What are the advantages of planning?2. AnswerThe advantages of planning are as follows:

Better utilisation of resources �Helpful in achieving objectives �Minimises future uncertainties �Improved competitive strength �Effective control �Growth and improvement �Delegation of authority facilitated �Encourages innovation �

What are the steps involved in decision making that Prakash should follow to take active decisions in the 3. production?AnswerPrakash should undertake following steps to make quick decisions:

Identificationofaproblem �Diagnosing the problem �Collect and analyse the relevant information �Figure out the alternative course of action �

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Analyse and screen the objectives �Selection of best alternative �Conversion of decision into action �Implementation �Verifying the decision �


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Case Study II

Globalisation

Planet StarbucksThirty years ago Starbucks was a single store in Seattle’s Pike Place Market selling premium roasted coffee. Today, it is a global roaster and retailer of coffee with over 8,400 stores, more than 2,000 of which are found in 31 countries outside the United States. Starbucks Corporation embarked on its current course in the 1980s, when the company’s director of marketing, Howard Schultz, came back from a trip to Italy enchanted with the Italian coffeehouse experience. Schultz, who later became CEO, persuaded the company’s owners to experiment with the coffeehouse format- and the Starbucks experience was born. The basic strategy was to sell the company’s own premium roasted coffee, along with freshly brewed espresso-style coffee beverages, a variety of pastries, coffee accessories, teas, and other products, in a tastefully designed coffeehouse setting. The company also stressed providing superior customer service. Reasoning that motivated employees provide the best customer service, Starbucks’ executives devoted a lot of attention to employee hiring and training programs and progressive compensation policies that gave even part-timeemployeesstockoptiongrantsandmedicalbenefits.TheformulametwithspectacularsuccessintheUnited States, where Starbucks went from obscurity to one of the best-known brands in the country in a decade.

In1995,withalmost700storesacrosstheUnitedStates,Starbucksbeganexploringforeignopportunities.Itsfirsttarget market was Japan. Although Starbucks had resisted a franchising strategy in North America, where its stores are company owned, Starbucks initially decided to license its format in Japan. However, the company also realised that a pure licensing agreement would not give Starbucks the control needed to ensure that the Japanese licensees closely followed Starbucks’ successful formula. So the company established a joint venture with a local retailer, Sazaby Inc. Each company held a 50 percent stake in the venture, Starbucks Coffee of Japan. Starbucks initially invested$10millioninthisventure,itsfirstforeigndirectinvestment.TheStarbucksformatwasthenlicensedtothe venture, which was assigned responsibility for growing Starbucks’ presence in Japan.

To make sure the Japanese operations replicated the Starbucks experience in North America, Starbucks transferred some employees to the Japanese operation. The licensing agreement required all Japanese store managers and employees to attend training classes similar to those given to U.S. employees. The agreement also required that stores adhere to the design parameters established in the United States. In 2001, the company introduced a stock option planforallJapaneseemployees,makingitthefirstcompanyinJapantodoso.ScepticsdoubtedthatStarbuckswould be able to replicate its North American success overseas; but by 2005 Starbucks had almost 550 stores in Japan, and it plans to continue opening them at a brisk pace.

After getting its feet wet in Japan, the company began an aggressive foreign investment program. In 1998, it purchased Seattle Coffee, a British coffee chain with 60 retail stores, for $84 million. An American couple, originally from Seattle, had started Seattle Coffee with the intention of establishing a Starbucks-like chain in Britain. In the late 1990s Starbucks opened stores in Taiwan, China, Singapore, Thailand, New Zealand, South Korea, and Malaysia.In Asia, Starbuck’s most common strategy was to license its format to a local operator in return for initial licensing fees and royalties on store revenues. Starbucks also sold coffee and related products to the local licensees, who then resold them to customers. As in Japan, Starbucks insisted on an intensive employee training program and strictspecificationsregardingtheformatandlayoutofthestore.However,Starbucksbecamedisenchantedwithsome of the straight licensing arrangements and converted several into joint venture arrangements or wholly owned subsidiaries. In Thailand, for example, Starbucks initially entered a licensing agreement with Coffee Partners, a local Thai company. Under the terms of the licensing agreement, Coffee Partners was required to open at least 20 StarbuckscoffeestoresinThailandwithinfiveyears.However,CoffeePartnersfounditdifficulttoraisefundsfromThaibankstofinancethisexpansion.InJuly2000StarbucksacquiredCoffeePartnersforabout$12million.Itsgoalwas to gain tighter control over the expansion strategy in Thailand. A similar development occurred in South Korea, where Starbucks initially licensed its format to ESCO Korea Ltd. in 1999. Although ESCO soon had 10 successful stores open, Starbucks felt that ESCO would not be able to achieve the company’s aggressive growth targets, so in December 2000 it converted the licensing arrangement into a joint venture with Shinsegae, the parent company of ESCO. The joint venture enabled Starbucks to exercise greater control over the growth strategy in South Korea and

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tohelpfundthatoperationwhilegainingthebenefitsofalocaloperatingpartner.ByOctober2000Starbuckshadinvested some $52 million in foreign joint ventures.

By the end of 2002, with more than 1,200 stores in 27 countries outside North America, Starbucks was initiating aggressive expansion plans into mainland Europe. The company’s plans called for opening stores in six European countries,includingthecoffeeculturesofFranceandItaly.AsitsfirstentrypointontheEuropeanmainland(Starbuckshad 150 stores in Great Britain), Starbucks chose Switzerland. Drawing on its experience in Asia, the company entered a joint venture with a Swiss company, Bon Appetit Group, Switzerland’s largest food service company. Bon Appetit was to hold a majority stake in the venture, and Starbucks would license its format to the Swiss company using an agreement similar to those it had used successfully in Asia. This was followed by a joint venture in Germany with KarstadtQuelle, one of the country’s largest retailers. Under that agreement Starbucks held 18 percent of the equity in the venture, and Karstadt held the remainder. In early 2005, with more than 2,000 international stores, Starbucks announced that it believed there was the potential for up to 15,000 stores outside the United States.

(Source: Hill, W. and McShane, S., 2008. Principles of Management. McGraw-Hill Irwin.)

QuestionsWhatarethebenefitstoStarbucksfromexpandinginternationally?1. Why do you think Starbucks has been so successful internationally?2. Initially Starbucks expanded internationally by licensing its format to foreign operators. It soon became 3. disenchanted with this strategy. Why?Why do you think Starbucks has now elected to expand internationally primarily through local joint ventures 4. to which it licenses its format, as opposed to a pure licensing strategy?


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Case Study III

Managing Innovation and Change

London-based Reuters is a venerable company. Established in 1850 and devoted to delivering information around theworldbythefastestmeansavailable—whichin1850meantafleetof45carrierpigeons—bythelate1990sthecompany had developed into one of the largest providers of information in the world. Although, Reuters is known best to the public for its independent, unbiased news reporting, 90 percent of Reuters’ revenues are generated byprovidinginformationtotradersinfinancialmarkets.Inthe1990s,thecompanyusedaproprietarycomputersystemandadedicatedtelecommunicationsnetworktodeliverreal-timequotesandfinancialinformationtoReutersterminals—devicesthatanyselfrespectingfinancialtradercouldnotfunctionwithout.WhenReutersenteredthefinancialdatabusinessintheearly1970s,ithad2,400employees,mostofthemjournalists.Bythelate1990sitsemployeebasehadswelledto19,000,mostofwhowereonthefinancialandtechnicalside.Duringthisperiodof heady growth Reuters amassed some 1,000 products, often through acquisitions, such as foreign language data services, many of which used diverse and sometimes incompatible computer delivery systems.

The late 1990s were the high point for Reuters. Two shocks to Reuters’ business put the company in a tailspin. First was the Internet, which allowed newer companies, such as Thompson Financial Services and Bloomberg, to provide real-timefinancialinformationtoanycomputerwithanInternetconnection.Suddenly,Reuterswaslosingcustomersto a cheaper and increasingly ubiquitous alternative. The Internet was commoditising the asset on which Reuters hadbuiltitsbusiness:information.Thenin2001,thestockmarketbubbleofthe1990sfinallybroke;thousandsofpeopleinfinancialserviceslosttheirjobs;andReuterslost18percentofitscontractsforterminalsinasingleyear.Suddenlyacompanythathadalwaysbeenprofitablewaslosingmoney.

In2001,ReutersappointedTomGlocerasCEO.Thefirstnon-journalistCEOinthecompany’shistory,Glocer,anAmericaninaBritish-dominatedfirm,wasdescribedas“notpartoftheoldboys’network.”Glocerhadlongadvocated that Reuters move to an Internet-based delivery system. In 2000, he was put in charge of rolling out such asystemacrossReutersbutmetsignificantresistance.Theoldproprietarysystemhadworkedwell,anduntil2001ithadbeenextremelyprofitable.Manymanagersweretherefore,reluctanttomovetowardaWeb-basedsystemthatcommoditisedinformationandhadlowerprofitmargins.Theywereworriedaboutproductcannibalisation.Glocer’s message was that if the company didn’t roll out a Web-based system, Reuters’ customers would defect in droves. In 2001 his prediction seemed to be coming true.

Once in charge, Glocer again pushed an Internet-based system, but he quickly recognised that Reuters’ problems randeeper.In2002,thecompanyregistereditsfirstannuallossinhistory,£480million,andGlocerdescribedthebusinessas“fightingforsurvival.”Realisingthatdramaticactionwasneeded,inFebruary2003,Glocerlauncheda three-year strategic and organisational transformation program called Fast Forward. It was designed to return Reuterstoprofitabilitybystreamliningitsproductoffering,prioritisingwhatthecompanyfocusedon,andchangingitsculture.Thefirstpartof theprogramwasanannouncement that3,000employees(nearly20percentof theworkforce) would be laid off.

TochangeitscultureReutersaddedanelementtoitsFastForwardprogramknownas“LivingFast,”whichdefinedkey values such as passionate and urgent working, accountability, and commitment to customer service and team. Atwo-dayconferenceof140managers,selectedfortheirpositionsofinfluenceandbusinessunderstandingratherthan their seniority, launched the program. At the end of the two days the managers collectively pledged to buy half a million shares in the company, which at the time were trading at an all-time low.

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Aftertheconferencethemanagerswerefiredup;butgoingbacktotheirregularjobs,theyfounditdifficulttoconveythatsenseofurgency,confidence,andpassiontotheiremployees.Thisledtothedevelopmentofafollow-upconference: a one-day event that included all company employees. Following a video message from Glocer and a brief summary of the goals of the program, employees spent the rest of the day in 1,300 cross-functional groups addressing challenges outlined by Glocer and proposing concrete solutions. Each group chose one of “Tom’s challenges” to address.Manyemployeegroupscameupwithideasthatcouldberapidlyimplemented—andwere.Moregenerally,the employees asked for greater clarity in product offerings, less bureaucracy, and more accountability. With this mandate managers launched a program to rationalise the product line and streamline the company’s management structure. In 2003 the company had 1,300 products. By 2005 Reuters was focusing on 50 key strategic products, all delivered over the Web. The early results of these changes were encouraging. By the end of 2004 the company recordeda£380millionprofit,andthestockpricehadmorethandoubled.

(Source: Hill, W. and McShane, S., 2008. Principles of Management. McGraw-Hill Irwin.)

QuestionsWhat technological paradigm shift did Reuters face in the 1990s? How did that paradigm shift change the 1. competitiveplayingfield?Why Reuters was slow to adopt Internet-based technology?2. Why do you think Tom Glocer was picked as CEO? What assets did he bring to the leadership job?3. What do you think of Glocer’s attempts to change the strategy and organisational culture at Reuters? Was he 4. on the right track? Would you do things differently?


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jeritt.msu.edu., • Organisational Change and Development [pdf] Available at: <http://jeritt.msu.edu/documents/TallmanWithoutAttachment.pdf> [Accessed 5 January 2012].kakabadse, 2009. • What is the global manager? [Video Online] Available at: <http://www.youtube.com/watch?v=e6XDm8eeMt0&feature=results_main&playnext=1&list=PLA6AA76B67FCAE40F> [Accessed 11 January 2012].KeepArticles.com, 2012. • What is Globalisation And its Impact On The Manager’s job [online] Available at: <http://www.keeparticles.com/what-is-globalisation-and-its-impact-on-the-managers-job_a13449.htm> [Accessed 11 January 2012]. Koontz, 1998. • Essentials of Management 8E, Tata McGraw-Hill Education, p.464.leadershipmentor, 2009.• Leadership Styles For New Leader Success [Video Online] Available at: <http://www.youtube.com/watch?v=kDIrNItEiuc> [Accessed 8 October 2010].Management study guide, 2008. • Staffing function of management [Online] Available at: <http://www.managementstudyguide.com/staffing-function.htm>[Accessed5January2012].Managementstyleguide.com, 2008. • Directing function of management [Online] Available at: <http://www.managementstudyguide.com/directing_function.htm> [Accessed 8 October 2010]Morden, T., 2004. • Principles of management, Ashgate Publishing, Ltd., p.576.nptelhrd, 2008• . Lecture-3 Management By Objectives [Video Online] Available at: <http://www.youtube.com/watch?v=p8LxBQDPvAQ> [Accessed 3 January 2012].Okpara, J., 2008. • Globalisation of Business: Theories and Strategies for Tomorrow’s Managers. Adonis & Abbey Publishers Ltd.parainocs, 2011.• Roles and function of directing.wmv [Video Online] Available at: <http://www.youtube.com/watch?v=38Nx2pnfbvw> [Accessed 8 October 2010].Ramasamy, T, 2008. • Principles of Management. Mumbai: Himalaya publications. Reference for Business, 2012. • Globalization [Online] Available at: <http://www.referenceforbusiness.com/management/Ex-Gov/Globalization.html#b> [Accessed 11 January 2012]. Rouda, R. and Kusy, M., 1995. Organisation Develeopment• .The management of change [Online] Available at: <http://alumnus.caltech.edu/~rouda/T3_OD.html> [Accessed 5 January 2012].Scribd.com, • Controlling and Process of Controlling [Online] Available at: <http://www.scribd.com/doc/47011734/Controlling-and-Process-of-Controlling> [Accessed 5 January 2012].SHSUOnline, 2011.• CPM and PERT Method [Video Online] Available at: <http://www.youtube.com/watch?v=CzKmLvvuYBU> [Accessed 5 January 2012].Thadeshwar, V., 2008• . Principles of Management [Online] Available at: <http://www.slideshare.net/thadeshvar/principles-of-management-presentation-731212> [Accessed 2 January 2012].Venkataramanan, T., 2012. • Organisation-theory [Online] Available at: <http://www.scribd.com/doc/4880211/Organisation-Theory> [Accessed 4 January 2011].Walonick, 1993. • Organisational Theory and Behavior [Online] Available at: <http://statpac.org/walonick/organisational-theory.htm> [Accessed 4 January 2011].Weber, M., 1997. T• he Theory of Social And Economic Organisation. Free press.websitedesigncreator, 2011. • Stages of decision making [Video Online] Available at: <http://www.youtube.com/watch?v=onk6QWZ9mtQ> [Accessed 3 January 2012].


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Recommended ReadingAnderson, D. and Sweeney, D., 2010. • An Introduction to Management Science, 13th ed., South-Western College Pub.Bateman, R. N., 2008.• Management 8E (Sie), Tata McGraw-Hill Education, p.819.Daft, R., 2009. • Organisation Theory and Design, 10th ed., South-Western College Pub.DuBrin, A. J., 2008. • Essentials of Management, Cengage Learning, p.630.French, W. and Bell, C., 1998. • Organisation Development: Behavioral Science Interventions for Organisation Improvement. Prentice Hall.Griffin,R.W.,2006.• Principles of Management, Cengage Learning, p.488.Griffin,R.W.,2007.• Fundamentals of Management, Cengage Learning, p.528.Hale, G., 2011. • Think Fast!: Accurate Decision-Making, Problem-Solving, and Planning in Minutes a Day. Wiley.Harrison, E., 1998. • The Managerial Decision-Making Process, 5th ed., South-Western College Pub.Hatch, M., 2006. • Organisation Theory: Modern, Symbolic, and Postmodern Perspectives, 2nd ed., Oxford University Press.Huse, E., 1989. • Organisation Development and Change, 4th ed., West Publishing Co.Knley, D., 2009. • Civilising Globalisation: Human Rights and the Global Economy. Cambridge University Press.Laird, D., 2003. • Approaches to Training And Development. Basic Books.Lussier, R. N., 2008.• Management Fundamentals:Concepts, Applications, Skill Development, Cengage Learning, p.564.Michie, J., 2003• . Handbook of Globalisation. Edward Elgar Pub.Miller, D., 2011. • Successful Change: How to Implement Change Through People. BookPOD.Pettinger, R., 2007. • Introduction to Management, 4th ed., Palgrave Macmillan.Rhinesmith, S., 1996. • A Manager’s Guide to Globalization : Six Skills for Success in a Changing World. McGraw-Hill Companies.Robbins, S. and Cenzo, D., 2010. • Fundamentals of Management, 7th ed., Prentice Hall.Sharma, S. C., 2006.• Operation Research: Pert, Cpm & Cost Analysis, Discovery Publishing House, p.314.Simon, H., 1976. • Administrative Behavior: A Study of Decision Making Processes in Administrative Organization, 3rd ed., Free Press.Swan, W., 2006• . Ready-to-Use Performance Appraisals: Downloadable, Customizable Tools for Better, Faster Reviews!. Wiley.Tosi, H., 2008. • Theories of Organisation. Sage Publications.Walter, D., 2001. • Training On the Job. ASTD Press.

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Self Assessment Answers

Chapter Id1. d2. b3. c4. a5. c6. b7. a8. a9. b10.

Chapter IIa1. b2. d3. d4. a5. c6. d7. b8. c9. c10.

Chapter IIIb1. d2. d3. a4. c5. c 6. a7. c8. b9. b10.

Chapter IVc1. b2. c3. a4. b5. c6. a7. a8. c9. d10.


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Chapter Vd1. a2. a3. a4. a5. b6. c7. d8. a9. a10.

Chapter VIb1. c2. a3. a4. b5. c6. a7. b8. b9. c10.

Chapter VIIb1. a2. c 3. c4. b5. b 6. d7. d8. a9. b10.

Chapter VIIIa1. c2. c3. c4. d5. b6. b7. c8. a9. b10.

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