Concept of management (UGC NET Commerce & Management)
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As per new and updated syllabus of UGC NET Commerce and Management all the new topics are covered under this HAND BOOK, all the contain is arranged in Topic wise order which is easy to understand and analyse
Concept of management (UGC NET Commerce & Management)
KD COMMERCE CLASSES
Concept of Management
Umakant Annand(UGC NET Commerce, MCom,MBA)
UGC NET Commerce & Management
D A D D Y C O O L H A R D O I R O A D B A L A G A N J L U C K N O W
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Concept of Management
Simple traditional definition, defines it as the "art of getting things done by others". This definition brings in two
elements namely accomplishment of objectives, and direction of group activities towards the goal. The weaknesses
of this definition is that firstly it uses the word "art", whereas management is not merely an art, but it is both art and
science. Secondly, the definition does not state the various functions of a manager clearly.
A more elaborate definition given by George R. Terry, defines management as a process "consisting of planning,
organizing, actuating and controlling, performed to determine and accomplish the objectives by the use of
people and resources."
o Firstly it considers management as a "process" i.e. a systematic way of doing things.
o Secondly it states four management activities: Planning, organizing, actuating, and controlling.
o Planning is thinking of an actions in advance.
o Organizing is coordination of the human and material resources of an organization. Actuating is motivation
and direction of subordinates.
o Controlling means the attempt to ensure no deviation from the norm or plan.
o Thirdly it states that manager uses people and other resources.
For example a manager who wants to increase the sales, might try not only to increase the sales force, but also to
increase advertising budget. And fourthly, it states that management involves the act of achieving the organization's
"Management is an art of knowing what is to be done and seeing that it is done in the best possible manner."
(planning and controlling) - F.W. Taylor (father of scientific management)
"Management is to forecast, to plan, to organize, to command, to coordinate and control activities of others." - Henri
Fayol (father of modern management)
"Management is the process by which co-operative group directs actions towards common goals."- Joseph Massie
"Management is that process by which managers create, direct, maintain and operate purposive organisation through
systematic, coordinated and cooperative human efforts."
Nature of Management
1) Goal oriented Process: The process of management comes with the purpose of achieving the organizational
goals correctly and meaningfully. Hence, it is a goal oriented process.
2) All Pervasive: Management is used by all departments of an organization and by all organizations,
irrespective of size, nature and location. It is also practiced at each level of an organization.
3) Multidimensional: Management covers all aspects of an organization ranging from work, people and
operations. Different mechanisms and systems are set up for each aspect.
4) Continuous Process: A series of functions are performed in organization by all its managers
simultaneously. It keeps running in a cycle that repeats itself over and over again.
5) Group Activity: Management is never done in solidarity. It is a group activity that involves participation of
all the people of an organization, including the managers and the workers, for the desired achievement of
6) Intangible Force: Management in its essence cannot be seen or touched, and hence is termed as intangible.
But its effect can be felt and measured based on the results achieved by way of the organizational functions.
Management: Art or science?
Management as an Art
Management can be an art in the sense that it has the following characteristics:
o Just like other arts it has to be practiced and performed. The knowledge should be learned and practiced, just
as medical or legal practitioners practice their respective sciences.
o The manager gains experience by continual application of management knowledge and facing new
experiences. This helps to develop more skills and abilities for translating knowledge into practice.
o Application calls for innovativeness and creativity.
o The fourth reason is that in many situations, theoretical knowledge of management may not be adequate or
relevant for solving the problem. It may be because of complexity or unique nature of the problem.
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o The art is in knowing how to accomplish the desired results. This implies that there exists a body of
knowledge which management uses to accomplish the desired results in organization
Management as a Science
Management as a science has the following characteristics:
o Its principles, generalizations and concepts are systematic. In this case the manager can manage the situation
or organization in a systematic and scientific manner.
o Its principles, generalizations and concepts are formulated on the basis of observation, research, analysis
and experimentation, as is the case with the principles of other sciences.
o Like other sciences, management principles are also based on relationship of cause and effect. It states that
same cause under similar circumstance will produce same effect. Suppose if workers are paid more (cause),
the produce more (effect).
o Management principles are codified and systematic, and can be transferred from one to another and can be
o Management principles are universally applicable to all types of organizations.
There is no tailor - made answer to a question- Is management a science or art? To ascertain the nature of
management with respect of science or art, there is a need to know the exact meaning of the words 'science' or 'art'
and subsequently, their application to management.
Management: A profession?
The following criteria identifies the statues of a profession to management:
o Profession is a body of specialized knowledge.
o Professional knowledge in systemized and codified form can be learned through formal education system.
o A profession emphasizes on having a central body to formulate a code of behavior for its members.
o A profession calls for rendering competent and specialized services to clients.
o A profession maintains the scientific attitude and commitment for discovering new ideas and upgrading in
order to improve quality of service and level of efficiency provided to clients.
o A profession requires members to exercise restraint and self-discipline
Difference between Management and Administration
Definition of Administration
The administration is a systematic process of administering the management of a business organization, an
educational institution like school or college, government office or any nonprofit organization. The main
function of administration is the formation of plans, policies, and procedures, setting up of goals and objectives,
enforcing rules and regulations, etc.
Administration lays down the fundamental framework of an organization, within which the management of the
The nature of administration is bureaucratic. It is a broader term as it involves forecasting, planning, organizing
and decision-making functions at the highest level of the enterprise. Administration represents the top layer of
the management hierarchy of the organization. These top level authorities are the either owners or business
partners who invest their capital in starting the business. They get their returns in the form of profits or as a
Meaning An organized way of managing people
and things of a business organization is
called the Management.
The process of administering an organization by a
group of people is known as the Administration.
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Authority Middle and Lower Level Top level
Role Executive Decisive
Concerned with Policy Implementation Policy Formulation
Area of operation It works under administration. It has full control over the activities of the
Applicable to Profit making organizations, i.e.
Government offices, military, clubs, business
enterprises, hospitals, religious and educational
Decides Who will do the work? And How will
it be done?
What should be done? And When is should be
Work Putting plans and policies into actions. Formulation of plans, framing policies and setting
Focus on Managing work Making best possible allocation of limited
Key person Manager Administrator
Represents Employees, who work for
Owners, who get a return on the capital invested
Function Executive and Governing Legislative and Determinative
A manager is called upon to perform the following managerial functions:
7) Co-coordinating and
1) Planning: When management is reviewed as a process, planning is the first function performed by a manager.
The work of a manager begins with the setting of objectives of the organization and goals in each area of the
business. This is done through planning. A plan is a predetermined course of action to accomplish the set
objectives. It is today's projection for tomorrow's activity. Planning includes objectives, strategies, policies,
procedures, programmes e.t.c. As it involves making choices, decision-making is the heart of planning.
2) Organizing: Organizing includes putting life into the plan by bringing together personnel, capital, machinery,
materials etc., to execute the plans. While, planning decides what management wants to do, organizing provides
an effective machine for achieving the plans.
3) Staffing: Staffing involves filling the positions needed in the organization structure by appointing competent
and qualified persons for the job. This needs manpower planning, scientific selection and training of personnel,
suitable methods of remuneration and performance appraisal.
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4) Directing: Direction involves managing managers, managing workers and the work through the means of
motivation, proper leadership, effective communication as well as co-ordination. A manager must develop the
ability to command and direct others.
5) Motivating: Motivation is a managerial function to inspire and encourage people to take required action.
Motivation is the key to successful management of any enterprise. Motivation can set into motion a person to
carry out certain activity.
6) Controlling: Control is the process of measuring actual results with some standard of performance, finding the
reason for deviations of actual from desired result and taking corrective action when necessary. Thus, controlling
enables the realization of plans. A manager must adopt the following steps in controlling:
1) Identify potential problems.
2) Select mode of control.
3) Evaluate performance in terms of planning.
4) Spot significant deviations.
5) Ascertain causes of deviations.
6) Take remedial measures.
7) Co-ordination: Co-ordination is concerned with harmonious and unified action directed toward a common
objective. It ensures that all groups and persons work efficiently, economically and in harmony. Co-ordination
requires effective channels of communication. Person-to-person communication is most effective for
8) Communication: It means transfer of information and under-standing from person to person. Communication
also leads to sharing of information, ideas and knowledge. It enables group to think together and act together.
Planning means looking ahead. It is deciding in advance what is to be done. Planning includes forecasting.
According to Henry Fayol - "purveyance, which is an essential element of planning, covers not merely looking into
the future but making provisions for it. A plan is then a projected course of action". All planning involves
anticipation of the future course of events and therefore bears an element of uncertainty in respect of its success.
Planning is concerned with the determination of the objectives to be achieved and course of action to be followed to
achieve them. Before any operative action takes place it is necessary to decide what, where, when and who shall do
Nature of Planning:
1) Planning is goal-oriented: Every plan must contribute in some positive way towards the accomplishment of
group objectives. Planning has no meaning without being related to goals.
2) Primacy of Planning: Planning is the first of the managerial functions. It precedes all other management
3) Pervasiveness of Planning: Planning is found at all levels of management. Top management looks after
strategic planning. Middle management is in charge of administrative planning. Lower management has to
concentrate on operational planning.
4) Efficiency, Economy and Accuracy: Efficiency of plan is measured by its contribution to the objectives as
economically as possible. Planning also focuses on accurate forecasts.
5) Co-ordination: Planning co-ordinates the what, who, how, where and why of planning. Without co-
ordination of all activities, we cannot have united efforts.
6) Limiting Factors: A planner must recognize the limiting factors (money, manpower etc.) and formulate plans
in the light of these critical factors.
7) Flexibility: The process of planning should be adaptable to changing environmental conditions.
8) Planning is an intellectual process: The quality of planning will vary according to the quality of the mind of
Importance of Planning:
As a managerial function planning is important due to the following reasons:
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1) To manage by objectives: All the activities of an organization are designed to achieve certain specified
objectives. However, planning makes the objectives more concrete by focusing attention on them.
2) To offset uncertainty and change: Future is always full of uncertainties and changes. Planning foresees the
future and makes the necessary provisions for it.
3) To secure economy in operation: Planning involves, the selection of most profitable course of action that
would lead to the best result at the minimum costs.
4) To help in co-ordination: Co-ordination is, indeed, the essence of management, the planning is the base of it.
Without planning it is not possible to co-ordinate the different activities of an organization.
5) To make control effective: The controlling function of management relates to the comparison of the planned
performance with the actual performance. In the absence of plans, a management will have no standards for
controlling other's performance.
6) To increase organizational effectiveness: Mere efficiency in the organization is not important; it should also
lead to productivity and effectiveness. Planning enables the manager to measure the organizational
effectiveness in the context of the stated objectives and take further actions in this direction.
Advantages of Planning
1) All efforts are directed towards desired objectives or results. Unproductive work and waste of resources can
2) Planning enables a company to remain competitive with other rivals in the industry.
3) Through careful planning, crisis can be anticipated and mistakes or delays avoided.
4) Planning can point out the need for future change and the enterprise can manage the change effectively.
5) Planning enables the systematic and thorough investigation of alternative methods or alternative solutions to
a problem. Thus we can select the best alternative to solve any business problem.
6) Planning maximizes the utilization of available resources and ensures optimum productivity and profits.
Planning provides the ground work for laying down control standards.
7) Planning enables management to relate the whole enterprise to its complex environment profitably.
Disadvantages of Planning
1) Environmental factors are uncontrollable and unpredictable to a large extent. Therefore, planning cannot
give perfect insurance against uncertainty.
2) Planning is many times very costly.
3) Tendency towards inflexibility to change is another limitation of planning.
4) Planning delays action.
5) Planning encourages a false sense of security against risk or uncertainty.
The planning process involves the following steps:
1) Analysis of External Environment: The external environment covers uncontrollable and unpredictable
factors such as technology, market, socio-economic climate, political conditions etc., within which our plans
will have to operate.
2) Analysis of Internal Environment: The internal environment covers relatively controllable factors such
as personnel resources, finance, facilities etc., at the disposal of the firm. Such an analysis will give an exact
idea about the strengths and weakness of the enterprise.
3) Determination of Mission: The "mission" should describe the fundamental reason for the existence of an
organization. It will give firm direction and make out activities meaningful and interesting
4) Determination of Objectives: The organizational objectives must be spelled out in key areas of
operations and should be divided according to various departments and sections. The objectives must be
clearly specified and measurable as far as possible. Every member of the organization should be familiar
with its objectives.
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5) Forecasting: Forecasting is a systematic attempt to probe into the future by inference from known facts
relating to the past and the present. Intelligent forecasting is essential for planning. The management should
have no stone unturned in reducing the element of guesswork in preparing forecasts by collecting relevant
data using the scientific techniques of analysis and inference.
6) Determining Alternative course of Action: It is a common experience of all thinkers that an action can
be performed in several ways, but there is a particular way which is the most suitable for the organization.
The management should try to find out these alternatives and examine them carefully in the light of planning
7) Evaluating Alternative Courses: Having sought out alternative courses and examined their strong and
weak points, the next step is to evaluate them by weighing the various factors.
8) Selecting the Best: The next step - selecting the course of action is the point at which the plan is adopted.
It is the real point of decision-making.
9) Establishing the sequence of activities: After the best programme is decided upon, the next task is to
work out its details and formulate the steps in full sequences.
10) Formulation of Action Programmes: There are three important constituents of an action plan: (A) The
time-limit of performance. (B) The allocation of tasks to individual employees. (C) The time-table or
schedule of work so that the functional objectives are achieved within the predetermined period.
11) Reviewing the planning process: Through feedback mechanism, an attempt is made to secure that
which was originally planned. To do this we have to compare the actual performance with the plan and then
we have to take necessary corrective action to ensure that actual performance is as per the plan.
Features of Objectives
1) The objectives must be predetermined.
2) A clearly defined objective provides the clear direction for managerial effort.
3) Objectives must be realistic.
4) Objectives must be measurable.
5) Objectives must have social sanction.
6) All objectives are interconnected and mutually supportive
7) Objectives may be short-range, medium-range and long-range.
8) Objectives may be constructed into a hierarchy.
Advantages of Objectives
1) Clear definition of objectives encourages unified planning.
2) Objectives provide motivation to people in the organization.
3) When the work is goal-oriented, unproductive tasks can be avoided.
4) Objectives provide standards which aid in the control of human efforts in an organization.
5) Objectives serve to identify the organization and to link it to the groups upon which its existence
6) Objectives act as a sound basis for developing administrative controls.
7) Objectives contribute to the management process: they influence the purpose of the organization,
policies, personnel, leadership as well as managerial control.
Process of Setting Objectives
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Objectives are the keystone of management planning. It is the most important task of management. Objectives are
required to be set in every area which directly and vitally effects the survival and prosperity of the business. In the
setting of objectives, the following points should be borne in mind:
1) Objectives are required to be set by management in every area which directly and vitally affects the
survival and prosperity of the business.
2) The objectives to be set in various areas have to be identified.
3) While setting the objectives, the past performance must be reviewed, since past performance indicates
what the organization will be able to accomplish in future.
4) The objectives should be set in realistic terms i.e., the objectives to be set should be reasonable and
capable of attainment.
5) Objectives must be consistent with one and other.
6) Objectives must be set in clear-cut terms.
7) For the successful accomplishment of the objectives, there should be effective communication.
The term 'Strategy' has been adapted from war and is being increasingly used in business to reflect broad overall
objectives and policies of an enterprise. Literally speaking, the term 'Strategy' stands for the war-art of the military
general, compelling the enemy to fight as per out chosen terms and conditions. A strategy is a special kind of plan
formulated in order to meet the challenge of the policies of competitors. This type of plan uses the competitors' plan
as the background. It may also be shaped by the general forces operating in an industry and the economy.
Edmund P Learned has defined strategies as "the pattern of objectives, purposes or goals and major policies and
plans for achieving these goals, stated in such a way as to define what business the company is in or is to be and the
kind of company it is or is to be". Haynes and Massier have defined strategy as “the planning for unpredictable
contingencies about which fragmentary information is available”.
Characteristics of Strategy
1) It is the right combination of different factors.
2) It relates the business organization to the environment.
3) It is an action to meet a particular challenge, to solve particular problems or to attain desired objectives.
4) Strategy is a means to an end and not an end in itself.
5) It is formulated at the top management level.
6) It involves assumption of certain calculated risks.
There are three phases in strategy formation:
1) Determination of objectives.
2) Ascertaining the specific areas of strengths and weakness in the total environment.
3) Preparing the action plan to achieve the objectives in the light of environmental forces.
Seymour Tiles offers six criteria for evaluating an appropriate strategy.
1) Internal consistency: The strategy of an organization must be consistent with its other strategies, goals,
policies and plans.
2) Consistency with the environment: The strategy must be consistent with the external environment. The
strategy selected should enhance the confidence and capability of the enterprise to manage and adapt with or
give command over the environmental forces.
3) Realistic Assessment: Strategy needs a realistic assessment of the resources of the enterprise—men, money
and materials—both existing resources as also the resources, the enterprise can command.
4) Acceptable degree of risk: Any major strategy carries with it certain elements of risk and uncertainty. The
amount of risk inherent in a strategy should be within the bearable capacity of the enterprise.
5) Appropriate time: Time is the essence of any strategy. A good strategy not only provides the objectives to
be achieved but also indicates when those objectives could be achieved.
6) Workability: Strategy must be feasible and should produce the desired results.
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A policy is a standing plan. Policies are directives providing continuous framework for executive actions on
recurrent managerial problems. A policy assists decision-making but deviations may be needed, as exceptions and
under some extraordinary circumstances. Policy-making is an important part of the process of planning. Policies may
be described as plans which are meant to serve as broad guides to decision making in a firm. Policies exist at various
levels of the enterprise—Corporate level, divisional level and departmental level. Policies are valuable because they
allow lower levels of management to handle problems without going to top management for a decision each time.
Essentials of Policy Formulation
The essentials of policy formation may be listed as below:
1) A policy should be definite, positive and clear. It should be understood by everyone in the organization.
2) A policy should be translatable into the practices.
3) A policy should be flexible and at the same time have a high degree of permanency.
4) A policy should be formulated to cover all reasonable anticipatable conditions.
5) A policy should be founded upon facts and sound judgment.
6) A policy should conform to economic principles, statutes and regulations.
7) A policy should be a general statement of the established rule.
Importance of Policies
Policies are useful for the following reasons:
1) They provide guides to thinking and action and provide support to the subordinates.
2) They delimit the area within which a decision is to be made.
3) They save time and effort by pre-deciding problems and
4) They permit delegation of authority to mangers at the lower levels.
The word decision has been derived from the Latin word "decidere" which means "cutting off". Thus, decision
involves cutting off of alternatives between those that are desirable and those that are not desirable. Decision is a
kind of choice of a desirable alternative. A few definitions of decision making are given below:
In the words of Ray A Killian, "A decision in its simplest form is a selection of alternatives". Dr. T. G Glover defines
decision "as a choice of calculated alternatives based on judgment". In the words of George R. Terry, "Decision-
making is the selection based on some criteria from two or more possible alternatives".
Felix M. Lopez says that "A decision represents a judgment; a final resolution of a Functions of Management conflict
of needs, means or goals; and a commitment to action made in face of uncertainty, complexity and even irrationally".
Characteristics of Decision Making:
Decision making implies that there are various alternatives and the most desirable alternative is chosen to solve the
problem or to arrive at expected results.
1) The decision-maker has freedom to choose an alternative.
2) Decision-making may not be completely rational but may be judgmental and emotional.
3) Decision-making is goal-oriented.
4) Decision-making is a mental or intellectual process because the final decision is made by the decision-maker.
5) A decision may be expressed in words or may be implied from behaviour.
6) Choosing from among the alternative courses of operation implies uncertainty about the final result of each
possible course of operation.
7) Decision making is rational. It is taken only after a thorough analysis and reasoning and weighing the
consequences of the various alternatives.
Types of Decisions
1) Programmed and Non-Programmed Decisions: Herbert Simon has grouped organizational decisions
into two categories based on the procedure followed. They are:
2) Programmed decisions: Programmed decisions are routine and repetitive and are made within the
framework of organizational policies and rules. These policies and rules are established well in advance to
solve recurring problems in the organization. Programmed decisions have short-run impact. They are,
generally, taken at the lower level of management.
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3) Non-Programmed Decisions: Non-programmed decisions are decisions taken to meet non-repetitive
problems. Non-programmed decisions are relevant for solving unique/ unusual problems in which various
alternatives cannot be decided in advance. A common feature of non-programmed decisions is that they
are novel and non-recurring and therefore, readymade solutions are not available. Since these decisions are
of high importance and have long-term consequences, they are made by top level management.
4) Strategic and Tactical Decisions: Organizational decisions may also be classified as strategic or
Strategic Decisions: Basic decisions or strategic decisions are decisions which are of crucial importance.
Strategic decisions a major choice of actions concerning allocation of resources and contribution to the achievement
of organizational objectives. Decisions like plant location, product diversification, entering into new markets,
selection of channels of distribution, capital expenditure e.t.c. are examples of basic or strategic decisions.
Tactical Decisions: Routine decisions or tactical decisions are decisions which are routine and repetitive. They
are derived out of strategic decisions. The various features of a tactical decision are as follows:
1) Tactical decision relates to day-to-day operation of the organization and has to be taken very frequently.
2) Tactical decision is mostly a programmed one. Therefore, the decision can be made within the context of
3) The outcome of tactical decision is of short-term nature and affects a narrow part of the organization.
4) The authority for making tactical decisions can be delegated to lower level managers because: first, the
impact of tactical decision is narrow and of short-term nature and Second, by delegating authority for such
decisions to lower-level managers, higher level managers are free to devote more time on strategic decisions.
Globalization reflects a business orientation based on the belief that the world is becoming more homogeneous and
that distinctions between national markets are not only fading, but, for some products will eventually disappear. As a
result, companies need to globalize their international strategy by formulating it across markets to take advantage of
underlying market, cost, environmental and competitive factors.
Why Plan Globally?
International firms have found it necessary to institute formal global strategic planning to provide a means for top
management to identify opportunities and threats from all over the world, formulate strategies to handle them and
stipulate how to finance the strategies implementation. Global strategic plans not only provide for constancy of
action among the firm's managers worldwide but also require the participants to consider the ramifications of their
actions on the other geographical and functional areas of the firm.
Global Strategic Planning Process
Global strategic planning is the primary function of managers. The process of strategic planning provides a formal
structure in which managers:
1) Analyze the company's external environments
2) Analyze the company's internal environments
3) Define the company's business and mission
4) Set corporate objectives
5) Quantify goals
6) Formulate strategies and
7) Make tactical plans.
14 Principles of Management (Fayol)
Introduction 14 principles of Management
In the last century, organizations already had to deal with management in practice. In the early 1900s, large
organizations, such as production factories, had to be managed too. At the time there were only few (external)
management tools, models and methods available.
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Thanks to scientists like Henri Fayol (1841-1925) the first foundations were laid for modern scientific management.
These first concepts, also called principles of management are the underlying factors for successful
management. Henri Fayol explored this comprehensively and, as a result, he synthesized the 14 principles of
management. Henri Fayol ‘s principles of management and research were published in the book ‘General and
Industrial Management’ (1916).
14 Principles of Management of Henri Fayol
14 principles of Management are statements that are based on a fundamental truth. These principles of management
serve as a guideline for decision-making and management actions. They are drawn up by means of observations and
analyses of events that managers encounter in practice. Henri Fayol was able to synthesize 14 principles of
management after years of study.
1) Division of Work
In practice, employees are specialized in different areas and they have different skills. Different levels of
expertise can be distinguished within the knowledge areas (from generalist to specialist). Personal and
professional developments support this. According to Henri Fayol specialization promotes efficiency of the
workforce and increases productivity. In addition, the specialization of the workforce increases their
accuracy and speed. This management principle of the 14 principles of management is applicable to both
technical and managerial activities.
2) Authority and Responsibility
In order to get things done in an organization, management has the authority to give orders to the employees.
Of course with this authority comes responsibility. According to Henri Fayol, the accompanying power or
authority gives the management the right to give orders to the subordinates. The responsibility can be traced
back from performance and it is therefore necessary to make agreements about this. In other words, authority
and responsibility go together and they are two sides of the same coin.
This third principle of the 14 principles of management is about obedience. It is often a part of the core
values of a mission and vision in the form of good conduct and respectful interactions. This management
principle is essential and is seen as the oil to make the engine of an organization run smoothly.
4) Unity of Command
The management principle ‘Unity of command’ means that an individual employee should receive orders
from one manager and that the employee is answerable to that manager. If tasks and related responsibilities
are given to the employee by more than one manager, this may lead to confusion which may lead to possible
conflicts for employees. By using this principle, the responsibility for mistakes can be established more
5) Unity of Direction
This management principle of the 14 principles of management is all about focus and unity. All employees
deliver the same activities that can be linked to the same objectives. All activities must be carried out by one
group that forms a team. These activities must be described in a plan of action. The manager is ultimately
responsible for this plan and he monitors the progress of the defined and planned activities. Focus areas are
the efforts made by the employees and coordination.
6) Subordination of Individual Interest
There are always all kinds of interests in an organization. In order to have an organization function
well, Henri Fayol indicated that personal interests are subordinate to the interests of the organization (ethics).
The primary focus is on the organizational objectives and not on those of the individual. This applies to all
levels of the entire organization, including the managers.
Motivation and productivity are close to one another as far as the smooth running of an organization is
concerned. This management principle of the 14 principles of management argues that the remuneration
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should be sufficient to keep employees motivated and productive. There are two types of remuneration
namely non-monetary (a compliment, more responsibilities, credits) and monetary (compensation, bonus or
other financial compensation). Ultimately, it is about rewarding the efforts that have been made.
8) The Degree of Centralization
Management and authority for decision-making process must be properly balanced in an organization. This
depends on the volume and size of an organization including its hierarchy.
Centralization implies the concentration of decision making authority at the top management (executive
board). Sharing of authorities for the decision-making process with lower levels (middle and lower
management), is referred to as decentralization by Henri Fayol. Henri Fayol indicated that an organization
should strive for a good balance in this.
9) Scalar Chain
Hierarchy presents itself in any given organization. This varies from senior management (executive board) to
the lowest levels in the organization. Henri Fayol ’s “hierarchy” management principle states that there
should be a clear line in the area of authority (from top to bottom and all managers at all levels). This can be
seen as a type of management structure. Each employee can contact a manager or a superior in an emergency
situation without challenging the hierarchy. Especially, when it concerns reports about calamities to the
According to this principle of the 14 principles of management, employees in an organization must have the
right resources at their disposal so that they can function properly in an organization. In addition to social
order (responsibility of the managers) the work environment must be safe, clean and tidy.
The management principle of equity often occurs in the core values of an organization. According to Henri
Fayol, employees must be treated kindly and equally. Employees must be in the right place in the
organization to do things right. Managers should supervise and monitor this process and they should treat
employees fairly and impartially.
12) Stability of Tenure of Personnel
This management principle of the 14 principles of management represents deployment and managing of
personnel and this should be in balance with the service that is provided from the organization. Management
strives to minimize employee turnover and to have the right staff in the right place. Focus areas such as
frequent change of position and sufficient development must be managed well.
Henri Fayol argued that with this management principle employees should be allowed to express new ideas.
This encourages interest and involvement and creates added value for the company. Employee initiatives are
a source of strength for the organization according to Henri Fayol. This encourages the employees to be
involved and interested.
14) Esprit de Corps
The management principle ‘esprit de corps’ of the 14 principles of management stands for striving for the
involvement and unity of the employees. Managers are responsible for the development of morale in the
workplace; individually and in the area of communication. Esprit de corps contributes to the development of
the culture and creates an atmosphere of mutual trust and understanding.
Types of Organisational Structures
Chester I Bernard defines formal organisation as -"a system of consciously coordinated activities or forces of two or
more persons. It refers to the structure of well-defined jobs, each bearing a definite measure of authority,
responsibility and accountability." The essence of formal organisation is conscious common purpose and comes into
being when persons–
1) Are able to communicate with each other
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2) Are willing to act and
3) Share a purpose.
The formal organisation is built around four key pillars. They are:
1) Division of labour
2) Scalar and functional processes
3) Structure and
4) Span of control
Thus, a formal organisation is one resulting from planning where the pattern of structure has already been
determined by the top management.
Characteristic Features of formal organisation
1) Formal organisation structure is laid down by the top management to achieve organisational goals.
2) Formal organisation prescribes the relationships amongst the people working in the organisation.
3) The organisation structures is consciously designed to enable the people of the organisation to work together for
accomplishing the common objectives of the enterprise
4) Organisation structure concentrates on the jobs to be performed and not the individuals who are to perform jobs.
5) In a formal organisation, individuals are fitted into jobs and positions and work as per the managerial decisions.
Thus, the formal relations in the organisation arise from the pattern of responsibilities that are created by the
6) A formal organisation is bound by rules, regulations and procedures.
7) In a formal organisation, the position, authority, responsibility and accountability of each level are clearly defined.
8) Organisation structure is based on division of labour and specialisation to achieve efficiency in operations.
9) A formal organisation is deliberately impersonal. The organisation does not take into consideration the sentiments
of organisational members.
10) The authority and responsibility relationships created by the organisation structure are to be honoured by
11) In a formal organisation, coordination proceeds according to the prescribed pattern.
Advantages of formal organisation
1) The formal organisation structure concentrates on the jobs to be performed. It, therefore, makes everybody
responsible for a given task.
2) A formal organisation is bound by rules, regulations and procedures. It thus ensures law and order in the
3) The organisation structure enables the people of the organisation to work together for accomplishing the common
objectives of the enterprise
Disadvantages or criticisms of formal organisation
1) The formal organisation does not take into consideration the sentiments of organisational members.
2) The formal organisation does not consider the goals of the individuals. It is designed to achieve the
goals of the organisation only.
3) The formal organisation is bound by rigid rules, regulations and procedures. This makes the
achievement of goals difficult.
Informal organisation refers to the relationship between people in the organisation based on personal
attitudes, emotions, prejudices, likes, dislikes etc. an informal organisation is an organisation which is not
established by any formal authority, but arises from the personal and social relations of the people.
These relations are not developed according to procedures and regulations laid down in the formal
organisation structure; generally large formal groups give rise to small informalor social groups. These
groups may be based on same taste, language, culture or some other factor. These groups are not pre-
planned, but they develop automatically within the organisation according to its environment.
Characteristics features of informal organisation
1) Informal organisation is not established by any formal authority. It is unplanned and arises spontaneously.
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2) Informal organisations reflect human relationships. It arises from the personal and social relations amongst
the people working in the organisation.
3) Formation of informal organisations is a natural process. It is not based on rules, regulations and procedures.
4) The inter-relations amongst the people in an informal organisation cannot be shown in an organisation chart.
5) In the case of informal organisation, the people cut across formal channels of communications and
communicate amongst themselves.
6) The membership of informal organisations is voluntary. It arises spontaneously and not by deliberate or
7) Membership of informal groups can be overlapping as a person may be member of a number of informal
8) Informal organisations are based on common taste, problem, language, religion, culture, etc. it is influenced
by the personal attitudes, emotions, whims, likes and dislikes etc. of the people in the organisation.
Benefits of Informal organisation
1) It blends with the formal organisation to make it more effective.
2) Many things which cannot be achieved through formal organisation can be achieved through informal
3) The presence of informal organisation in an enterprise makes the managers plan and act more carefully.
4) Informal organisation acts as a means by which the workers achieve a sense of security and belonging. It
provides social satisfaction to group members.
5) An informal organisation has a powerful influence on productivity and job satisfaction.
6) The informal leader lightens the burden of the formal manager and tries to fill in the gaps in the manager's
7) Informal organisation helps the group members to attain specific personal objectives.
8) Informal organisation is the best means of employee communication. It is very fast.
9) Informal organisation gives psychological satisfaction to the members. It acts as a safety valve for the
emotional problems and frustrations of the workers of the organisation because they get a platform to
express their feelings.
10) It serves as an agency for social control of human behaviour.
Differences Between Formal and Informal Organisation
FORMAL ORGANIZATION INFORMAL ORGANIZATION
Meaning An organization type in which the job of
each member is clearly defined, whose
authority, responsibility and accountability
are fixed is formal organization.
An organization formed within the formal
organization as a network of interpersonal
relationship, when people interact with each other,
is known as informal communication.
Creation Deliberately by top management. Spontaneously by members.
Purpose To fulfill, the ultimate objective of the
To satisfy their social and psychological needs.
Nature Stable, it continues for a long time. Not stable
Communication Official communication Grapevine
Rules and Regulations Norms, values and beliefs
Focus on Work performance Interpersonal relationship
Authority Members are bound by hierarchical
All members are equal.
Size Large Small
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1. Line Organisational Structure:
A line organisation has only direct, vertical relationships between different levels in the firm.
There are only line departments-departments directly involved in accomplishing the primary goal
of the organisation. For example, in a typical firm, line departments include production and
marketing. In a line organisation authority follows the chain of command.
o Has only direct vertical relationships between different levels in the firm.
1. Tends to simplify and clarify authority, responsibility and accountability relationships
2. Promotes fast decision making
3. Simple to understand.
1. Neglects specialists in planning
2. Overloads key persons.
2. Staff or Functional Authority Organisational Structure
The jobs or positions in an organisation can be categorized as:
(i) Line position:
a position in the direct chain of command that is responsible for the achievement of an organisation’s goals and
(ii) Staff position:
A position intended to provide expertise, advice and support for the line positions.
The line officers or managers have the direct authority (known as line authority) to be exercised by them to achieve
the organisational goals. The staff officers or managers have staff authority (i.e., authority to advice the line) over the
line. This is also known as functional authority.
3. Line and Staff Organisational Structure:
Most large organisations belong to this type of organisational structure. These organisations have direct, vertical
relationships between different levels and also specialists responsible for advising and assisting line managers. Such
organisations have both line and staff departments. Staff departments provide line people with advice and assistance
in specialized areas (for example, quality control advising production department).
Three types of specialized staffs can be identified:
b. Service and
Some staffs perform only one of these functions but some may perform two or all the three functions. The primary
advantage is the use of expertise of staff specialists by the line personnel. The span of control of line managers can
be increased because they are relieved of many functions which the staff people perform to assist the line.
Some advantages are:
1) Even through a line and staff structure allows higher flexibility and specialization it may create conflict
between line and staff personnel.
2) Line managers may not like staff personnel telling them what to do and how to do it even though they
recognize the specialists’ knowledge and expertise.
3) Some staff people have difficulty adjusting to the role, especially when line managers are reluctant to accept
4) Staff people may resent their lack of authority and this may cause line and staff conflict.
1) Line and staff have direct vertical relationship between different levels.
2) Staff specialists are responsible for advising and assisting line managers/officers in specialized areas.
3) These types of specialized staff are (a) Advisory, (b) Service, (c) Control e.g.,
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Management information system, Operation Research and Quantitative Techniques, Industrial Engineering, Planning
Maintenance, Purchase, Stores, Finance, Marketing.
Quality control, Cost control, Auditing etc. Advantages’
1) Use of expertise of staff specialists.
2) Span of control can be increased
3) Relieves line authorities of routine and specialized decisions.
4) No need for all round executives.
1) Conflict between line and staff may still arise.
2) Staff officers may resent their lack of authority.
3) Co-ordination between line and staff may become difficult.
4. Divisional Organisational Structure:
In this type of structure, the organisation can have different basis on which departments are
formed. They are:
3) Geographic territory,
4) Project and
5) Combination approach.
5. Project Organisational Structure:
The line, line and staff and functional authority organisational structures facilitate establishment and distribution of
authority for vertical coordination and control rather than horizontal relationships. In some projects (complex activity
consisting of a number of interdependent and independent activities) work process may flow horizontally,
diagonally, upwards and downwards. The direction of work flow depends on the distribution of talents and abilities
in the organisation and the need to apply them to the problem that exists. The cope up with such situations, project
organisations and matrix organisations have emerged.
Temporary organisation designed to achieve specific results by using teams of specialists from different functional
areas in the organisation.
Importance of Project Organisational Structure:
Project organisational structure is most valuable when:
1) Work is defined by a specific goal and target date for completion.
2) Work is unique and unfamiliar to the organisation.
3) Work is complex having independent activities and specialized skills are necessary for accomplishment.
4) Work is critical in terms of possible gains or losses.
5) Work is not repetitive in nature.
Characteristics of project organisation:
1) Personnel are assigned to a project from the existing permanent organisation and are under the direction
and control of the project manager.
2) The project manager specifies what effort is needed and when work will be performed whereas the
concerned department manager executes the work using his resources.
3) The project manager gets the needed support from production, quality control, engineering etc. for
completion of the project.
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4) The authority over the project team members is shared by project manager and the respective functional
managers in the permanent organisation.
5) The services of the specialists (project team members) are temporarily loaned to the project manager till
the completion of the project.
6) There may be conflict between the project manager and the departmental manager on the issue of
exercising authority over team members.
7) Since authority relationships are overlapping with possibilities of conflicts, informal relationships between
project manager and departmental managers (functional managers) become more important than formal
prescription of authority.
8) Full and free communication is essential among those working on the project.
6. Matrix Organisational Structure:
It is a permanent organisation designed to achieve specific results by using teams of specialists from different
functional areas in the organisation. The matrix organisation is illustrated in Exhibit 10.8.
Superimposes a horizontal set of divisions and reporting relationships onto a hierarchical functional structure
1) Decentralised decision making.
2) Strong product/project co-ordination.
3) Improved environmental monitoring.
4) Fast response to change.
5) Flexible use of resources.
6) Efficient use of support systems.
1) High administration cost.
2) Potential confusion over authority and responsibility.
3) High prospects of conflict.
4) Overemphasis on group decision making.
5) Excessive focus on internal relations.
7. Hybrid Organisational Structure:
1) Alignment of corporate and divisional goals.
2) Functional expertise and efficiency.
3) Adaptability and flexibility in divisions.
1) Conflicts between corporate departments and units.
2) Excessive administration overhead.
3) Slow response to exceptional situations.
Delegation of Authority
Definition: The Delegation of Authority is an organizational process wherein, the manager divides his work among
the subordinates and give them the responsibility to accomplish the respective tasks. Along with the responsibility,
he also shares the authority, i.e. the power to take decisions with the subordinates, such that responsibilities can be
In other words, a delegation of authority involves the sharing of authority downwards to the subordinates and
checking their efficiency by making them accountable for their doings. In an organization, the manager has several
responsibilities and work to do. So, in order to reduce his burden, certain responsibility and authority are delegated to
the lower level, i.e. to the subordinates, to get the work done on the manager’s behalf. Under the delegation of
authority, the manager does not surrender his authority completely, but only shares certain responsibility with the
subordinate and delegates that much authority which is necessary to complete that responsibility.
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Features of Delegation of Authority
1) Delegation means giving power to the subordinate to act independently but within the limits prescribed by the superior.
Also, he must comply with the provisions of the organizational policy, rules, and regulations.
2) Delegation does not mean that manager give up his authority, but certainly he shares some authority with the
subordinate essential to complete the responsibility entrusted to him.
3) Authority once delegated can be further expanded, or withdrawn by the superior depending on the situation.
4) The manager cannot delegate the authority which he himself does not possess. Also, he can not delegate his full
authority to a subordinate.
5) The delegation of authority may be oral or written, and may be specific or general.
6) The delegation is an art and must comply with all the fundamental rules of an organization.
Process of Delegation of Authority
Definition: The Delegation of Authority is a process wherein the manager assigns responsibility to its subordinate
along with the certain authority to accomplish the task on the manager’s behalf.
Process of Delegation of Authority
The process of delegation of authority comprises of four steps which are as follows:
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1) Assignment of Duties to Subordinates: Before the actual delegation of authority, the delegator must
decide on the duties which he wants the subordinate or the group of subordinates to perform. Here, the
manager lists the activities to be performed along with the targets to be achieved, and the same is spelled out
to the subordinates. Thus, in the first stage, the duties are assigned to the subordinates as per their job roles.
2) Transfer of Authority to perform the duty: At this stage, an adequate authority is delegated to the
subordinate which is essential to perform the duty assigned to him. A manager must make sure; that
authority is strictly delegated just to perform the responsibility, as more authority may lead to its misuse by
3) Acceptance of the Assignment: At this stage, the subordinate either accepts or rejects the tasks assigned
to him by his superior. If the subordinate or the delegate, refuses to accept the duty and the authority to
perform it, then the manager looks for the other person who is capable of and is willing to undertake the
assignment. Once the assignment gets accepted by the subordinate, the delegation process reaches its last
4) Accountability: The process of delegation of authority ends at the creation of an obligation on the part of
the subordinate to perform his responsibility within the powers assigned to him. Once the assignment is
accepted by the subordinate, then he becomes responsible for the completion of the duty and is accountable
to the superior for his performance.
Thus, the process of delegation of authority begins with the duties assigned to the subordinates and ends when the
subordinate is obliged to carry out the operations as intended.
Meaning Delegation means handing over an
authority from one person of high level to
the person of low level.
Decentralization is the final outcome achieved,
when the delegation of authority is performed
systematically and repeatedly to the lowest
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What it is? Technique of management Philosophy of management.
Accountability Superiors are accountable for the acts
done by subordinates.
Department heads are accountable for the acts
of the concerned department.
Requirement Yes, for all organization delegation of
authority is very necessary.
No, it is an optional philosophy which may or
may not be adopted by the organization.
Liberty of Work Subordinates do not have full liberty. A substantial amount of freedom is there.
Control The ultimate control is the hands of
The overall control vests with top management
and delegates authority for day to day control
to departmental heads.
Relationship Creates superior-subordinate relationship. A step towards creation of semi-autonomous
Definition: Decentralisation can be understood as the orderly assignment of authority, throughout the levels of
management, in an organisation. It describes the way in which power to take decisions is allocated among various
levels in the organisational hierarchy. In other words, it refers to the dissemination of powers, functions and
responsibility, away from the central location.
Importance of Decentralisation
1) Quick decision making: Decision making becomes quicker and better at the same time, by pushing down
the power to make a decision to the operational level, which is nearest to the situation.
2) Executive development: It encourages self-sufficiency and confidence amongst subordinates, as when the
authority is delegated to lower levels, they have to rely on their judgement. By such delegation, the
executives are constantly challenged, and they have to find solutions, for the problems they face, in the day
to day operations.
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3) Development of managerial skills: In a decentralised structure, subordinates get an opportunity to prove
their abilities and management also get a pool of competent manpower, which can be placed at more
challenging and responsibility-prone situations, by way of promotions.
4) Relieves top management: It reduces the extent of direct supervision over subordinates by the supervisor,
as they are given the liberty to decide and act accordingly, within limits set by the superior. As a result, the
top management gets more time to take policy decisions.
5) Facilitates growth: It confers greater independence to the lower management levels, along with the heads of
departments, divisions, units, etc., as it let them perform functions in the way that is most appropriate for
their department or division. It propagates a sense of competition among various departments, to outperform
others. This ultimately results in the increased production level and generates more return to the enterprise.
6) Better control: The performance of each level can be measured, and the departments are also held
accountable separately for their results. The extent to which organisation goals are achieved and the
contribution of each department is determined.
7) Effective communication: The communication system of the organisation becomes more effective, through
decentralisation. It also builds a strong relationship between superior and subordinates.
Decentralisation lessens the burden of top-level management and gives actual work experiences to some middle and
lower level executives, which improves their morale.
Factors Determining Degree of Decentralisation
1) Importance of decision: The costliness is the key factor which determines the extent of decentralisation.
The term costliness of decision, entails the money value, goodwill and reputation of establishment associated
with the decision.
2) Management’s Attitude: The attitude of top-level management plays a significant role ascertaining the
extent to which activities are dispersed to lower levels. It is true that executives that have traditional rigid
perception, hardly permit delegation of authority, as they want everything under their control and does not
3) Size of the enterprise: The size of the firm has a great role to play in determining the degree, in essence, the
larger the firm, the more the decisions which are to be taken. Therefore, there are several departments and
levels in it, and coordination between all of them is a bit difficult, and the decision making is delayed. Such
organisation requires the high level of decentralisation than those which are smaller in size.
4) Availability of qualified manpower: A reservoir of capable executives also ascertains the degree of
dissemination of authority. Proper training helps the subordinates gain ample knowledge and experience to
shoulder higher responsibilities effectively.
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5) Environmental influences: It includes forces like government control, fiscal policy of the country, national
unions, government purchases and so on.
Advantages of Decentralisation:
1) Reduces the burden on top executives:
Decentralisation relieves the top executives of the burden of performing various functions. Centralisation of
authority puts the whole responsibility on the shoulders of an executive and his immediate group. This
reduces the time at the disposal of top executives who should concentrate on other important managerial
functions. So, the only way to lessen their burden is to decentralise the decision-making power to the
1) Facilitates diversification:
Under decentralization, the diversification of products, activites and markets etc., is facilitated. A
centralised enterprise with the concentration of authority at the top will find it difficult and complex
to diversify its activities and start the additional lines of manufacture or distribution.
2) To provide product and market emphasis:
A product loses its market when new products appear in the market on account of innovations or
changes in the customers demand. In such cases authority is decentralised to the regional units to
render instant service taking into account the price, quality, delivery, novelty, etc.
3) Executive Development:
When the authority is decentralised, executives in the organisation will get the opportunity to
develop their talents by taking initiative which will also make them ready for managerial positions.
The growth of the company greatly depends on the talented executives.
4) It promotes motivation:
To quote Louis A. Allen, “Decentralisation stimulates the formation of small cohesive groups. Since
local managers are given a large degree of authority and local autonomy, they tend to weld their
people into closely knit integrated groups.” This improves the morale of employees as they get
involved in decision-making process.
5) Better control and supervision:
Decentralisation ensures better control and supervision as the subordinates at the lowest levels will
have the authority to make independent decisions. As a result they have thorough knowledge of
every assignment under their control and are in a position to make amendments and take corrective
6) Quick Decision-Making:
Decentralisation brings decision making process closer to the scene of action. This leads to quicker
decision-making of lower level since decisions do not have to be referred up through the hierarchy.
Disadvantages of Decentralisation:
Decentralisation can be extremely beneficial. But it can be dangerous unless it is carefully
constructed and constantly monitored for the good of the company as a whole.
Some disadvantages of decentralisation are:
1) Uniform policies not Followed:
Under decentralisation, it is not possible* to follow uniform policies and
standardised procedures. Each manager will work and frame policies according to his
2) Problem of Co-Ordination:
Decentralisation of authority creates problems of co-ordination as authority lies
dispersed widely throughout the organisation.
3) More Financial Burden:
Decentralisation requires the employment of trained personnel to accept authority, it
involves more financial burden and a small enterprise cannot afford to appoint
experts in various fields.
4) Require Qualified Personnel:
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Decentralisation becomes useless when there are no qualified and competent
Decentralisation puts more pressure on divisional heads to realize profits at any cost.
Often in meeting their new profit plans, bring conflicts among managers.
Theories of Leadership and Motivation
Leadership is the character which every organisation wants to see in their staff and the person who is self motivated
and who can motivate the team members become a good manager. Leadership is nothing but inspiring the team
leader is the one who does it, inspiration is nothing but motivation. So leadership and motivation is a chemistry
which can take any difficult task to success. The leadership and motivation chemistry is mostly helpful in
management sector whether it is in business or in the team; every individual posse’s leadership but the one who
practices on the go become a perfect leader.
Considering leadership reveals school of thought giving different leadership theories such as Great Man theory, trait
theory, behaviourist theory, situational leadership theory, contingency theory, transactional theory and transformational
The trait theory rose from the concepts of the ‘Great Man ‘approach. This theory leads to identify the important
characteristics of a successful leader. The people who got the characters as defined by the traits approach are isolated
or shortlisted and those are recruited as leaders. This type of approach was mostly implemented in military and still
used in some of the area.
According to the trait theory the person who got the following skills is said to be a trait.
1) Ambitious and success oriented
2) Adaptable to all kinds of situations
3) Co operative to all the members in the organization
4) Highly active or energetic
6) Good decision making ability
8) Adaptable to stress conditions and
These are the characters which make a person trait and they should posses some skills which are
3) Skilled conceptually
5) Fluent in speaking
7) Self motivated and self belief
8) Skilled socially
When these kinds of skills and characters are identified in the person, the person is recruited in the team.
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The trait study doesn’t give any conclusive results and it was hard to measure some more critical issues such as
honesty, integrity and loyalty. This leaded the attention to be diverted on to the behaviour theories. The behaviour
theory focuses on human relationship and success performance as well.
According to behavioural theory the manager believes that the working environment should be like an entertainment
place where the expenditure of mental and physical efforts is treated to be play and rest. The idea of manager is an
average person not only learns to accept but also seek responsibility. The people will automatically learn to exercise
self-control and self direction to achieve the goal or target. The organizational problems can become imaginative and
Contingency theory model:
This theory illustrates that there are many ways for the manager to lead the team to get best outcome. According to the
situation the manager can find a best way to get the best outcome.
Fiedler worked on contingency theory according to that he looked for three situations which define the condition of a
o Leader and team member relationship
o Work structure or project structure
o Position and power
The manager should maintain relation with their team members to get along and create confidence and make them feel
free to think about the task and give their ideas to help the task to be finished. Project structure is the job highly structured
or unstructured or in between. The power shows how much authority a manager does posses
Transactional and transformational leadership:
Transformational leadership “is a relationship of mutual simulation and elevation that converts the followers in to leaders
and may convert leaders into moral agents”
Transformational leadership is communicating with the leaders and the team members to take them to higher level
something like a leader can become a moral agent and the follower can become a leader.
Transactional leadership technique builds the person to finish the certain task such as job done for the time being.
Some of the differences between transactional and transformational leadership are Transactional style of leadership builds
a man to complete a certain task where as transformational styles builds a member to become a leader.
This focuses on task completion and tactical style of management where as transformational leadership focus on strategies
These are some theories of the leadership which shows how a leader act on different situations and how different leaders
behave to get success in the organization.
Motivation in Management:
Theories of motivation:
The theories of motivation can be divided into 3 broad categories.
o Reinforcement theories – emphasize the means through which the process of controlling an individual’s
behaviour by manipulating its consequences takes place
o Content theories – focus primarily on individual needs – the physiological or psychological deficiencies
that we feel a compulsion to reduce or eliminate.
Process theories – focus on the thought or cognitive processes that take place within the minds of people and that
control their behaviour.
Early Theories of Motivation:
o Hierarchy of Needs Theory
o Theory X and Theory Y
o Motivation-Hygiene Theory
Contemporary Theories of Motivation:
o ERG Theory
o McClelland’s Theory of Needs
o Cognitive Evaluation Theory
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o Task Characteristics Theories
o Goal-Setting Theory
o Equity Theory
Hierarchy of Needs Theory:
Abraham Maslow hypothesized that within every human being there exists a hierarchy of five needs:
Maslow then categorized these 5 needs into lower-order needs and higher-order needs.Lower-order needs are needs
that are satisfied externally: physiological and safety needs.Higher-order needs are needs that are satisfied internally
(within the person): social, esteem, and self-actualization needs.
Theory X and Theory Y of Douglas McGrogor:
McGregor concluded that a manager’s vision of the nature of human beings is based on a certain blend of
assumptions and that he or she tends to mold his or her actions toward subordinates according to these assumptions:
o Employees naturally dislike work and, whenever possible, will attempt to avoid it
o Since employees dislike work, they must be coerced, controlled, or threatened with punishment to achieve
o Employees will avoid responsibilities and seek formal direction whenever possible
According to Herzberg, the factors leading to job satisfaction are dividing and distinct from those that leads to job
dissatisfaction. Hygiene factors include factors such as: company policy and administration, supervision, interpersonal
relations, working conditions, and salary. Motivator factors include factors such as: attainment, recognition, the work
itself, responsibility and growth.
o Company rule and management;
o association with supervisor;
o Work circumstances;
o Relationship with peers;
o Personal life;
o association with subordinates;
o Work itself;
Contemporary Theories of Motivation:
ERG Theory proposed by Clayton Alderfer of Yale University: Alderfer fights that there are three groups of core
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Existence group is worried with providing our basic material existence requirements. Relatedness group is the desire
we have for maintaining important interpersonal relationships
McClelland’s Theory of Needs:
McClelland’s theory of needs focuses on three needs:
Cognitive Evaluation Theory:
Allocating extrinsic rewards for behaviour that had been previously intrinsically rewarded tends to decrease the overall
level of motivation. (This concept was proposed in the late 1960s.)The interdependence of extrinsic and intrinsic rewards
is a real phenomenon
Task Characteristics Theories:
These theories seek to identify task characteristics of jobs, how these characteristics are combined to form different jobs,
and their relationship to employee motivation, satisfaction, and performance.
Specific and difficult goals lead to higher performance. Feedback leads to higher performance than non-feedback. In
addition to feedback, 2 other factors have been found to influence the goals-performance relationship. These are:
o Goal commitment.
o Sufficient self-efficacy.
Individuals make comparisons of their job inputs and outcomes relatives to those of others and then act in response
so as to remove any inequities’. Stacy Adams proposed that this negative tension state provides the motivation to do
something to correct it.
There are 4 referent comparisons that employee can use:
o Other – inside.
o Other – outside.
Meaning Leadership is a skill of leading others by
Management is an art of systematically
organizing and coordinating things in an
Basis Trust Control
Emphasis on Inspiring People Managing activities
Power Influence Rule
Focus on Encouraging change Bringing stability
Strategy Proactive Reactive
Formulation of Principles and guidelines Policies and Procedures
Perspective Leadership requires good foresightedness. Management has a short range perspective.
27 | Page Prepared by Umakant Annand(UGC NET Commerce, MCom, MBA)
BUSINESS EHTICSANDCORPORATE GOVERNANCE
Corporate governance lies at the heart of the way businesses are run. Often defined as the ‘way businesses are
directed and controlled’, it concerns the work of the board as the body which bears ultimate responsibility for the
business. Governance relates to how the board is constituted and how it performs its role. It encompasses issues of
board composition and structure, the board’s remit and how it carried out and the framework of the board’s
accountability to its stakeholders. It also concerns how the board delegates authority to manage the business
throughout the organization. The word ‘Corporate Governance’ (CG) has become a buzzword these days due to
various corporate failures world over in recent past.
The Corporate Governance represents the value framework, the ethical framework and the moral framework under
which business decisions are taken. In other words, when investment takes place across national borders, the
investors want to be sure that not only their capital handled effectively and adds to the creation of wealth, but the
business decisions are also taken in a manner which is not illegal or does not involve moral hazards (S.k verma &
Suman gupta, 2004).
BUSINESS EHTICSANDCORPORATE GOVERNANCE
1) Corporate Governance• In narrow sense, corporate governance deals with maximizing the shareholder’s
wealth In broader perspective, it considers the welfare of the all stakeholders and the society.
2) Ethicist is a branch of philosophy and is considered as a normative science because it is concerned with the
norms of human conduct.
3) Ethics is a conception of right and wrong behaviour, defining for us when our actions are moral and when
4) Business Ethics Business is the art and discipline of applying ethical principles to examine and solve
complex moral dilemmas.
5) Business Ethics A business is considered to be ethical only if it tries to reach a trade off between pursuing
economic objective and its social obligations.
6) Importance of Business Ethics Ethical is all about developing trust maintaining it fruitfully so that the firm
flourishes profitably and maintain good reputation. Trust leads to predictability and efficiency of the
7) Trust is used as a indicator variable of ethics. Basically trust is three dimensional i.e., trust in supplier
relationships, trust in customer relationships, and employee relationships.•
1) Unethical Issues There must be a strong corporate governance to control the unethical issues and activities.
2) Bribery Accepting bribe create a conflict of interest between the person receiving bribe and his organization.
And this conflict would result in unethical practices.
3) Coercion It is forcing a person to do things which are against his personal believes. E.g. blocking a
promotion, loss of job or blackmailing.
4) Insider Trading Insider trading is misuse of official position. Here the employee leaks out certain
confidential data to outsiders or other insiders which effect the reputation and performance of company.
5) Conflicts of Interest Conflict of interest when Private interests are important for employees which are against
the desire of employer
6) Unfair Discrimination Unfair treatment or given privileges to person son the base of race, age, sex,
nationality or religion. It is failures to treat all persons equally.
7) Political Donations and Gifts Gifts, donations or contribution to political leaders or parties to get any
unconditional act done e.g. sanctioning of any special contract, issue of licenses etc.
8) Presentation of false returns of income and statements It is to prepare false income returns and statements of
accounts for evasion of tax and getting various govt. benefits and incentives.
9) Accumulation of profits by illegal means Some times business undertakes various unethical and
unconstitutional activities to maximize its profits e.g. hoarding of goods, black marketing, speculation etc.
CHARACTERISTICS OF ETHICALORGANIZATONS
Characteristics of Ethical Organizations
1) Ethical organizations are based on the principle of fairness.
2) All stakeholders are treated equally without any discrimination.
3) Benefit of stakeholders in given precedence over own interest.
4) There is clear communication in ethical organizations.
5) What is to be done, how it is to be done is clearly stated.
28 | Page Prepared by Umakant Annand(UGC NET Commerce, MCom, MBA)
1) No bureaucracy.
2) Minimum bureaucracy and high control helps in implementing business ethics easily.
3) Compliance with applicable laws. E.g., rules made by SECP, federal government, etc. Honesty, fairness
and accuracy in operations.
CATEGORIES OF CODE OFETHICS FOR EMPLOYEES
o Category 1“Be a dependable organization citizen”:→demonstrate honesty and fairness in relationships
with customers, suppliers ad employees. Be reliable in attendance and punctuality. Comply with safety,
health and security regulations.
o Category 2“Don’t do anything unlawful or improper thatwill harm the organization”:→ Maintain
confidentiality of customer, employee and corporate records and information. Avoid outside activities which
conflict with or impair the performance of duties. Make decisions objectively without regard to friendship or
personal gain. Do not provide false or misleading information to corporation or government agency.
o Category 3“Be good to customers and suppliers”:→Strive to provide products and services of highest
quality.→ Convey true claims for products.
o Category 4→ Exhibit standards of personal integrity and professional conduct. Protect Quality of
environment.→ Racial and religious discrimination is prohibited.
CAUSES OF UNETHICAL CONDUCTIN AN ORGANIZATION
1) Pressure to meet unrealistic objectives and deadlines: According to a recent survey, the pressure from
management or from the Board to meet unrealistic business objectives is the leading factor that causes
2) Increase in acute competition: Competition is increasing at national and international level. Every business
aims to be the highest profit maker .To achieve this goal, organization/individuals are urged to act
dishonestly and unethically.
3) Economic Greed: People have a desire to live a life full of comforts and luxuries. Some people follow
unethical means to earn more money. Personal financial worries become a cause for unethical practices such
as accepting a bribe.
4) Information of unethical acts through media: The information given by media provides ideas to
inexperienced businessman for doing unethical activities.
5) Pressure to earn profit:- Shareholders expect larger returns.- Employees hope for higher salary and
benefits- Directors expect higher remuneration- Thus there is an increasing pressure to maximize profit to
cope with enlarged requirements.
6) Lack of Management Support or Poor Leadership:- Leader is responsible for motivating his staff.- If the
leader does not encourage his subordinates to be ethical then there are higher chances of unethical conduct-
If the leader himself is involved in unethical activities, his employees may do the same.
BENEFITS OF BUSINESSETHICS
1) Goodwill of the Business
o People like to build long term relationships with organizations that perform their tasks on the principles
o Following a code of ethics enhances the goodwill of the organization and organization possess a strong
o Moreover strong public image leads to continual loyalty and attracts new investors
2) Prevention from Legal Action
o By implementing ethical practices organizations are automatically prevented from illegal and
objectionable activities as business ethics instruct to avoid all that is wrong or evil.
o Such organizations have no fear of legal action and social boycott.
3) Business ethics have substantially improved society. Establishment of anti-trust laws, unions other
regulatory bodies has contributed to the development of the society.
4) Ethical practices create a strong public image
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o Organization with strong ethical practices will possess a strong image among the public.
o This image would lead to strong loyalty.
o Strong public image results in attracting new investors
5) Ethics practices support employee growth
o Ethics in the workplace helps employees face reality, both good and bad -- in the organization.
o Employees feel full confidence and therefore they can deal with any sort of situation.
6) Strong teamwork and high productivity
o Constant check and dialogue will ensure that the employee matches to the value of organization
which will in turn results in better co-operation and increased productivity.
7) Build trust with key shareholders
o Implementation of ethics helps organization to gain trust of their shareholders.
o Shareholders feel confidence that company is well monitored.
8) High Profits
o Business ethics create high returns or profits for the company
o Reputation of the company and its share prices also increase if the company acts upon corporate social
9) Business Ethics & Good Governance
o Most of the benefits received from business ethics are the goals of corporate governance.
o Thus we can say that ethics have a strong impact on corporate governance and the implementation of
business ethics can ensure good governance
TECHNIQUES TO IMPROVEETHICAL PRACTICES
Efforts at Institutional Level Efforts at Governmental Level Efforts ay Social and Religious Level
1) At Institutional Level Ethical code of conduct:“Handbook containing the rules, regulations and
procedure to be followed by the employees of an organization”.
2) Ethics committees: Ethics committees are formed for influencing the ethical conduct of business on a
3) Transparency in working: The procedure, rules and policies of a business organization should not be kept
4) Penalties :Criminal and monetary punishments may be given to those who neglect the ethical code of conduct.
5) Efforts At The Government Level Clear cut policies and working procedures: Due to unclear policies and
procedures of working, certain business people adopt corrupt practices, for taking advantages of the situation.
6) provisions: Strict penalty provisions especially in the Companies Act, 1956 must be altered so as to give
more criminal and monetary punishments.
7) At The Social And Religious Levels
o A businessman who follows the unethical conduct in business should be socially boycotted by the people.
o Social service institutions should take effective steps to bring in the notice of authorities of such
businessmen who act on unethical grounds.
Essentials of Good Corporate Governance
Good Corporate Governance are a formal system of Accountability and Control of ethical and socially responsible
decisions and use of resources. The following are the chief characteristics of Good Corporate Governance: it is
b. Consensus Oriented
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f. Effective and Efficient
g. Equitable and Inclusive and
h. Follows the Rule of Law.