Introduction to ManagementSeptember 20, 2018

CHAPTER ONE: MANAGEMENT AN OVERVIEW

The way organizations are managed is changing by necessity. Globalization is now an accepted
fact of everyday life. To remain or become competitive, managers in the developed countries
have to restructure and rethink how people are managed. In the new global economy that is
slowly emerging, human resources, information technology, speedy decision making, strategic
alliances, use of the skills of a diverse workforce, and knowledge of how to combine
individualism and teamwork can provide competitive edge opportunities for small entrepreneurs,
mid-size companies, or large conglomerate multinational firms. The application of effective
management principles, programs, and techniques in organizations must become commonplace
regardless of industries product.
There are several definitions of Management, but they all are fundamentally the same. Among
the many, some are:
Management is the process of coordinating all resources through the five major functions of
planning, organizing, staffing, directing /leading and controlling to achieve organizational
goals/desired objectives. That is, it is the process of achieving organizational goals through
engaging in the five major functions of planning, organizing, staffing, directing/leading and
controlling.
In the above definition there are three key concepts
Coordination of all resources: managers should coordinate the resources of an organization.
These resources may be human or non-human.
The five managerial functions: To coordinate the resources of an organization a manager should
employ/use the five managerial functions.
Objectives: Is the reason for the establishment of organizations and management is useful for
achieving these goals. Managing/management is concerned with productivity: effectiveness and
efficiency. There are points to be meet, targets to be shot or places to be reached. All
organizations establish a variety of goals and direct their energies and resources to achieve them.
Profit oriented business e.g. ROI goals
Hospital e.g. Patient care, Educational institution e.g. Teaching, research and community service.
All organizations also have resources that can be used to meet these objectives. Such resources
can be classified into: human and non-human, and management is, then, the force that unifies

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these resources. It is the process of bringing them together and coordinating them to help
accomplish organizational goals.
Management is the art of getting things done through other people by making the atmosphere
conducive for others. It is the process of getting things done through others, and their process
puts emphasis on both the objectives to be attained and the people who will be pursuing them.
An effective manager focuses on both work and people. The job of every manager is to achieve
organizational goals through the combined efforts of people. Management is the utilization of
scientifically derived principles to examine and improve collective efforts or production.
Management applies to any kind of organization, to managers at all organizational levels.
Without management, virtually no business could survive. Management increases the values of
our resources.
Management is the process of achieving organizational goals through engaging in the five major
functions of planning, organizing, leading, staffing and controlling.
This definition recognizes that
 Management is an ongoing activity
 Entails reaching important goals, and
 Involves knowing how to perform the five major functions of management.

Managers: are those persons in the position of authority who make decisions to commit (use)
their resources and the resources of others towards the achievement of organizational objectives.
Everybody is the manager of her time, energy and talents. Organization is a group of two or
more people brought together to achieve common stated objectives. Or a collection of two or
more persons engaged in a systematic effort to produce goods and/or services.
Managerial Functions
Regardless of the type of firm and the organizational level, all managers perform certain basic
functions. These managerial functions are planning, organizing, staffing, directing/leading and
controlling.
PLANNING is making decisions today about future actions.
It involves selecting missions and objectives and the actions to achieve them;
It requires decision making. That is, choosing future courses of action from among alternatives.
No real plan exists until a decision – a commitment of human or material resources – has been

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made. Before a decision is made, all we have is a planning study, an analysis or a proposal, but
not a real plan.
 Planning bridges the gap between where we are to where we want to be in a desired future.
 Planning identifies goals and alternatives. It maps out courses of action that will commit
individuals, departments and the entire organization for days, months and years to come.
 Planning is the first managerial function that all managers engaged in because it lays the
groundwork for other managerial functions.

ORGANIZING is concerned with assembling the resources necessary to achieve organizations’

objectives and establishing the activity authority relationship.
It is the management function that focuses on allocating and arranging human and non-human
resources so that plans can be carried out successfully. Resources are allocated on the basis of
major company goals.
Planning has established the goals of the company and how they are to be achieved; organizing
develops the structure to reach these goals. It is through organizing function that managers.
Determine which tasks are to be done, how tasks can best be combined into specific jobs, and
how jobs can be grouped into various units that make up the structure of the organization.
It involves creating job positions with assigned duties and responsibilities, arranging positions
into hierarchy by establishing authority–reporting relationship, determining the number of
subordinates each manger should supervise, determining the number of hierarchical levels etc
and thereby create an organization.
Organizing is not done once and then forgotten. As the objectives of the company change, they
will influence the structure of managerial and organizational relationship.
STAFFING: As it has been pointed out, organizing involves creating job positions with assigned
duties and responsibilities. Staffing involves filling and keeping filled the positions in the
organization structure. It is concerned with locating prospective employees to fill the jobs
created by the organizing process.
It basically deals with inventorying the people available, announcing vacancies, accepting,
identifying the potential candidates for the job, recruiting, selecting, placing, orienting, training
and promoting both candidates and existing employees. Staffing is concerned with human
resource of the organization.

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DIRECTING/LEADING has been termed as motivating, influencing, guiding, stimulating,

actuating or directing. It is aimed at getting the members of an organization move in the direction
that will achieve its objectives. Leading/leadership is the heart and soul of management. It
involves influencing others to engage in the work behavior necessary to reach organizational
goals; i.e., it is influencing people so that they will contribute to organization and group goals; it
has to do predominantly with the human/interpersonal aspect of management.
Leading is the most complex managerial function because it deals with complex human
behavior; and because most problems in organizations arise from people, their desire and
behavior. It includes communicating with others, helping to outline a vision of what can be
accomplished, providing direction, and motivating organization members to put forth the
substantial effort required.
CONTROLLING is the measuring and correcting of activities of subordinates to ensure that
events conform to plans. It deals with establishing standards, measuring performances against
established standards and dealing with deviations from established standards. Controlling is the
process through which managers assure that actual activities conform to planned activities. It is
checking current performances against predetermined standards contained in the plan. Control
activities generally relate to the measurement of achievement.
Significance of Management
Why do we study management? There are different reasons to study management. These are: It
is important for personal life.
Management is universal: managers work in all types of organizations, at all levels, and in all
functional areas. These managers are responsible for the success or failure of the
organizations. Societies depend on organizations for the provision of goods and services.
These institutions are guided by the decision of few individuals designated as Managers.
 It affects the accomplishment of social, economic, political and organizational goals.
Management is the force that determines whether business organizations and social
institutions will serve us or waste our talents and resources. Ever since people began forming
groups to accomplish aims they could not achieve as individuals, managing has been
essential to ensure the coordination of individual efforts.

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 People currently not trained by management get themselves in managerial positions and earn
their livelihood, and the most common path to become successful manager involves a
combination of education and experience.
 Management is needed to coordinate and direct the efforts of individuals, groups and the
entire organization to achieve desired objectives. Management is responsible for the success
or failure of an organization. That is, when an organization fails it is because of poor
management, and when an organization succeeds it is because of good management.
Whenever and wherever there is a group work having stated objectives, management is
needed to direct and coordinate their efforts. Without management effort will be wasted.

Levels of Management
Is management the same throughout an organization? Yes and No
 Yes: because all managers perform the five managerial functions.
 No: because despite the fact that they perform all managerial functions, they perform it with
different emphasis and scope.

Managers all perform the same management functions but with different emphases because of
their position in the organization. Although all managers may perform the same basic duties and
play similar roles, the nature and scope of their activities differ. These differences are the base
for the classification of managers. Managers can be divided based on two criteria. These are:
 Levels of management (vertical difference)
 Scope of responsibilities (horizontal difference)

Types of Managers based on levels of management

An important determinant of a manager’s job is hierarchical level. Levels refer to hierarchical
arrangement of managerial positions or persons in an organization. The number of managerial
levels in an organization depends on the size of the organization. In most organizations,

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however, there are three distinct levels. How these levels are distinguished? What functions are
performed at each level? And the reporting relationships are some of the issues to be addressed.
Based on levels of management or hierarchy we do have three types of managers. A manager’s
assigned duties and the authority needed to fulfill those duties are what determine management
level.
Top Level Managers: Top-level managers are managers who are at the top of the organizational
hierarchy and are responsible for the entire organization. They are usually few in number and
include the organization’s most important managers - the CEO or the president and her
immediate subordinates usually called vice-presidents. But the actual title may vary from
organization to organization. They are few in number because of the nature of the work they
perform and economic problem. They deal with the big picture, not with the nitty-gritty. They
are responsible for the overall management of the organization. They establish companywide
objectives or goals and organizational policies. Furthermore, top management:
 Develop overall structure of the organization.
 Direct the organization in accordance with the environment.
 Develop policy in areas of Equal Employment Opportunity and employee development.
 Represent the organization in community affairs, business deals, and government
negotiations.
 Spent much of their time in planning and dealing with middle level managers and other
subordinates.
 Work long hours and spend much of their time in meetings and on telephone.
 Are persons who are responsible for making decisions and formulating policies that affect
all aspects of the firm’s operations.
 Provide overall leadership of the organization towards accomplishment of its objectives.
 They are responsible for the organization because objectives are established and policies
are formulated at the top.
 Top-level managers take the credit or blame for organizational success and failures
respectively.

Middle Level Managers: Middle level managers occupy a position in an organization that is
above first-line management and below top management. They interpret and implement top
management directives and forward messages to and from first-line management.

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Regardless of their title, they are subordinates are managers. Often coordinate and supervise the
activities of lower level managers. Receive broad/overall strategies from top managers and
translate it into specific objectives and plans for First-Line Mangers/operating managers. Are
responsible for the proper implementation of policies and strategies defined by top level
managers. They interpret and implement top management directives and forward messages to
and from first-line management.
Their principal responsibility is to direct the activity that implement the policies of the
organization.
E.g. Academic deans, Division Head, Plant managers, Army captain, First Level Supervisory
Level managers Are those at the operating level or at the last level of management;
 Their subordinates are non managers.
 They are responsible for overseeing and coordinating the work of operating employees.
 Assign operating employees to specific tasks.
 Are managers on which management depends for the execution of its plan since their job
is to deal with employees who actually produce the organization’s goods and services to
fulfill the plan?
 Are directly responsible for the production of goods and services.
 Motivate subordinates to change or improve their performance. Serve as a bridge
between managers and non-managers. Spent much of their time in leading and little in
planning.
 Are in charge of carrying out the day to day activities within the various departments to
ensure that short term goals are met.

E.g. Department Heads, supervisory personnel, Sales managers, Loan officers, Foreman.
Are often neither fish nor fowl – neither management nor labor because they feel great deal of
empathy for their subordinates (which stems from close personal contact and the fact that most
supervisors have come up from the ranks of labor) and they are there to reflect the company’s
point of view to their subordinates. And that is why First-Line Mangers are called “People in the
Middle”.
All managers carry out managerial functions. However, the time spent for each function varies
according to their managerial hierarchy. Top-level managers spend more time on planning and
organizing than lower-level managers. Leading, on the other hand, takes a great deal of time for

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first-line managers. The difference in time spent on staffing and controlling varies only slightly
for managers at various levels.

Top

Organizational Hierarchy Time spent on carrying out managerial functions

Fig. 1.1 The relative importance of the managerial functions at different levels
Types of Managers based on scope of responsibility
Based on the scope of responsibility/activities they manage, managers are divided into two:
Functional Managers: Functional managers are managers who are responsible for a department
that performs a single functional task and has employees with similar training and skills.
Supervise employees (managers + workers) with specialized skills in specific areas of operations
such as accounting, payroll, finance, marketing, production, or sales etc. They are responsible for
only one organizational activity; i.e. their responsibility is limited to their
specialization/specification.
General Managers: General Managers are managers who are responsible for several departments
that perform different functions. They are responsible for the entire operations of the
organization without being specific. Oversee a complex unit, such as a company, a subsidiary, or
an independent operating division. She will be responsible for all activities of that unit, such as
its production, marketing, sales and finance. A small company may have only one general
manager – its president or executive vice president – but a large organization may have several,
each at the head of a relatively independent division.
Managerial Roles
 Role is an organized set of behaviors that is associated with a particular office or position.
 It is a pattern of behavior expected by others from a person occupying a certain position in an
organizational hierarchy.

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 A role is any one of several behaviors a manager displays as she functions in the organization

When a manager tries to carry out the management functions, she must behave in a certain way –
to fill certain role. Managerial roles represent specific tasks that managers undertake to
ultimately accomplish the five managerial functions. Factors which affect managerial roles are:
manager’s formal job description, and the values and expectations of other managers,
subordinates and peers.
Henry Mintzberg identified 10 managerial roles which are in turn grouped into three categories:
Interpersonal, Informational and Decisional Roles.
 Interpersonal Roles: involve developing and maintaining positive relationships with
significant others in the organization. It is communication oriented. It includes:
 Figurehead Role: managers perform symbolic duties of a legal or social nature. The
manager is the head of her work unit, be it division, section or department. Because of the
“lead person” position the manager represents her work unit at ceremonial or symbolic
functions. The top level managers represent the company legally and socially to those outside
of the organization. The superior represents the work group to higher management and higher
management to the work group. E.g. Signing documents, presiding at a ceremonial event,
greeting visitors, attending a subordinate’s weeding, taking a customer to lunch, university
president hands out a diploma for graduates – in all these cases the manager is representing
her organization.
 Leadership Role: The manager is the environment creator – she makes the environment
conducive for work by improving working conditions, reducing conflicts, providing feedback
for performance and encouraging growth. (Virtually all managerial operations involving
subordinates are examples for a leadership role). The leader builds relationship and
communicates with employees, motivates and coaches them. As a leader, the manager is
responsible for hiring, training, motivating and encouraging employees/subordinates. The
leadership role is evident in the interpersonal relationship between manager and her
subordinates.
 Liaison Role: The liaison maintains a network of contacts outside the work unit to obtain
information. The manager serves as a link between the organization and the informants who
provide favors and information. She fulfills her role through community service, conferences,
social events, etc; participation is meetings with representatives of other divisions. Refers to

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dealing with the member of the organization superiors, subordinates, peer level managers in
other departments, staff specialists and outside contacts such as clients. The top management
uses their role to gain favors and information, while the superiors use it to maintain the
routine flow of work.
 Informational Roles; focuses on the transmission of important information to and from
internal and external sources. It involves the following activities
 Monitor role: is also called information gathering role. This role refers to seeking, receiving,
screening and getting information. The manager is constantly monitoring the environment to
determine what is going on. The monitor seeks internal and external information about issues
that can affect the organization. She seeks and receives wide variety of special information to
develop through understanding of the organization and the environment. Information is
gathered from news reports, trade publications, magazines, clients, associates, and a host of
similar sources, attending seminars and exhibitions.
 Disseminator Role: what does the manager do with the information collected? As the
disseminator, the manager passes on to subordinates some of the information that would not
ordinarily be accessible to them. After the information has been gathered (by monitor role), it
has to be disseminated to superiors, subordinates, peers and other concerned clients. The
types of information to be forwarded to members could be facts, opinions, interpretations,
and influences.
 Spokesperson/representative Role: the spokesperson transmits information about the
organization to outsiders. The manager is the person who speaks for her work unit to people
outside the work unit. One aspect of their role is to keep superiors well informed and a
second aspect is to communicate outside the organization like press, government agencies,
customers and labor unions. Although the roles of spokesperson and figurehead are similar,
there is one basic difference between them. When a manager acts as a figurehead, the
manager’s presence is as a symbol of the organization, whereas, in the spokesman role, the
manager carries information and communicates it to others in a formal sense.

Thus, the manager seeks information in the monitor role, communicates it internally in the
disseminator role and transmits it externally in the spokesperson role. The three informational
roles, then, combine to provide important information required in the decisional roles.
 Decisional Roles: involve making significant decisions that affect the organization.

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 Entrepreneur Role: (initiator of change) the manager acting as an entrepreneur recognizes

problems and opportunities and initiates actions that will move the organization in the
desired direction. In the role of entrepreneur, the manager tries to improve the unit. Often she
creates new projects, change organizational structure, and institutes other important programs
for improving the company’s performance. The entrepreneur acts as an initiator, designer,
and encourager of change and innovation.
 Disturbance Handler Role: solution seeking role. In the role of disturbance handler, the
manager responds to situations over which she has little control, i.e. that are beyond her
control and expectation such as conflict between people or among groups, strikes, breach of
contract or unexpected events outside the organization that may affect the firm’s
performance. The disturbance handler is responsible for taking corrective action when the
organization faces important, unexpected difficulties.
 Resource Allocator Role: deciding on the allocation of the organization’s physical, financial
and human resources. As a resource allocator, the manager is responsible for deciding how
and to whom the resources of the organization and the manager’s own time will be allocated.
This involves assigning work to subordinates, scheduling meetings, approving budgets,
deciding on pay increases, making purchasing decisions and other matters related to the
firm’s human, financial, and material resources. The resource allocator distributes resources
of all types, including time, funding (finance), equipment and human resources.
 The Negotiator Role: representing the organization in all important/major negotiations.
Managers spend a great deal of their time as negotiators, because only they have the
information and authority that negotiators require. Examples include negotiations to buy
firms, to get credit, with government, with suppliers, etc.

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Summary of the ten managerial roles

Category Role Activity
Interpersonal Figurehead Perform ceremonial and symbolic duties such as
greeting visitors, signing legal documents
Leader Direct and motivate subordinates; training,
counseling, and communicating with subordinates.
Liaison Maintain information links both inside and outside
organization; use mail, phone calls, meetings.
Informational Monitor Seek and receive information, scan periodicals
and reports, maintain personal contacts.
Disseminator Forward information to other organization
members; send memos and reports, make phone
calls.
Spokesperson Transmit information to outsiders through
speeches, reports, memos.
Decisional Entrepreneur Initiate improvement projects; identify new ideas,
delegate ideas, delegate responsibility to others.
Disturbance Take corrective action during disputes or crises;
handler resolve conflicts among subordinates; adapt to
environmental crises.
Resource Decide who gets resources; scheduling, budgeting,
allocator setting priorities
Negotiator Represent department during negotiation of union
contracts, sales, purchases, budgets; represent
departmental interests.

Managerial Skills and Their Relative Importance

A manager’s job is diverse and complex and it requires a range of skills. Skills are specific
abilities that result from knowledge, information, practice, and aptitude.

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Effective managers are essential to the performance of all organizations, whether they have the
ability to plan, organize, staff, lead and control business operations effectively can determine a
firm’s ultimate success or failure.
Management success depends both on: a fundamental understanding of the principles of
management and the application of technical, human and conceptual skills.
Modern businesses are dynamic and complex, and competition in the market place is fierce.
Consequently, managers must be highly skilled to succeed. The skills managers need can be
classified as technical skill, human Relations skill, and conceptual skill
 Technical Skills – involve process or technique, knowledge and proficiency. It is the ability
to use the tools, procedures, or techniques of a specialized field. It includes mastery of the
methods, techniques, and equipment involved in specific functions, such as engineering,
manufacturing, or finance. Technical skill also includes specialized knowledge, analytical
ability, and the competent use of tools and techniques to solve problems in that specific
discipline. Is specialized knowledge and ability that can be applied to specific tasks. Is a skill
that reflects both an understanding of and a proficiency in a specialized field.

Technical skills are most important at the lower levels of management. It becomes less important
as we move up the chain of command because when they supervise the others (workers), they
have to show how to do the work.
E.g. A surgeon, an engineer, a musician, a quality controller or an accountant all have technical
skill in their respective areas.
 Human Relations or Interpersonal Skill – the ability to interact effectively with people. It is
the ability to work with, understand and motivate other people, either as individuals or as
groups. Managers need enough of human relationships skill to be able to participate
effectively and lead groups. These skills are demonstrated in the way a manager relates to
other people, including the way she motivates, facilitates, coordinates, leads, communicates,
and resolves conflicts. A manager with human skills allows subordinates to express
themselves without fear of ridicule and encourages participation. A manager with human
skills likes other people and is liked by them. This skill is a reflection of the manager’s
leadership ability.

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Managers who lack human skills often are abrupt, critical, and unsympathetic toward others. The
results are often abrupt, critical, and unsympathetic response from workers to management.
Because all work is done when people work together, human relation skills are equally important
at all levels of management.

 Conceptual skills – involve the formulation of ideas. It refers to the ability to see the big
picture – to view the organization from a broad perspective and to see the interrelations
among its components. It includes recognizing how the various jobs in an organization
depend on one another and how a change in any one part affects all the others. It also
involves the manager’s ability to understand how a change in any given part can affect the
whole organization, ability to understand abstract relationships, solve problems creatively,
and develop ideas.

Conceptual skills are more important in strategic (long range) planning; therefore, they are more
important to top-executives than middle managers and supervisors.
Although all three of these skills are essential to effective management, their relative importance
to specific manager depends on her rank in the organization. Technical skill is of greatest
importance at supervisory level; it becomes less important as we move up the chain of command.
Even though human skill is equally important at every level of the organization, it is probably
most important at the lower level, where the greatest number of management–subordinate
interactions is likely to take place.
On the Other hand, the importance of conceptual skill increases as we rise in the rank of
management. The higher the manager is in the hierarchy, the more she will be involved in the
broad, long term decisions that affect large parts of the organization. For top management, which
is responsible for the entire organization, conceptual skill is probably the most important skill of
all.
Important: Technical skill deals with things, human skill concerns people and conceptual skill
has to do with ideas.

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Technical Skills Conceptual Skills

Top Human Skills

Middle

First-line

Managerial Levels Managerial Skills

Fig. 1.2 Variation of skills necessary at different management levels

Management: Science or Art?
Science is characterized by making conclusions based on actual facts and verifies knowledge
through cause-effect relationship. It can be generally learnt, thought, and researched to know the
universal truth. Managers can work better by using the organized knowledge about management,
and it is this knowledge that constitutes a science.
Art is characterized by using common sense, personal feeling, beliefs, impulses, etc.
Management/Managing, like all other practices-music composition, engineering, accountancy or
baseball- is an art. It is know-how, skill or how to accomplish the desired objectives with
insufficient data and information or when there is limited use of secondary sources of
information. It is doing things in the light of realities of a situation. Thus, management as a
practice is an art; the organized knowledge underlying the practice may be referred to as a
science. In this sense/context science and art are not mutually exclusive but are complementary.
Therefore, management in actual sense is neither an art nor science, but it requires both to be
successful, i.e., it is not pure art because it uses scientific methods e.g. computer and it is not
pure science because it uses intuition, judgment, and creativity. Management is one of the most
creative arts as it requires a vast knowledge and the innovative skills to apply. Managers should
develop new ideas, techniques and strategies and be able to communicate them effectively in the
work environment. They should be able to make decisions even when there is shortage of data.
This leads us to the conclusion that ‘the art of management begins where the science of

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management stops’. This underlines the importance of making managerial decisions in the
absence of sufficient data and information by using the decision maker’s common sense.
Universality Of Management
Regardless of title, position, or management level, all managers do the same job. They execute
the five managerial functions and work through and with others to set and achieve organizational
goals. Managers are the same whether the organization is private or public, profit making or non-
profit making, manufacturing or service giving, and industrial or small firms. Hence,
management is universal for the following reasons.
 All managers perform the five managerial functions even if with different emphasis.
 It is applicable for all human efforts; be it business, non-business, governmental, private. It is
useful from individual to institutional efforts.
 Management utilizes scientifically derived operational principles.
 All managers operate in organizations with specific objectives.
 Management, in all organizations, helps to achieve organizational objectives.

In sum, management theories and principles have universal application in all kinds of organized
and purposeful activity and at all levels of management.
Chapter Two: The Planning Functions
Introduction:
Planning is the most important function of management. An organization can succeed in
effective utilization of its resources when its management decides in advance its objectives, and
methods of achieving them. Without this purposive and coordinated effort the results are chaos,
confusion, and wastage of resources. Planning involves determination of objectives, formulation
of programs and courses of action for their attainment, development of schedules and timing of
action and assignment of responsibilities for their implementation.
Planning encompasses defining the organization’s objectives or goals, establishing an overall
strategy, and developing a comprehensive hierarchy of plans to integrate and coordinate. It is
concerned with ends (What is to be done) and with means (how it is to be done).
2.1 Nature and Importance of Planning
Planning is ever manager’s job: Before managers can organize, lead, or control, they must make
the plans that give purpose and direction to the organization-deciding what needs to be done,
when and how it needs to be done, and who is to do it- for example, plant managers must plan

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how their facilities are going to be used, how many of what products to make, and when to make
them. Marketing managers must plan how to introduce products, what distribution channels to
use, and how to price the products. Even financial managers must plan how to structure the debt
and equity of the firm and how o budget and spend resources. The need for planning exists at all
levels and actually increases at higher levels, where it has the greatest potential impact on the
organization’s success.
We can highlight the essential nature of planning as follows:-
1. The Contribution of Planning to Purpose and Objectives:-Every plan and its supporting plans
in an organization should contribute to the achievement of organizational purpose and objectives.
Planning is justified when it enables to achieve the objectives and purpose of an organization.
2. Primacy of Planning: - The primacy of planning means that planning, as a managerial
function, precedes all other managerial functions. Since the other managerial functions are
performed to facilitate the achievement of goals that are set in the planning process, planning
logically precedes ass other managerial functions. Although planning proceeds, in practice, all
managerial functions intermesh as a single system of action. Planning is unique in that it involves
establishing the objectives necessary for all group effort.
3. The pervasiveness of planning: - It means that planning is the function of all managers,
regardless of the levels to which they belong. Although planning is performed by every manager
the scope and its importance varies from level to level. The authority that a person possesses
determines the scope and breadth of the plane that he makes.
4. Efficiency of plans: - Plan formulation and implementation involves cost. This cost should not
exceed the benefits to be obtained from the implemented goods. Plans should achieve objectives
with a minimum cost.
The efficiency of a plan is measured by the amount it contributes to the achievement of purpose
and objectives as offset by the costs and unsought consequences of formulating and
implementing the plan. Plans are efficient if they achieve their purpose neither at a reasonable
cost when cost is measured nor only in terms of time or money or production but also in terms of
individual and group satisfaction.
Importance of planning:
The major uses of planning function are as follows

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Minimizes risk and uncertainty:-By providing a more rational, fact –based procedure for making
decisions, planning allows managers and organizations to minimize risk and uncertainty.
Leads to success:-Planning does not guarantee success, but studies have shown, often things
being equal ,companies which plan not only outperform the non-planners also out perform their
own past results.
Focuses attention on the organization’s goal: - Planning helps the manager to focus attention on
the organization’s goals and activities. This makes it easier to apply and coordinate the resources
of the organization more efficiently. The whole organization is forced to embrace identical goals
and elaborate in achieving them.
Facilitate control:-In planning, the manager gets goals and develops plans to accomplish these
goals. These goals and plans then become standards or benchmarks against which performance
can be measured. The function of control is to ensure the activities conform to the plans. Thus,
controls can be exercised only if there are plans.

The planning process (Steps in planning):

The process planning indicates the major steps that are taken in planning. Generally there are 10
steps in the process.
 Understanding of the existing situation:-The awareness of the external environment in terms
of its opportunities and threats to the organization is of a great importance in planning. The
organization should analyze the economic situation (competition, prices, demand, supply
etc), political situation (government policies, taxation, peace and stability etc), socio-cultural
(culture of the society, direction in change of the culture, attitude of the society to wards
different products) and other environmental situation. All mangers should take a preliminary
at possible future opportunities and see them clearly and completely, know where they stand
in light of their strengths and weaknesses, understand what problems they wish to solve and
why ,and know what they expect to gain.
 Forecasting:-Planning is deciding what is to be done in the future. The manager can only plan
again an established background of a estimated future facts. Thus, although the future is full

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of uncertainties, the manager must make certain assumptions about it in order to plan
properly. These assumptions are based on forecasts of the future.
 Establishing objectives:-The next step in planning is to establish objectives for the entire
enterprise and then for each subordinate work unit. This is to be done for the long term as
well as for the short range. Objectives specify the expected results and indicate the end points
of what is to be done, where the primary emphasis is to be placed, and what is to be
accomplished by the network of strategies, policies, procedures, rules, budgets and programs.
 Determine alternative courses of action: The fourth step in planning is to search for and
examine alternative course of action, especially those not immediately apparent. There is
seldom a plan for which reasonable alternative do not exist, and quite often an alternative that
is not obvious proves to be the best. The more common problem is not finding alternatives
but reducing the number of alternatives so that the most promising may be analyzed.
 Evaluating alternative course of action:-After seeking out alternative courses and examining
their strong and weak points, the next step is to evaluate the alternatives by weighing them in
light of premises and goals. One course may appear to be the most profitable, but it may
require large cash out lay and have a slow pay back; another may look less profitable but
may involve less risk; still another may better suit the company’s long –range objectives.
 Selecting Course of Action:-This is the point at which the plan is adopted-the real point of
decision making. Occasionally, an analysis and evaluation of alternative courses will disclose
that two or more are advisable, and the manager may decide to follow several courses rather
than the one best curse,
 Formulating Derivative Plans:-When a decision is made, planning is seldom complete, and a
seventh step is indicated. Derivative plans are almost invariably required to support the basic
plan.
 Numbering plans by Budgeting:-After decisions are made and plans are set, the final step in
giving them meaning, as was indicated in the discussion of type’s plants, is to number them
by converting them into budgets. The overall budgets of an enterprise represent the sum total
of income and expenses, with resultant profit or surplus, and the budgets of major balance
sheet items such as cash and capital expenditures. Each department or program of a business
or some other enterprise can have its own budgets, usually of expenses and capital
expenditures, which tie into the overall budget. If done well, budgets become a means of

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adding together the various plans and also set important standards against which planning
progress can be measured.
 Implementing the plan After the optimum alternative has been selected, the manager needs to
develop an action plan to implement it. The manager must decide these issues: both human
and material, will the tasks be initiated and completed? What resources, both human and
material. Will be available for the process? How will the plan he evaluated? What reporting
procedures are to be used? What type and degree of authority will be granted to achieve these
ends?
 Controlling and evaluating the results: Once the plan is implemented, the manager must
monitor the progress that is being made, evaluate the reported results, and make any
modifications necessary. The environment that a plan is constructed in is constantly
changing, so the plans may have to be modified. Or modification maybe required because a
plan was not quite “perfect” when it was implemented.

2.3 Types of plan:

Plans can be classified on different bases or dimensions. The following are the important ones:-
 Repetitiveness
 Time dimension, and
 Scope/breadth dimension

Classification of plan based on repetitiveness

Standing plans: - are established set of decisions used by managers to deal with recurring or
organizational activities. Whenever organizational activities occur repeatedly a single decision or
set of decisions can effectively guide those activities. One established, standing plans allow
managers to conserve time used for planning and decision making because similar situations are
handled in a predetermined, consistent manner. For example , bank managers can more easily
approve or reject a loan requests if criteria are established in advance to evaluate credit ratings,
collateral assets, and related application information
The standing plans include the following:

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a) Purpose b. Objectives c. strategies d. policies

e) Procedures f. methods g. rules
a. Purpose (Mission):- In any social system any organization will have basic function is the
purpose of the organization. If any organization to be meaningful it should have a purpose to
survive, therefore, it is the justification for its existence. Sufficiently defining the purpose is
essential to establish meaningful objectives. Objectives are derived from the purpose of an
organization. The moment the purpose of the organization is difficult; its objective will also
cease to exist.
b) Objectives: - They are destinations of organizational operations.
The objective of business organization is the generation of profit by fulfilling their purpose. They
are what the organization tries to get by performing its purposes. Objectives are sometimes
called goals. They are targets toward which the open management system is directed.
Organizational inputs, process, and output all exist to reach organizational objectives. Properly
developed organizational objectives reflect the purpose of the organization; that is, they flow
naturally from the organizational purpose. The organizational purpose is what the organization
exists to do, given a particular group of customers and customer needs. Organizations exist for
various purposes and thus have various types of objectives. A hospital for example, may have the
primary purpose of providing high-quality medical services to the community.
Therefore, its primary objective is furnishing this assistance. The primary purpose of a business
organization, in contrast, usually is to make a profit. The primary purpose of the business
organization, therefore, is to concentrate on making that profit.
C) Strategies: - They focus on the ways and means to achieve the established objectives.
Strategies are major courses of actions that an organization plans to take in order to achieve its
objectives. Every objective should wave at least one strategy. An objective without strategy is
impossible to achieve.
Most well run organizations attempt to develop and follow strategies, large scale actions plans
for interacting with the environment in order to achieve long-term goals. A comprehensive
statement of an organization’s strategies, along with its mission and goals, constitutes an
organization’s strategic plan. To understand the origin of such strategies and how they are put in
to action, we have to examine an aspect of the planning function called strategic management.
Strategic management is a process through which managers formulate and implement strategies

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geared to optimize strategic goal achievement, given available environmental and internal
conditions. Strategic management is oriented toward reaching long-term goals, weighs important
environmental elements, considers major internal characteristics of the organization, and
involves developing specific strategies. Therefore, strategic management process encompasses a
major part of the planning process.
d. Policies: - A policy is a general guide line for decision making. It sets up boundaries around
decisions, including those that can be made and eliminating those that cannot.
In this way, it channels the thinking of organization members so that it is consistent with
organizational objectives. Some policies deal with very important matters such as those requiring
strict sanitary conditions where food or drugs are produced or packaged.
e. procedures:- Policies are carried out by means of more detailed guidelines called standard
Procedures.. A procedure provides a detailed set of instructions for performing a sequence of
actions that occurs often or regularly. For example, to handle orders involves the sales
department the finance department, the accounting department, the production department and
traffic department they show the sequence of activities. They are guides to action rather than
thinking. They tell us steps that should be followed to undertake the activities-the chronological
sequence of activities to be taken.
f. Methods: - It is even more detailed than a procedure. Where a procedure shows a series of
steps to be taken a method is only concerned with a single operation with one particular step. It
tells exactly how a particular step is to be performed.
g. Rules: - They spell out specific required or non required actions allowing no discretion
(freedom). They are plans which tell us the actions required and non- required and they compel.
They tell us what we should do or should not do. Example, No smoking, No personal phone
calls, No unauthorized personnel.
2. Single- use Plans: - Single use plans are detailed courses of action that probably will not be
repeated in the same form in the future. They are plans which are prepared for a particular
situation. For example, a rapidly expanding firm, panning to set up a new ware house, will need
a specific single-use plan for that project even though it has established a number of other
warehouses in the past. It will not be able to use an existing ware house plan, because the
projected warehouse presents unique requirements of location, construction costs, labour
availability, zoning restrictions, and so forth. The major type of single use plans include:

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a. Programs b. Projects c. Budgets

a. programs :-They are complex of goals, policies, procedures, rules, task assignments, resources
to be employed and other elements to carry out a given course of action. They may be various
size and duration. After achieving the short time requirements, the combinations cease to exist
(programs) but the plans continue to exist.
b. Projects: - Projects are smaller, separate portions of programs limited scope and distinct
directives concerning assignments and time. If the program is to transfer inventory from one
warehouse to another, one related project might be to evaluate floor space at the proposed
installation. It is considered merely a part of general program; a part which can be planned and
fulfilled as distinct project in itself; although intrinsically connected with a major program. A
project can be handled by itself (separately). The accomplishment of the program depends on the
achievements of the projects.
C. Budgets: - A budget is a single use plan that states projected income and expenditures for
specific period of time. Budgets are statements of the financial resources or numbered plans set
aside for specific activities in a given period of time; they are primary devices to control an
organization’s activities and are thus important components of programs and projects.
Classification of plans based on time:
They are classified as:-
a. Long range
b. Intermediate range
c. Short range
a. Long range plans:- It covers a longer time horizon and is concerned with the distant future.
This type of plan covers a time period of five years and above. It provides the long term direction
of an organization; what is to be performed in the long range.
b. intermediate range plans:- Is a plan designed for a period which is between the long range and
the short range. These plans are complementary of the long range plans. What we call long and
short is not uniform in every organization. It depends on the size and nature of an organization.
Example, in reference to size, small retail business and Tana department store ,and on the nature
of a firm, Wheat farm(which requires 6 months) and orange farm(which requires only 4 or 5
years).

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c. Short range plans: - They are plans that are not prepared separately; they are complementary
of long range plans.
They constitute the steps towards the implementation of long rage plans. They deal with the
immediate future actions. Often short- range plans are made without reference to long-range
plans. This is plainly a serious error. The importance of inter-grating the two types can hardly be
overemphasized, and no short-run plan should be made unless it contributes to the achievements
of the relevant long range plan. Many of the wastes of planning arise from decisions on
immediate situations that fail to consider their effect on more remote objectives. Responsible
managers should continually scrutinize immediate decisions to ascertain whether they contribute
to long range programs and subordinate managers should be regularly briefed on company long-
range plans so that they will make consistent short- range decisions. It is for easier to do this than
to correct inconsistencies, especially since short-term commitments fend to engender further
commitments along the same line.
Plans based on scope or breadth
We can classify plans in to three. These are:
a) Strategic planning: - It is the process of analyzing and deciding on the organization’s mission,
objectives, major course of actions or strategies and major resource allocations. It deals with
broad issues and performed by top level managers. Its important characteristic is that it is general
plan. It is a long-range planning that focuses on the organization as a whole. Managers consider
the organization as a total unit and ask themselves what must be done in the long-term to attain
organizational goals. It tells managers in broad sense what they are to achieve. It is mostly of the
long range. They do not tell what is to be done but show the overall direction of the course of
action.
b) Tactical planning: - It refers to the process of developing action plans through which strategies
are executed. They are to convert the strategic plans into action plans. It tries to develop the
plans which are not broad as strategic planning. Example:
Developing annual budget for each department, division and project, choosing specific measures
of implementing strategic plans.
Deciding on the courses of actions for improving current operations.
C) Operational planning
It is most specific and detailed action plan.

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It is made at the operating level and concerned with the day to day, week to week execution of
the organizational activities.
They tell exactly and specifically what should be done in the short range. They are action plans.

Chapter_3
Managerial Decision-Making
Meaning:
 Decision-making is a rational choice or selection of one alternative from among a set of
alternatives; i.e. it is the act of choosing one alternative from among a set of alternatives.
 Decision-making is the management function that consists of choosing one course of action
from all the available alternatives.
 Decision-making is part of every aspect of the manager’s duties, which include planning,
organizing, staffing, leading and controlling, i.e. decision-making is universal. In all
managerial functions decision-making is involved. All managerial functions have to be
decided. For example, managers can formulate planning objectives only after making
decisions about the organization’s basic mission. Even though in all managerial functions
decision-making is involved, the critical decision-making is during planning because
planning identifies the objectives of the organization; i.e. decision must be made to identify
the objectives/missions of an organization. In the planning process, managers decide such
matters as what goals or opportunities their organization will pursue, what resources will be
used, who will perform each required task etc. The entire planning process involves
managers in a continual series of decision-making situations.

Decision-making has three elements (parts)

 When managers make decisions; they are choosing or selecting from among alternatives.
 When managers make decisions, they have available alternatives. When there are no
alternatives, there is no decision-making, rather it become mandatory.
 When managers make decisions, they have purpose in mind. The purpose in mind is
organizational objectives.

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THE DECISION-MAKING PROCESS

Decisions are organizational responses to problems. Every decision is the outcome of a dynamic
process that is influenced by multitude of forces. So decision-making has its own processes /
series of steps. The process is a sequential process rather than a series of steps.
 Identifying problems: A necessary condition for a decision to exist is a problem - the
discrepancy between an actual and desired state; a gap between where one is and where one
wants to be. If problems do not exist, there will be no need for decisions; i.e. problems are
prerequisites for decisions. How critical a problem for the organization is measured by the
gap between levels of performance specified in the organization’s goals and objectives and
the level of performance attained; i.e. it is measured by the gap between level of performance
specified (standards set) and level of performance attained. The problem is very critical when
the gap between the standard set and actual performance attained is very high. To locate
problems, managers rely on several different indicators:
 Deviations from past performance. A sudden change in some established pattern of
performance often indicates that a problem has developed. When employee turnover
increases, sales decline, selling expenses increase, or more defective units are produced, a
problem usually exists.
 Deviation from plan. When results do not meet planned objectives, a problem is likely. For
example, a new product fails to meet its market share objective, profit levels are lower than
planned, and the production department is exceeding its budgets. These occurrences signal
that some plan is off course.
 Outside criticism. The actions of outsiders may indicate problems. Customers may be
dissatisfied with a new product or with their delivery schedules; a labor union may present a
grievance; investment firms may not recommend the organization as a good investment
opportunity; alumni may withdraw their support from an athletic program.

Decision makers face three types of problems:

 A crisis problem is a serious difficulty requiring immediate action. An example of a crisis is
a severe cash flow deficiency that has a high potential of evolving into serious losses, and a
customer protest against the quality of a product.

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 A non-crisis problem is an issue that requires resolutions but does not simultaneously have
the importance and immediacy characteristics of a crisis. Many of the decisions that
managers make center on non-crisis problems. Example of such problems is a factory that
needs to be brought into conformity with new state antipollution standards during the next
three years and an employee who frequently is late for work.
 An opportunity problem is a situation that offers strong potential for significant
organizational gain if appropriate actions are taken. Opportunities typically involve new
ideas and novel directions that could be used, rather than difficulties that must be resolved.
Non-innovative managers tend to focus on problems rather than opportunities.

Confusions are common in problem definition because the events or issues that attract the
manager’s attention may be symptoms of another more fundamental and pervasive difficulty
than the problem itself. That is, there may exist confusion on the identification of a problem and
its symptoms. The accurate definition of a problem affects all the steps that follow. Managers
once they have identified problems, they have to try to diagnose the cause of the problem.
Causes unlike symptoms are seldom apparent.
This step has three general stages: scanning, categorization, and diagnosis.
 Scanning stage: involves monitoring the work situation for changing circumstances that may
signal the emergence of a problem. At this point the manager may be only vaguely aware that
an environmental change could lead to a problem or that an existing situation constitutes a
problem.
 Categorization stage: entails attempting to understand and verify signs that there is some type
of discrepancy between the current state and the desired state. At this point the manager
attempts to categorize the situation as a problem and a no problem, even though it may be
difficult to specify the exact nature of the problem, if one exists.
 Diagnosis stage: involves gathering additional information and specifying both the nature
and the causes of the problem. Without appropriate diagnosis, it is difficult to experience
success in the rest of the decision-making process. At the diagnosis stage, the problem should
be stated in terms of the discrepancy between current conditions and what is desired; the
cause of the discrepancy should be specified.

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Developing Alternatives
Before a decision is made feasible alternatives should be developed. This is a search process in
which relevant internal and external environment of the organization are investigated to provide
information that can be developed into possible alternatives. At this point it is necessary to list as
many possible alternatives solutions to the problem as you can. No major decision should be
made until several alternative solutions have been developed. Decision-making at this stage
requires finding creative and imaginative alternatives using full mental faculty. The manager
needs help in this situation through brainstorming or Delphi technique.
Evaluating Alternatives
Once managers have developed a set of alternatives, they must evaluate them to see how
effective each would be. Each alternative must be judged in light of the goals and resources of
the organization and how well the alternative will help solve the problem. In addition, each
alternative must be judged in terms of its consequences for the organization. Will any problems
arise when a particular course of action is followed? Such factors as worker’s willingness…
Choosing an Alternative
Based on the evaluation made managers select the best alternative; In trying to select an
alternative or combination of alternatives, managers find a solution that appears to offer the
fewest serious disadvantages and the most advantages. The purpose of selecting an alternative is
to solve the problem so as to achieve a predetermined objective. Managers should take care not
to solve one problem and create another with their choice.
A decision is not an end by itself but only a means to an end. This means the factors that lead to
implementation and follow –up should follow solution selection.
Implementing and Monitoring the Chosen Solution
For the entire decision-making process to be successful, considerable thought must be given to
implementing and monitoring the chosen solution. It is possible to make a "good' decision in
terms of the first five steps and still have the process fail because of difficulties at this final step.
Implementing the Solution: A decision that is not implemented is little more than an abstraction.
In other words, any decision must be effectively implemented to achieve the objectives for which
it was made. Implementing a decision involves more than giving orders. Resources must be
acquired and allocated. Decisions are not ends by themselves they are means to an end; so proper
implementation is necessary to achieve that end.

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Monitoring the solution: Monitoring is necessary to ensure that things are progressing as planned
and that the problem that triggered the decision process has been resolved. Effective
management involves periodic measurements of results. Actual results are compared with
planned results (the objective); if deviations exist, changes must be made. Here again we see the
importance of measurable objectives. If such objectives do not exist, then there is no way to
judge performance. If actual results do not much planned results, then the changes must be made
in the solution chosen, in its implementation, or in the original objective if it deemed
unattainable. The various actions taken to implement a decision must be monitored. The more
important the problem, the greater the effort that needs to be expended on appropriate follow up
mechanisms. Are things working according to plan? What is happening in the internal and
external environments as a result of the decision? Are subordinates performing according to
expectations? ……. must be closely monitored.

Decision-Making Conditions
When managers make decisions, the amount of information available to them or the degree of
knowledge they have about the likelihood of the occurrence of each alternative vary from
managers to managers or/and from situation to situation. To put it in other way, decisions are
made under three basic conditions. These are condition of certainty, condition of risk, and
condition of uncertainty.
 Decision-making under Certainty: When managers know with certainty what their
alternatives are and what conditions are associated with each alternative, a state of certainty
exists. Decisions under certainty are those in which the external conditions are identified and
very predictable; i.e. we are reasonably sure what will happen when we make a decision. The
information is available and is considered to be reliable, and we know the cause and effect
relationships. In decision-making under certainty there is a little ambiguity and relatively low
chance of making poor/bad decisions. Decision-making under certainty seldom occurs,
however, because external conditions seldom are perfectly predictable and because it is
impossible to try to account for all possible influences on any given outcome it is very rare.

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 Decision-making under Risk: A more common decision-making situation is under risk.

Under the state of risk, the availability of each alternative, the likelihood of its occurrence
and its potential payoffs and costs are associated with probability estimates; i.e. decisions
under risk are those in which probabilities can be assigned to the expected outcomes of each
alternative. In a risk situation, managers may have factual information, but it may be
incomplete. There is moderate ambiguity and moderate chance of making bad decision. E.g.
tossing a coin, metrology
 Decision-making under Uncertainty: Under this condition the decision maker does not know
what all the alternatives are, what the probability of each will occur is or what consequences
each is likely to have. This uncertainty comes from the dynamism of contemporary
organizations and their environment. Big multi-national corporations assume these kinds of
decisions. Decision-making under uncertainty is the most ambiguous and there is high
chance of making poor decisions. In decision-making under uncertainty, probabilities cannot
be assigned to surrounding conditions such as competition, government regulations,
technological advances, the over all economy, etc. Uncertainty is associated with the
consequences of alternatives, not the, and other people's experiences can assist the manager
is assessing the value of alternatives. E.g. Innovation of new machine, journey of
discoverers.

Types of Decisions
Decisions can be classified in to: programmed and non-programmed.
 Programmed Decisions Programmed decisions are those made in routine, repetitive, well-
structured situations through the use of predetermined decision rules. The decision rules may
be based on habit, computational techniques, or established policies and procedures. Such
rules usually stem from prior experience or technical knowledge about what works in the
particular type of situation. Most of the decisions made by first line managers and many of
those made by middle managers are the programmed type, but very few of the decisions
made by top-level managers are the programmed type. Managers can usually handle
programmed decisions through rules, procedures, and policies. E.g. Establishing a re-order
point, Decide if students meet graduation requirements, Determination of employee pay rates

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 Non-programmed Decisions: Non-programmed decisions are used to solve non-recurring,

novel, and unstructured problems. No well-established procedure exists for handling them,
because it has not occurred before managers do not have experience to draw up on, or
problems are complex or completely new. Because of their nature non-programmed decisions
usually involve significant amounts of uncertainty. They are treated through farsightedness.
Most of the highly significant decisions that managers make fall into the non-programmed
category. Non-programmed decisions are commonly found at the middle and top levels of
management and are often related to an organization’s policy-making activities. E.g. To add
a product to the existing product line, to reorganize a company, to acquire another firm.

Types of Managerial Decisions

Type of Type of Procedures Examples
decisions problem
Programme Repetitive,  Rules,  Business: processing payroll vouchers
d routine  Standard operating  College: processing admission applicants
 procedures,  Hospital: preparing patient for surgery.
policies  Government: using state owned motor
vehicle.

Non- Complex, Creative problem  Business: introducing a new product.

programmed novel solving  College: constructing new classroom
facilities
 Hospital: reacting to regional disease
epidemic
 Government: solving spiraling inflation
problem

In reality most decisions fall between the two; i.e. a continuum of decision situations exists
ranging from those that are highly structured to those that are unstructured. Situations between
the two extremes are partially structured. As the name suggests, in a partially structured
situation, only a part is well structured. Typically, although the manager has a great deal of data

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available, the final choice is not obvious. Many intangibles are involved in the final choice.
Therefore, the manager must base the ultimate decision on the data and supplementary factors,
using judgment and experience.
E.g. A hospital wishing to improve patient care may adjust its patient-staff ratio (programmable
situation), reorganize its staff (a non programmable situation).

Continuum of Decision situations

WELL STRUCTURED PARTIALLY ILL-STRUCTURED
(PROGRAMMED) STRUCTURED (NON-PROGRAMMED)

1. Specification of decision 1. Only a part of decision 1. Decision procedure cannot

procedure agreed in process can be be completely structured in
advance of resolution completely advance of resolution

2. Little managerial 2, manager makes final 2, Individuals resolve each

involvement at time of resolution from structured situation on the basis of
each resolution portion of his/her experience and judgment
experience and from
intuition
3. Repeated resolutions with 3, Different managers may 3, Different managers may reach
same data yield same agree on certain data different conclusions
results

Why Do Managers Make Poor Decisions?

All managers recognize the importance of making sound decisions. Yet most managers readily
admit having made poor decisions that hurt their company or their own effectiveness. Why do
managers make mistakes? Why don’t decision always result in achieving some desired goal?
Making the wrong decision can result from any one of these decision-making errors:
 Lack of adequate time: Waiting until the last minute to make a decision often prevents
considering all alternatives. It also hampers thorough analyses of the alternatives.
 Failure to define goals: Objectives cannot be attained unless they are clearly defined. They
should be explicitly stated so that the manager can see the relationship between a decision
and a desired result.

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 Using unreliable sources of information: A decision is only as good as the information on

which it is based. Poor sources of information always result in poor decisions.
 Fear of consequences: Managers often are reluctant to make bold, comprehensive decisions
because they fear disastrous results. A “play it safe” attitude sometimes limits a manager’s
effectiveness.
 Focusing on symptoms rather than causes: Addressing the symptoms of a problem will not
solve it. Taking aspirin for a toothache may provide temporary relief, but if an abscess causes
the pain, the problem will persist. Business managers too often foul on the results of
problems instead of the causes.
 Reliance on Hunch and Intuition: Intuition, judgment and ‘feel’ are important assets to the
decision maker. But a manager who permits intuition to outweigh scientific evidence is likely
to make a poor decision.

Sometimes a manager’s decision is not exactly “poor”, but it still doesn’t produce optimal
results. Less than optimal decisions can have three causes:
 Bounded rationality imposes limits on a decision, such as that it should be economical or
logistically practical. This limit serves as a screening device, eliminating some of the
alternatives. The manager must choose from the options that have filtered through the
restrictions. The overall optimal decision may no longer be a valid option when using this
method. The decision maker simply selects the best alternative, given various specifications
that must be met.
 Sub optimization is a manager’s tendency to operate solely in the interests of his/her
department rather than in the interests of the company as a whole. In making a decision, the
department manager cannot be so self-centered as to ignore the effects of the action on other
areas. The key is to improve the company’s performance, not just the performance of one
department.
 Unforeseen changes in the business environment also cause less than optimal decisions.

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CHAPTER 4
ORGANIZING
INTRODUCTION
Organization is used in two different senses, in the first sense; it is used to denote the process of
organization. In the second sense, it is used to denote the result of that process, namely the
organization structure.
Using it in the first sense, organization is the process of defining and grouping the activities of
the enterprise and establishing the authority relationship among them. In performing organizing
function, the manager differentiates and integrates the activities of his/ her organization. By
differentiation is meant the process of departmentalization or segmentation of activities on the
basis of some homogeneity. Integration is the process of achieving unity of effort among the
various departments.
4.1 Definitions of Organizing
What to do and how to do have already been determines in the planning process. The result of a
good planning process is a detailed program of what actions are to be taken to accomplish
predetermines objectives, how long it will take, and where it will take place.
The next task becomes that of organizing. Organizing is the process of identifying and grouping
tasks to be performed, assigning responsibility and delegating authority and establishing
relationships for the purpose of enabling to work most effectively together in the
accomplishment of objectives.
The organizing Function has the following four distinct Activities:
I. It determines what work activities have to be done to accomplish organizational objectives.
II. It classifies the type of work needed and groups the work in to manageable units.
III. It assigns the work to individuals and delegates the appropriate authority.
IV. It designs a hierarchy of decision-Making Relationships.

Organizing results in an organization structure that can be thought of as a framework that holds
the various functions together according to the pattern determined by management. An
organization structure is a tool of management to achieve plans.

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4.2. FORMAL AND INFORMAL ORGANIZATION

Formal organization is an organization that is deliberately and rationally designed and approved
by management through the organizing process in order to achieve the objectives of the firm.
Informal organization refers to people in group associations, but these associations are not
specified in the structure of the formal organization. Informal organizations are natural groupings
of people in the work situation based on their behavioral patterns, interests, beliefs, objectives,
etc. The main point to be noted is that no conscious attempt is made to create informal
organizations. They appear in response to the social needs – the need of people to associate with
others.
Even though informal organization is not established officially it exists and it is there always in
the formal organization; it may affect the formal organization negatively or positively. Managers
should recognize that the informal organization exists in the formal organization; nothing can
destroy it. Therefore, they should try to use the informal organization for the benefit of the
formal organization.
Informal organizations have the following characteristics.
 Group norms: these are unwritten laws that govern the behavior of members of the informal
organization.
 Group cohesiveness: by this we mean the members of an informal organization stick
together.
 Group leadership: the informal organization has a leader- the informal leader. This person is
the most active one from among the members.
 Communication network: the informal; organization has a communication network that is
called grapevine.

4.2.1 Types of Groups in the Informal Organization

The informal organization is often looked at as groups of people. Informal groups may be
described as horizontal, vertical, or mixed. These titles indicate whether the group members
come from the same or different levels of formal organization.
Horizontal Groups
 Include persons whose positions are on the same level of the organization i.e. they are groups
that are formed by peers.

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 The groups can consist of all the members in the same work areas or membership developed
across departmental lines.
 Members may be all management or non-management personnel.
 Horizontal groups are the common kind of informal groups by virtue of the ease of
accessibility.
 Membership in a horizontal group is usually mutually beneficial to individuals - “You help
me and I will help you”. People in the same or related work areas often share the same
problems, interests, and concerns.

Vertical Groups
 Include people on different levels of the formal organization’s hierarchy. These people
always come together within the same department (work areas).
 A vertical group can consist of a supervisor and one or more of his/her employees. It may
also be formed through skip - level relationships - a top-level manager may associate with a
first level manager.
 Their relationships can be the result of outside interests or various employment relationships.

Mixed Group
 It is a combination of two or more persons whose positions are on different levels of the
formal organization and in different work areas. E.g. a Vice-President may develop a close
relationship with the director of computer services in order to get preferential treatment.
 A production manager may cultivate an informal, social relationship with the director of
maintenance for the same reason.
 Mixed groups often form because of common bonds outside work.

4.2.2 Why people form informal groups?

 Need for satisfaction: People have needs that in some cases are not met through the formal
organization. The opportunity to fulfill security, affiliation, esteem, and sometimes self-
actualization needs can encourage people to look out and join others in an informal group.
They provide the opportunity to satisfy needs.
 Proximity and interaction: A common reason people join groups is that they work near one
another. This can be either through working in close proximity physically or because of
frequent interaction. Horizontal informal groups are prime examples of this.

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 Similarity: People may join informal groups because they are attracted to other people who
are similar to themselves. Several persons with the same attitudes or beliefs may join one
group. Other factors or similarity can be personality, race, sex, economic position, age,
educational background etc.

 In informal group/organization one is not limited to one informal organization because there
may exist still unsatisfied needs by involving in one/two informal organization.

4.2.3 Why informal groups exist?

 Informal groups remain in existence because they serve four major functions:
 They maintain the social and cultural values of the group members: Individuals in the group
are likely to share the same beliefs and values as a result of background, education, or
cultural heritage. The many areas about which the group may have beliefs are reinforced and
maintained by the group environment. Such belief areas are, for example, the work ethic.
 They provide group members the opportunity for status fulfillment and social interaction:
Individuals can receive what the formal organization cannot or has not chosen to provide. “I
am just another figure” feeling (identity crisis) may be avoided by informal group. E.g. an
individual whose post is a technician may assume a position of head for a volleyball team.
 They provide information for their members: The informal group develops its own system
and channels of communication parallel to management’s formal channels. The ability to
acquire access to information for members is a major function of informal groups. Crucial
information can be obtained through informal communications.
 They influence the work environment: Informal groups regulate or influence the behavior,
dress, or work standards of their members through positive means-acceptance, support, and
affiliation or through negative methods – threats of ostracizing non-complying members. The
informal group can also regulate or influence the actions of management and other informal
groups.

The Impact of Informal Organization on the Formal Organization

The groups that compose the informal organization can affect the formal organization negatively
and positively.
The Negative Impacts

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 Resistance to change: The informal organization can resist change. In an effort to protect its
values and beliefs, the informal group can place roadblocks in the path to any modifications
in the work environment. The informal group shows its resistance through hampering its
implementation.
 Conflict: The informal group can create two “masters” for an employee. In an attempt to
satisfy the informal group, the employee may come in conflict with the formal organization.

E.g. The Company may allow 10 minutes for coffee break; however, the informal group may
extend it to 30 minutes for the employee’s social satisfaction. Therefore, the employee’s social
satisfaction is in conflict with the employer’s need for productivity.
 Rumor: The informal communication system - the grapevine - can create and process false
information or rumors. The creation of rumors can upset the balance of the work
environment.
 Pressure to conform: The norms that the informal groups develop act as a strong inducement
toward conformity. The more cohesive the group, the more accepted are the behavioral
standards. Non-conforming in the person’s reference group can result in gentle verbal
reminders from the group but can escheat to harassment – ostracism (exclusion).

The Positive Impacts

 Makes the total system effective: If the informal organization blends well with the formal
system, the organization can function more effectively. The ability of the informal group to
provide flexibility and instantaneous reactions will polish the plans and procedures
developed through the formal organization.
 Provides support to management: The informal organization can provide support to the
individual manager. It can fill in gaps in the manger’s knowledge through advice or through
performing the work, for example, budgeting and scheduling. By performing effectively and
positively, it can build a cooperative environment. This, in turn, can mean more delegation
to the employees and less time spent by the manager controlling employee behavior.
 Provides a useful communication channel: The informal organization provides employees
with the opportunity for social information, for discussing their work, and for understanding
what is happening in the work environment.

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 Encourages better management: Managers should be aware of the power of the informal
organization in what is actually a check and balance system. Planned changes should be
made with an awareness of the ability of the informal group to make the plan successful or
unsuccessful.
 Provides stability in the work environment: The informal organization can provide
acceptance and belonging. This feeling of being wanted by the group can encourage
employees to remain into environment, thus reducing turnover. Additionally, the informal
organization provides a place for a person to vent frustrations. Being able to discuss them in
a supportive environment may receive emotional pressures.

4.3. THE ORGANIZING PROCESS

Organization is the process by which employees, facilities and tasks are related to each other,
with a view to achieve specific goals. The process of organizing, involves the following steps:
 Identifying the work / consider plans and goals: We organize to achieve objectives. So, it is
essential to identify the total work necessary to achieve objectives. The work must be
classified in systematic way so that each person in the organization gets a separate and
distinct task. Work must be divided and distributed because no one can handle the total work
in an organization single handedly. Identification and classification of work enables
managers to concentrate on important activities, avoiding unnecessary duplications,
overlapping and wastage of efforts.
 Grouping the work: Division of work relates the need for coordination. In order to provide
for a smooth flow of work all closely related and similar activities must be grouped together.
Thus, departments and divisions are created under the direction of a manager.
 Establishing relationships: In order to secure compliance to organizational directives,
reporting relationships must be specified. Once formal relationships are established, it would
help individuals know what must be done, how it must be done, to whom the matters must be
referred and how particular jobs relate to one another, etc. When formal relationships are
established, it would provide a frame work for assigning duties and responsibilities to
individuals in a clear fashion.
 Delegating authority: Authority is the right to issue orders and exact obedience from others.
Without authority, a manager may not be able to perform the tasks with confidence and show
results. While assigning duties, the manager should clearly specify authority and

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responsibility limits, so that the subordinate knows well in advance as to what type of work is
expected of him by the superior.
 Providing for coordination and control: The interrelationships between various positions
must be specified clearly. The activities and efforts of various individuals must be
coordinated. The performance must be measured, evaluated and controlled at frequent
intervals. If deviations occur, they must be spotted early and appropriate remedial steps taken
immediately.

4.4. MAJOR ELEMENTS OF ORGANIZING FUNCTIONS

 Departmentalization
 Delegation of Authority
 Centralization and Decentralization of authority
 Span of Management
1. Bases of Departmentation

The process of combining jobs into groups is termed departmentation. A manager must have a
basis, or rationale, for combining jobs. Numerous bases for departmentation exits; The more
important ones are explained below.
a. Functional Departmentation: Jobs can be grouped to the functions of the organization. A
business firm includes such functions as production marketing, finance, accounting, and
personnel. A major disadvantage of the functional arrangement, however, appears when
specialists, working with and encouraging one another in their respected areas of expertise
and interest, let the organizational objectives take a back seat to departmental objectives.
b. Territorial (Geographic) Departmentation: Another commonly used departmental basis is
built around geography. All activities in a geographic area are assigned to a particular
manager. This individual is in charge of all operations in that geographic area. A business
firm that is dispersed graphically often will use territory as s departmentation basis. The
territorial basis frequently is used by firms whose operations are similar from region to
region.

An advantage often associated with territorial departmentation is that it provides a training

ground for new managers. The company can place managers out in territories, and then assess

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their progress. The territorial basis also enables the firm to develop local marketer areas and
adjust more quickly to local customers’ needs.
The disadvantages of territorial departmentation include: difficulties in maintaining consistent
adherence to company policy and practices, duplication of effort, and the necessity of having a
relatively large number of managers.
c. Product Departmentation: In many large, diversified companies, activities and personnel are
grouped on the basis of product. As a firm grows, coordinating its various functional
departments become more difficult, and product departmentation can ease coordination
problems. This form of organization allows personnel to develop total expertise in
researching, manufacturing, and distributing one product lines. Concentrating authority,
responsibility, and accountability in a specific product department allows top management to
better coordinate its activities. The need for coordinating production, engineering, sales, and
service cannot be overestimated. With in each of these product groups, you find production
and marketing personnel. Since group executives coordinate the sales, manufacture, and
distribution of a product, they become overseers of a profit center; this is the manner in
which profit responsibility is exacted from product organizational arrangements.

The disadvantages of product–based organizations stem from the need to create relatively
independent divisions. Each division must have all the resources and types of jobs necessary to
be in business, Each division also must have accountants, lawyers, engineers, market researchers,
and scientists assigned to it , Therefore, the product based organization runs the danger of
duplication of effort among its divisions.
d. Customer Departmentation: Grouping activities so that reflect a primary interest in customers
is common in a variety of enterprises. Customers are the key to the way activities are
grouped when each of the different things an enterprise does for them is managed by one
department head. The industrial sales department of a wholesaler that also sells to retailers is
a case in point. Business owners and managers frequently arrange activities on this basis to
cater to the requirements of clearly defined customer groups, and educational institutions
offer regular and extension courses to serve different groups of students.

Advantages: Customer Departmentation can address the special and widely varied needs of
customers for clearly defined services .The manufacturer that sells to both wholesalers and

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industrial buyers frequently can meet their special needs by setting up separate departments.
Non-business groups follow similar practices. The extension services of universities, such as
night-school divisions, are arranged, with respect to time, subject matter, and sometimes
instructors, to appeal to an entirely different group of students than those who attend the
university on a full – time day basis.
e. Multiple
The methods cited above for dividing work are not exhaustive; there are many other ways to
combine jobs into departments. Furthermore, most large organizations are composed of
department using different bases. They combine their activities by combining different bases.
For example, at the upper levels of management, the vice presidents reporting to the president
may represent different product groups. At the level directly below the vice presidents, the
managers may be part of a particular function. At the next level in the organization, there may
be a number of different technical classifications.

Matrix organizational: another kind of departmentation is matrix or gird organization, or project

or pro9duct management. The essence of matrix organization normally is combining of
functional and project or product patterns of departmentation in the same engineering
department, there are functional managers in charge of engineering functions and an overlay of
project managers responsible for the end product.
All these departmentation bases have appropriate applications. The challenge to the organization
is to select the most suitable base to meet its objectives and to be responsive to the need to
change the structure when the objectives changes.
Major organizational concepts
Now that we have discussed the organizing process and potential organizational approaches, it is
necessary to examine some major organizational concepts and principles that managers work
iwht in developing a workable system. A Working knowledge of authority, delegation, span of
control and the centralization vs. Decentralization issue is essential to the ongoing process.
Authority
Authority is the right to command resources in an organization. Types of authority: In an
organization, different types of authority are created by the relationship between individuals and
between departments. There are three types of authority.

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 Line authority defines the relationship between superior and subordinate. It is a direct
supervisory relationship. Managers who supervise operating employees or other managers
have line authority. Line authority flows downward in an organization directly form superior
to subordinate.
 Staff authority is advisory in mature. Managers whose role is to provide advice or technical
assistance are grated advisory authority. Advisory authority does not provide any basis for
direct control over the subordinates or activates of other departments with whom they
consult. (Within the staff manager’s own department, he or she exercises line authority over
the department’s subordinates.)
 Functional authority is authority delegated to an individual or department are specific
activities undertaken by personnel in other departments. Staff departments may be given
functional authority to control their systems’ procedures in other departments. A common
specific example occurs in the personnel department, which must monitor and receive
compliance in oeratind departments for recruitment, selection, and performance appraisal
systems. See figure 5.1

General Manager

Legal
Research
and dev’t

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Manufacturing
Production
#Staff
departments

Fig 5.1
Line and staff Departments
 Line departments, headed by a ‘line manager,’ are the departments established to meet the
major objectives of the organization. Departments normally designated as line departments
include production, marketing, and finance. In functioning with the employees and
departments under their control line managers exercise line authority.
 Staff departments provide assistance to the line departments and to each other. They can be
viewed as making money indirectl7y for the company-through advice, service, and
assistance. The traditional staff departments include legal, personnel, computer services, and
public relations.
2. Delegation of Authority

Managers should decide how much authority should be delegated to each job and each job
holder. Authority refers to the right of individuals to make decisions without approval by higher
management and to exact obedience from others. Delegation is a concept describing the passing
of formal authority to another person. Superiors delegate, or pass authority down, to subordinates
in order to facilitate work being accomplished. Delegation may become necessary when
managers are absent from their jobs or just may be the philosophy of the manager in order to
develop subordinates. Whatever the reason for delegation, its application creates a sequence
of events:
 Assignment of tasks: Specific tasks or duties that are to be undertaken are identified by the
manager for assignment to the subordinate. The subordinate is then approached with the
assignment (tasks).
 Delegation of authority: In order for the subordinate to complete the duties or tasks, the
authority necessary to do them should be delegated by the manager to the subordinate. A
guideline for authority is that it should be adequate to complete the task- no more and no less.

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 Acceptance of Responsibility: Responsibility to carry out one’s assigned duties to the best of
one’s ability. The employee is the receiver of the assigned duties and the delegated authority;
these confer responsibility as well.
 Creation of accountability: Accountability is having to answer to someone for your actions. It
means taking the consequences- either credit or blame .When the subordinate accepts the
assignment and the authority, he or she will be held accountable or answerable for actions
taken. A manager is accountable for the use of her or his authority and performance. The
manager is also accountable for the use of her authority and performance. The manager is
also accountable for performance and actions of subordinates.

This four-step process should ensure that the process of delegation produces clear understanding
on the part of the manager and of the subordinate. The manager should take the time to think
through what is being assigned and to confer the authority necessary to achieve results. The
subordinate, in accepting the assignment, becomes obligated (responsible) to perform, knowing
that he or she is accountable (answerable) for the results.
3. Centralization vs. Decentralization

The terms centralization and decentralization refer to a philosophy of organization and

management that focuses on either the selective concentration (centralization) or the dispersal
(decentralization) of authority within an organization structure. The philosophy of management –
either to concentrate authority for decision making in the hands of one or a few or to force it
down the organization structure into the hands of many.
Centralization or decentralization is a relative concept when applied to organizations, the top
level management may decide to centralize all decision – making: purchasing, staffing,
operations. Or it may decide to set limits on what can be purchased at each level by monetary
amounts, decentralize the hiring decisions to first – level management for clerical workers
(retaining authority for managerial decisions), and let operational decisions be made where
appropriate.
There are guide lines to follow in determining the degrees of decentralized.
 The greater the number of decisions made at the lower levels of management, the more the
company is decentralized.
 The more important the decisions made at lower levels, the greater the decentralization.

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 The more flexible the interpretation of company policy at the lower levels, the greater the
degree of decentralization.
 The more widely dispersed the operations of the company geographically, the greater the
degree of decentralization. The less a subordinate has to refer to his or her manager prior to a
decision, the greater the decentralization.
4. Span of Control (Span of Management)
 The span of control or span of management is concerned with the number of subordinates
each manager should have to direct. There is no correct number for the span of control. It is
determined for each manager based on the interplay of the complexity and variety of the
subordinates’ work, ability and training of the subordinates, the ability of the manager, and
the company philosophy for centralization or decentralization of decision-making.
 As a general rule, the more complex a subordinate’s job, the fewer should be that manager’s
number of subordinates, the greater the number of subordinates that can be effectively
directed and controlled. Because of these general rules, organizations always seem to have
narrow spans at their tops and wider spans at lower levels. The higher one goes in the
organization’s hierarchy, the fewer will be his or her subordinate i.e., the higher you go in an
organization’s hierarchy, the more subordinates a manager will have.
 Just how many subordinates should any one manager have? The answer to this question
depends on many factors and must be determined with a specific manager or job in mind.
How much is the organization asking this manager to control? How are the tasks to be
divided? What are the resources –people, money, and time-available? If a manager has too
few people to supervise, her or his subordinates might be either overworked or become
frustrated and dissatisfied.
 The qualifications of the managers and their subordinates must be considered when creating
spans of control. The more capable and experienced the subordinates, the more that can be
widened with the growth in experience and competence of personnel – thus the continuing
need for training and development. Another factor that can influence the span of control of a
manager is the company’s philosophy toward centralization or decentralization in decision-
making.

THERE ARE TWO TYPES OF SPAN OF MANAGEMENT

1. Narrow span of management (tall)

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2. Wide span of management (flat)

Narrow span of management-refers to the fact that a few subordinates reporting to superior or
being supervised by a superior.
Characteristics
1. Tall organizational structure and many levels of management
2. More communication between subordinate and superior
3. More trained personnel and centralized authority.
Wide span of management-refers to the fact that many subordinates reporting to a superior or
being supervised by a superior.
Characteristics
1. Short organizational structure and few levels of management.
2. Less communication between subordinates and superior because superiors do not have
time to deal ideas with each subordinate.
3. Less trained managerial personnel and decentralized authority
4. The development of clear policies, rules……..etc.
FACTORS AFFECTING /DETERMINING THE SPAN OF MANAGEMENT
1. The ability of the manager-if the manager has the ability to work with people, understand
others, understood by others, communicate effectively-can supervise large people.
2. The ability of the workers-if they can follow instructions, posses the necessary managerial
skills and make decisions etc –the manager can supervise large people.
3. The nature of the work-if the nature of the work is homogenous, the span of management
would be wide. If it is heterogeneous work, the span would be narrow.
4. Well defined Authority and responsibility –When the relationship of authority and
responsibility is clearly defined, there would be wide span of control. If not, it would be narrow.
5. Geographical location-if there are dispersed (the subordinates) over a large area, the control
will be difficult and makes the span of management will be narrow.
6. Sophisticated information and control system-the more advanced the information, the easiest
way would be the control and makes the span of management wide.
7. Economic considerations-wide span is more economical. If narrow there is a need of trained
manpower (training costs). Companies prefer wide span to reduce costs (salaries of managers)
Chapter Five

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5. Staffing Function of Management

5.1 Introduction
Staffing is a process of securing and developing people to perform the jobs created by the
organizing function. The goal of staffing is to obtain the best available people for the
organization and to develop the skills and abilities of those people or to attract, maintaining and
utilize efficient and effective workforce.
Human Resource: Is the sum total of all the inherent abilities, acquired knowledge, and skill
represented by the aptitudes, attitudes and talents of an organizational work force. Staffing
function should be a major concern of all managers because it involves the most valuable asset of
an organization-human resource. Staffing function is complicated due to many government
regulations. Many of these regulations are subject to frequent change.
Major functions of staffing are
 Procurement
 Training/development
 Maintenance and utilization
 Separation

5.2 The procurement function

 It concerned with determining and obtaining the proper kind of personal both in quality and
quantity, specially,
 Determines human resource requirements both in quality and quantity
 Their recruitment, selection, and placement

5.2.1 Human Resource Planning

It is getting the right number of qualified people into the right job at the right time. It is an
integral part of corporate planning.

Reasons for human resource planning:

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 Scarcity of personnel in some specialized areas: High expenses involved in hiring.

Developing and maintaining employees; and rapid technological changes which bring about
obsolescence and the need for new skills and knowledge.

The Process of Personnel Planning

a. Analyzing organizational objectives and plans: It is because the basis for human resource
planning is such corporate planning. All organization plans entails need for human resource.
b. Determining overall human resources: Predicting the need for and availability of people with
required qualities needed to perform the present and future jobs.

The Demand and Supply Aspect of Human resource Planning

Demand: an organizations future demand for employees is central to employment planning.
Causes for human resource demand
 External challenges that may affect organizational operations (economic, social and
technologies competition)
 Internal decisions such as strategic plans on growth, production, marketing, etc; work force
factors such as retirement, resignation, termination, and death.

Therefore, demand forecasting is an essential part of human resource planning process. It is an

attempt to predict an organization future demand for employees.
Supply/Source:
Internal supply: It consists of present employees who can be promoted or transferred, to meet
anticipated need carry out human resource audit/inventory that summarizes employee’s skills
and abilities.
 External Supply: Important where there are no replacements or where the opening is for
an entry level job. Labour market analysis is very important activity to estimate future
supply of human resource.
 Taking inventory of existing personnel: It is taking inventory of the available personnel
with their qualification. This inventory has to be taken into consideration expected
changes like promotions, transfers, retirements, death, quits, registration, etc
 Determining net new personnel requirements: It can be calculated as difference between
overall personnel requirement and personnel inventory

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 Developing action plans: Once the supply and demand of human resource are estimated
adjustments may be needed.

For human resource surplus:

 Hiring freeze
 Reassignment of existing employees for openings
 Voluntary departures
 Lay offs
 Early retirement

For Human Resource Shortage

 In the short run, external source will be used
 In the long run staff development efforts will serve to fill the vacancies
 So recruitment, retention, promotion, transfer, training downsizing, etc can be part of the
action plan.

Recruitment
It is a process of searching for prospective employees and stimulating them to apply for jobs in
the organization. Or seeking and attracting a supply of people from which qualified candidates
for ho vacancies can be selected.
Internal source: Through transfer, promotion, and recall from lay-offs
a. Transfer
 Same occupational level
 Same level of wage/salary and other benefits
b. Promotion
 Advancements to better job-greater responsibilities
 More prestige or status
 Greater skills, increased rate of pay, merit and seniority are important factors in
promotion

Advantages of Internal Recruitment

 Getting familiar Employees
 Less costly

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Disadvantages of Internal Recruitment

 It narrows down selection options, results in organizational in breeding (preventing new
blood and new outlooks from coming in)

External Source of Recruitment

 Unsolicited applicants
 Labour market through vacancy announcements
 Educational institutions
 Employment agencies labour unions

Selection: It is choosing from those available the individuals who are most likely to succeed on
the job.
The selection process may include
 Preliminary interview
 Filling Application form by which factual information is obtaining with carefully designed
questions including identification information, personal information, physical characteristics,
education, and experience.
 Reference letters which can be written in a to whom it may concern form
 Employment interview: which is used to a single screening mechanism provides an
opportunity to have face to face contacts, serves to verify information acquired through other
methods, and enables the employer to investigate the candidate ability in work related areas.
 Employment test: are practical examination of the candidate’s abilities and knowledge in the
areas of future job assignment. It includes:
 Aptitude Test-Measures a person’s capacity for potential ability to learn
 Psychomotor test: measure a person’s strength, dexterity and coordination
 Job knowledge test: measure the job related knowledge possessed by a job applicant.
 Physical Examination
 Placement and Induction/orientation: Selected individuals should be given placement letters
that state their employment and specific positions. Induction or orientation has to do with
familiarizing the new employees with the organization.

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 Training/Development: Training – is any process by which aptitudes, skills and abilities

of employees to perform specific jobs are increased. It is the act of increasing the
knowledge and skills of an employee for doing a particular job. Development – is a
systematic process of education, training and growth by which a person learns and
applies information, knowledge, skills, attitudes, and perceptions. Development involves
learning opportunities aimed at the individual growth but not restricted to a specific job.

Training is usually related to operational or technical employees while a development is for

managers and professional.
Objectives of Training
 To provide knowledge/skills, attitudes
 To help employees to become capable of assuming other responsibilities within an
organization
 To help employees to adapt to changing circumstances facing the organization: new
technologies, new business environment
 To reduce waste and increase efficiency
 To minimize inputs use and maximize output
 To relieve supervisors from close supervision and get time for other duties.

5.3.1. Training Methods

Appropriateness of training techniques depends on
 Cost Effectiveness
 Desired program content
 Appropriateness of the facilities
 Trainees preference and capabilities
 Trainer preference and capabilities
 Learning principles

Training can be conducted either on-the-job, that is within the actual work environment, off-the-
job, that is outside the actual work.
Among the training methods are:
 Job/Position rotation: Rotating key personnel in different positions/department

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 Coaching: the trainee is placed under a close guidance and supervision of the trainer
/immediate supervisor/and he/she given an opportunity to perform an increasing range of
management tasks, and share the cache’s experience.
 Internship: a joint program of training where school and business corporate in order to
train students by assigning them to job.
 Role playing: it forces trainees to assume different identities. Example; a male worker
may assume the role of a female supervisor, and vice versa.
 Case study: it utilizes simulated or actual business problems experienced before for
trainees to solve where the trainee will be expected to study the information given and to
make decisions.
 Lectures, conferences, seminars and work shop

Lectures: is semi-formal discourse in which the instructor presents a series of events, concepts,
principles, and theories and express problems or explains relationships.
Conference: bring together individuals with common interests to discuss and attempt to solve a
problem.
Workshop: a group of persons with common interest or problem after performing professional
and vocational work met for an extended period of time to improve their individual proficiency,
ability or understanding.
 Apprenticeship: involves learning from more experienced employees. It is common in
technical fields in which proficiency is acquired in direct association with work and
direct supervision

Conducting Training
Training can be delivered either by people from the organization itself or by those outside the
organization. It should be based on appropriate content trainers and trainees, training methods,
facilities and places and appropriate time schedule.
5.4 Maintenance and Utilization
Procured and trained/developed employees should be maintained and utilized utmost. This
requires adequate remuneration of personnel, the creation of opportunities for progress and a
mechanism of evaluating their contribution. Compensation and performance appraisal are at the
heart of the maintenance and utilization function of human resources management.

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5.4.1 Compensation
It is adequate and equitable remuneration of personnel for their contribution to the achievement
of organizational objectives. From an employee’s point of view, pay is necessity in life, it is the
means by which employees provide for their own their families needs, it is a contributing factor
to their efforts as what they are paid indicates their worth, etc.
For the employer, compensation constitutes the lion’s share of costs/about 50%/, is the major
means of attracting and retaining employees, it can provide an image to the organization, etc.
Pay can be determined relatively or absolutely. Pay for a particular position is set relative to
three groups:
 Employees working on similar jobs in other enterprise/External equity/
 Employees working on different jobs within the same enterprise/Internal equity/
 Employees working on the same job within the same enterprise/Employees equity/

Factor Affecting Compensation Decisions

External Factors
 The government through wage controls and guidelines, wage and hour regulations,
income protection legislations, etc.
 Union’s influence demanding for better pay and better working conditions.
 Economic conditions of the industry. Very productive and profitable industries compared
to their pay higher wages.
 The labour market.

Internal Factors
 The size and age of the organization: it is argued that large and new organization tends to
pay higher wages compared to small and old ones.
 The labour budget/resource allocation strategy/
 Managerial philosophy and strategy. As top level management has the final say on pay
level decisions, their views and strategies affect payment decisions.

Methods of Payment
Employees’ salaries can be computed based on
 The time they worked, e.g. salaries,
 The output they produce/piece rate system/ or,

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 A combination of both

5.4.2 Fringe Benefits/Supplementary Compensation/

These are extra benefits given to an employee in addition to salary or wages. Wages and salary
payments represent only part of the total package of compensation. Fringe benefits constitute a
significant portion of the employee pay /sometimes up to 40% payroll expenses/. Broadly
classified these are two types:
 Time-off pay: these are payments for the time not worked and include, pay vacations, pay
holidays, paid sick leave, and others.
 Non-pay benefits: these are not paid in cash but include expenditures on items such as
medical services, transportation, accommodation, insurance, cafeteria services, education
programs, child care facilities, and others.

6.4.3 Performance Appraisal

Performance appraisal can be defined as human resource activity that is used to determine the
extent to which an employee is performing the job effectively. Performing is said to be a result of
employee’s effort, abilities, and role perception.
Objective of performance appraisal include:
 To provide information towards strengths and weaknesses of employees in their job
performance,
 To provide data for management for judging future job assignments, promotion,
compensation
 To help better allocation of resources
 To provide information to help maintain an equitable and competitive pay structure
 To supply general information on training needs for the organization or department
 To improve motivation by increased understanding of goals, the means of attaining those
goals and the rewards associated with achievement
 To improve performance by developing strengths an dealing with weaknesses, and
others.

Appraisal Methods
There are different methods of carrying out performance appraisal which include;
 Forced distribution method

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 The essay method

 The critical incident method and
 Graphic rating scale

Who Does the Appraisal?

Although in the vast majority of the cases the immediate supervisors do the appraisal, an
organization can use different appraisers. This could be;
 The immediate supervisor of the employees
 Group appraisal

---- appraisal
 Self appraisal

Some problems in performance appraisal

 Rater’s general lack of knowledge, experience, and skill
 Rating an employee based on an overall impression resulting from one or few incidents,
bad or good and without taking into consideration the whole performance during the
evaluation period.
 Providing a rating of average or around the midpoint for all qualities
 Rating influenced by the most recent behavior.
 Providing past performance appraisal ratings to unjustly current ratings.
 Rater’s ineffectiveness in observing and documenting performance, and vagueness of the
criteria and standards of performance.

5.4.4 Employee Relations

Employee relations are one important area of HRM. It is mainly concerned with the relationships
existing between employers and employees. The content s of employee- employer relations are
expressed in an employment contract which may include elements such as among and method of
payment; hours of work, holiday pay, provisions for sickness, injury, and entitlement to pay,
terms and conditions of pension right, disciplinary rules and procedures, institutional rights of
unions and management, terms and conditions of termination of the contract, enforcement and
administration of the agreement; and others.

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The three principal actors in employee relations are employees, employers, and the government.
Generally, all these parties are represented by other bodies such as the labour union,
manager/employer association, and specialized government unit.
The three basic elements of the subject of employee relations are;
 Collective Bargaining: this is a two way negotiation process between employees and
employers to reach at an agreement on matters of employment. The end result of a successful
collective bargaining process is collective agreement that is a binding document governing
employee relations during a specified period of time.
 Grievance/Complaint/ handling: employees should have established and known methods of
processing grievance – grievance procedure. The grievance procedure consists of an orderly
series of steps followed to resolve disputes. Employment should know where they stand in
matters pertaining to the justice or injustice of their treatment.
 Disciplinary Action: it refers to the application of penalties that lead to an inhibition of
undesired behavior. Among the penalties available are oral reprimand, written reprimand,
and loss of privileges, fines, layoffs, demotion, suspension and dismissal

Separation
The final human resource management function is separation. Like other functions this requires
separation and planning. Separation can be initiated by employers like mandatory retirement,
dismissal, layoff; by the employee like resignation, voluntary retirement, quits; by agreement say
when contract ends, or they can also be caused by things outside the will of both the employer
and the employee (accidents, death), retirement, layoff, dismissal, resignation, quit,
outplacement, permanent disability, are among the cause for the separation of employee from the
organization.

Chapter Six: Directing Function

Leadership can be defined in different ways according to different writers. Some are:
 Leadership is the process of influencing others toward the achievement of organizational
objectives. This definition recognizes that leadership is typically an ongoing activity, is
oriented toward having an impact on the behaviors of others, and is ultimately focused on
realizing the specific aims of the organization.

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 Leadership is the art of influencing people so that they will strive willingly and
enthusiastically toward the achievement of organizational or group goals.
 Leadership is the ability to secure desirable actions from a group of followers voluntarily
without the use of coercion or force.

As we can see from the above definitions, leadership has three ingredients: leader, led (follower)
and goal (situation) – organizational Environment.
 Leader: - the one with the ability to understand others’ motivation and to inspire them with
the ability to create a climate for motivation.
 Follower (led) - the individuals being led or influenced
 Environment- the working environment in which the leader interacts with the followers.

Leading is the management function aimed at setting the members of an organization move in
the direction that will achieve its objectives. Directing builds a climate, provides leadership and
arranges the opportunity for motivation. Leading is not deriving or pushing from behind; it is
placing oneself before the group and facilitating progress and inspires followers to accomplish
organizational (group) objectives.
Leadership versus Management
Management is a broad subject that encompasses activities such as planning, organizing,
staffing, directing, and controlling. Leadership, on the other hand, focuses almost exclusively on
the ‘people’ aspects of getting a job done-inspiring, motivating, directing, and gaining
commitment to organizational activities and goals. Leadership accompanies and complements
the management functions. In short, management influences brain, while leadership encourages
the heart and the spirit.
The Need for Leadership
The need for leadership can be explained by the fact that organizations will never be successful
unless they have effective and efficient leaders. The effectiveness and efficiency of leaders is
nothing but to create conducive environment in the organization. Whatever amount of capital
invested and technology an organization has, without effective leadership the organization will
not be successful.
The importance of the directing function in the organization can be presented as follows:
 Directing initiates actions by giving directives and guidance to employees.

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 Directing integrates employees’ effort by coordinating actions of the members and

leading toward the objectives.
 Directing attempts to get the maximum output of individuals by providing ways to fully
utilize the potentials and capabilities of employees.
 Directing facilitates changes by incorporating (adopting) environmental and internal
changes into the organization
 Directing provides stability by balancing the different parts of the organization so that it
exists for a long period and its parts work in a harmonious ways.

How leaders influence others?

 Why do people accept the influence of a leader? One major reason is that leaders have
power. Power is the capacity to affect the behavior of others, in other words, power is the
ability of individuals or groups to induce or influence the beliefs or actions of other persons
or groups. It is a resource or patronage an individual has at his/her disposal to stage-manage
others towards a wanted behavior. Having power can increase the effectiveness of a manager
by enabling the manager to influence people to what is wanted. Leaders in organizations
typically rely on some or all of five major types of power: legitimate, reward, coercive,
expert and referent.
 Legitimate power/position power: refers to the power a leader possesses as a result of
occupying a particular position or role in the organization, i.e. it is a power that stems from a
position’s placement in the managerial hierarchy. It corresponds to authority. Legitimate
power exists when a subordinate or the influenced acknowledges that the influencer has a
“right” or is lawfully entitled to influence within certain bounds. It is related to the position,
rather than to the person personality, so it is clearly a function of the leader's position in the
organization and is completely independent of any of the leader's personal characteristics.
Thus, the higher a manager is in the organizational hierarchy, the greater is the “perceived
power” thought by subordinates.
 Reward Power: refers to the leader's capacity to give or withhold rewards for followers. It is
based on the capacity to control and provide valued rewards to others. Rewards that may be

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under the control of individual manager include salary increases /pay raises, bonus,
interesting projects, promotion recommendations, a better office, support for training
programs, assignments with high responsibility in the organization, recognition, positive
feedback etc. Purchasing agents, with little position power; might be able to exercise
considerable influence by their ability to expedite or delay a much-needed spare part. Or
University professors have considerable reward power; they can grant or withhold high
grades.
 Coercive Power is a power based on fear. It is the negative side of reward power. Coercive
power is the ability to coerce or punish the influences/followers when they do not engage in
desired behaviors. Forms of coercion or punishment include criticisms, terminations,
reprimands, suspensions, warning letters that go into an individual’s personnel file, negative
performance appraisals, demotions and withheld pay raises; (punishment may range from
loss of a minor privilege to loss of one's job). Coercive power is usually used to maintain a
minimum standard performance or conformity among subordinates. The greater the freedom
to punish others, the greater a manager’s coercive power. And the more coercive power a
manager uses, the more resentment and opposition s/he faces from subordinates.
 Expert Power: - refers to power that a leader possesses as a result of his or her knowledge
and expertise regarding the tasks to be performed by subordinates. It is power based on the
possession of expertise, knowledge, skill or information. To the extent that a leader possesses
expertise and information that is needed or desired by others, the leader has expert power.
Physicians, lawyers, and university professors may have considerable influence on others
because they are respected for their special knowledge. A manger who is capable of
achieving an important methodological break through that no other companies dreamed of
and a secretary who knows how to reveal bureaucratic red tape all have expert power over
anyone who needs that information.
 Referent Power / Charismatic Power is power that results from being admired, personally
identified with or liked by others. When we admire people, want to be like them, or feel
friendship toward them, we more willingly follow their directions and exhibit loyalty toward
them. For example, a Movie Star, a Great Athlete, a Great Football Player, a Musician or a
Military Hero might possess considerable referent power.

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The strength of referent power is directly related to such factors as the amount of prestige and
admiration the influence confers up on the influencer.
The more that a leader is able to cultivate the liking, identification, and admiration of others, the
greater the referent power.
The more power a leader has at his/her disposal, the more likely that s/he will be successful in
influencing followers to do the work assigned to them except coercive power.
Although all five types of power are potential means of influencing others, in actual usage they
may engender somewhat different levels of subordinate motivation. Subordinates can react to a
leader’s direction with commitment, compliance, or resistance. With commitment, employees
respond enthusiastically and exert a high level of effort toward organizational goals. With
compliance, employees exert at least minimal efforts to complete directives but are likely to
deliver average, rather than stellar, performance. With resistance, employees may appear to
comply but actually do the absolute minimum, possibly even attempting to sabotage the
attainment of organizational goals.

Types of outcome
Source of Leader Basis for power Commitment Compliance Resistance
influences
Referent power Admiration and Likely* Possible Possible
liking by others. If request is believed If request is perceived If request is something
to be important to to be unimportant to that will harm leader
leader leader
Expert power Possession of Likely* Possible Possible
valued expertise If request is If request is If leader is arrogant
persuasive and persuasive but and insulting or
subordinates share subordinates are subordinates oppose
leader’s task goals apathetic about task task goals
goal
Legitimate Hierarchical Possible Likely* Possible

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power position and If request is polite If request or order is If arrogant demands

authority and very appropriate seen as legitimate are made or request
does not appear proper
Reward power Capacity to provide Possible Likely* Possible
valued rewards If used in a subtle, If used in a If used in a
very personal way mechanical, manipulative, arrogant
impersonal way way
Coercive power Ability to punish Very unlikely Possible Likely*
If used in a helpful, If used in a hostile or
non punitive way manipulative way

Indicates most common outcome

Major sources of leader power and likely subordinate reactions
Authority versus Power

Authority Power
 It is positional: it will be there when the  It is personal-it exists because of the person.
incumbent leaves.  Broader
 Some types of power do not change (Expert, referent)
 Narrower – it is one
Leadership Theoriestype of power but some change legitimate, reward, coercive.
 It changes withtheory:
changes in position.  Not all power types can be delegated (Expert and
a. Trait referent).
 Authority is delegated to an individual
 Traits are distinctive internal or personal qualities or characteristics of an individual, it
can be
 Physical: like height, weight, appearance, health, etc
 Personal: like self-confidence, dominance, adaptable, extroversion/sociability, originality
etc
 Mental: like intelligence, creativity, knowledge, technical competence etc.

A leader trait is a physical or personality characteristic that can be used to differentiate leaders
from followers.
Trait theory attempts to find traits that make a leader. That is, it is a theory, the old approach,
which focused on identifying the personal traits that differentiated leaders from followers. Trait

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theory originated from an ancient theory called “Great Man” theory that assumes that “leaders
are born not made”-a belief dating back to the ancient Greeks and Romans.
The idea in trait theory was to see whether certain traits would predict the individuals who would
emerge (be identified by members of the group) as leaders.
In searching for measurable leadership traits, researchers took two approaches:
They attempted to compare the traits of those who emerged as leaders with the traits of those
who did not. They attempted to compare the traits of effective leaders with those of ineffective
leaders. Studies that were conducted on the first category have failed to distinguish/uncover any
traits that clearly and consistently distinguish leaders from followers. Leaders as a group have
been found to be somewhat taller, brighter, more extroverted, persistent and more self-confident
than non-leaders. However, millions of people have these traits, but most of them obviously will
never attain a leadership position. In addition, many established leaders did not and do not have
these traits. (Napoleon, for example, was quite short, and Lincoln was moody and introverted.)
Interestingly enough, studies have also found that people who are too intelligent compared with
other group members do not emerge as leaders-perhaps because they are too different or too far
removed from the group.
Studies that were conducted on the second category have generally failed to isolate traits that are
strongly associated with successful leadership. Generally, the efforts to identify universal
leadership traits ran into difficulties for the following reasons:
 Not all leaders possess all the traits and many non-leaders may possess most of the traits.
 It gives no guidance as to the magnitude of each trait for a person to be a leader.

No agreement has been reached as to what their relationships are to the actual instances of
leadership.
Traits tend to be a chicken-and-egg proposition i.e. Successful leaders may display traits such as
good vocabulary, education and self-confidence after they have assumed leadership positions.

b. Behavioral theory of leadership:

When it became evident that effective leaders did not seem to have any distinguishing traits or
characteristics, researchers tried to isolate the behaviors that made leaders effective, in other
words, rather than try to figure out what effective leaders were, researchers tried to determine

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what effective leaders did, how they delegated tasks, how they communicated with and tried to
motivate their subordinates, how they carried out their tasks, and so no. This tries to answer the
questions “What do effective leaders do? What ineffective leaders don't do? How do subordinate
react emotionally and behaviorally (performance) to what the leader does? Two major
dimensions of leader behavior emerged from this body of research; one deals with how leaders
get the job done and the other deals with how leaders treat and interact with their subordinates.
University of Michigan study University of Michigan Studies
Through interviewing leaders and followers, researchers at the University of Michigan
identified two distinct styles of leadership, referred to as .job-centered and employee -
centered.
 The job-centered leader practices close supervision on the subordinates’ performance. This
leader relies on coercion, reward, and legitimate power to influence the behavior and
performance of followers.
 The employee-centered leader believes in delegating authority and supporting followers in
satisfying their needs by creating a supportive work environment. The employee centered
leader is concerned with followers', their personal advancement, growth and achievement.

The university of OHIO study: These studies isolated two leadership factors, referred to as
initiating structure and consideration.
 Initiating structure involves behavior in which the leader organizes and defines the
relationship in the group, tends to establish well-defined patterns and channels of
communication, and spells out ways of getting the job done.
 Consideration involves behavior indicating sensitiveness to subordinates, respect their ideas
and feelings, and establishes mutual trust and friendship between the leader and the
followers. In short, the behavioral theory attempted to identify effective leader behaviors that
would work in every situation. But researchers found that leader behaviors that worked best
in one situation were not often as effective in other situations.
c. The Contingency /Situational Leadership Theory

Situational leadership theory grows out of an attempt to explain the inconsistent findings about
traits and styles /behaviors. Situational theory proposes that the effectiveness of a particular style
of leader behavior depends on the situation. As situations change, different styles become

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appropriate. This directly changes the idea of one best style of leadership. In other words, the
contingency/situational theory holds that appropriate leader traits or behaviors are contingent or
dependent on relevant situational characteristics. More specifically, the contingency leadership
theory states that, leadership is the result of the interaction of:
 Leaders: behavior and competence
 Followers: behavior and competence
 Situations: situational variables such as job characteristics, organizational policies,
leaders member relations (the extent to which a leader has the support of group
members), position power (the amount of power that the organization gives the leader to
accomplish necessary tasks).
d. Theory X and Theory Y Assumptions about People

A manager’s philosophy about work and the people who perform the work will influence his/her
approach to leadership. Douglas McGregor has hypothesized two sets of assumptions about
people that serve as a philosophical base for leadership action. These are Theory X and Theory Y
Assumptions.
Theory X – pessimistic and negative: A manager basing an operating philosophy on Theory X
would impose a directive leadership style on the individual or work group s/he is supervising.
 Coercion, negative motivation, and refusal to allow employee participate in decision-
making would probably be the actions of the manager.

Why? Because the manager assumes:

 The average human being has an inherent dislike of work and will avoid it if s/he can-
workers are lazy.
 Because of this dislike, most people must be coerced, controlled, directed, and threatened
with punishment to get them to put forth adequate effort toward the achievement of
organizational objectives.
 The average human being prefers to be directed, wishes to avoid responsibility, has
relatively little ambition and wants security above all.

McGregor’s Theory X view of human nature holds that the dislike of work is so great that even
the promise of rewards will not overcome it. “People will accept the rewards and demand

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continually higher ones, but these alone will not produce the necessary effort. Only the threat of
punishment will do the trick.
Theory Y- adopts a developmental approach/ modern + positive set of assumptions
A manager with Theory Y assumption will prepare him/herself to work with people as
individuals, to involve people in the process of decision-making, to openly encourage people to
seek responsibility and to work with people achieve their goals.
Why? Because the manager assumes:
 The average human being does not inherently dislike work; the physical and mental effort
involved is as natural as play or rest.
 External control and threat of punishment are not the only means for bringing about effort
toward organizational objectives. A person will exercise self-direction and self control in the
service of objectives to which s/he is committed.
 People generally become committed to organizational objectives if they are rewarded for
doing so.
 The average human being learns, under proper conditions, not only to accept, but also they
seek responsibility.
 Many people have a relatively high degree of imagination, ingenuity, and creativity in the
solution of organizational problems.
 The average person’s intellectual potential is only partially utilized under the conditions of
modern industrial life.

The assumptions in Theory Y have remarkably different implications for managers than do those
of Theory X. Instead of blaming poor performance on basic human nature, Theory Y places
squarely on management the responsibility for tapping the reservoir of creativity, hard work, and
imagination. The worker’s performance is limited only by management’s ability to use human
resources effectively. Theory Y also has implications for decision-making. Because it recognizes
worker’s intellectual potential, this philosophy suggests that organizational goals are best
achieved if workers have voice in decisions. Participatory decisions making is especially
important as it relates to a person’s job. In addition, Theory Y vie of human nature implies that a
manager’s role is not to manipulate workers; rather, it is to create an atmosphere in which
workers can use their commitment and involvement to satisfy their personal needs as well as
those of the organization.

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LEADERSHIP STYLES
The focus on finding leadership style (behavior patterns of leaders) is on the relationship
between leaders’ action and the reaction of subordinates emotionally and behaviorally. A
manager’s leadership style is composed of three parts:
 How the manager chooses to motivate subordinates: Motivation approach can be positive
(like Responsibility, Recognition, Praise, Security, Monetary Rewards) or negative (like
Threats, Coercion, Fines, Suspensions, Termination)
 His/her decision-making style: the degree of decision-making authority the manager grants to
subordinates.
 His/her areas of emphasis (orientation) in the work environment: Task orientation, employee
orientation

Based on the above points there are three types of leadership styles: Autocratic, Democratic, and
Laissez-faire.
 Authoritarian (Autocratic) Leadership Style: It is closely associated with the classical
approach to management. The manager who follows this style is dogmatic and leads by the
ability to withhold or give rewards and punishment, i.e. motivation is through incentives and
fear. In this style, decision-making is solely by the manager, in other words, the leader retains
all authority and responsibility. In the extreme case, the manager makes the decision and
announces it to the work group. There is no opportunity for input into the decision-making
process by the subordinates and communication is primarily downward. Variations of this
approach find the manager making the decision and then “Selling” it to employees or making
the decision and allowing the group the opportunity to ask questions. The autocratic leader is
task-oriented and places little value on showing consideration to subordinations as a
leadership technique. The Autocratic manager uses Theory X assumption as his philosophical
base for leadership. There are situations where managers are compelled/ forced to use this
leadership style. Some are:

When there is a need to influence subordinates in favor of organizational objectives which has an
effect on individuals.
 When subordinates are new, they need to be directed.

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 When the situation calls for unilateral or one-sided and independent decision-making –
perhaps there is no enough time for quality input from subordinates or the subordinates may
lack information.

Limitations
 Employees’/subordinates’ ideas will not be used to solve organizational problems, which in
some cases subordinates may have better ideas than the superior about a particular problem.
 Subordinates would not be motivated, i.e. It may suppress individual initiative
 Poor implementation of decisions
a. Democratic/Participative Leadership Style: In this leadership style, the manager involves
subordinates in making organizational decisions, shares problems with them and shares
authority to reach a decision. Subordinates take part in the decision-making process through
consultation. The leader delegates a great deal of authority while retaining ultimate
responsibility. Active two-way communication (upward and downward) exists. The democrat
leader uses Theory Y assumption as his/her philosophical base for leadership.

Limitations
 Subordinates may be too involved to influence the manager even when there is no need.
 The manager may not be able to influence the subordinates to the extent needed.

However, the major advantage of this leadership style is that, it enhances personal commitment
through participation. The advantages of democratic leadership style are the disadvantages of the
autocratic leadership style after we make them opposite.
b. Laissez-Faire/Free-Rein Leadership Style: In this leadership style, leaders generally give the
group complete freedom, provide the necessary materials, participate only to answer
questions, and avoid decision-making whenever possible. The leader either sets limits and the
followers work out their own problems, or the individuals set their own goals. In this style,
leaders depend largely on subordinates to set their own goals and the means of achieving
them, and they see their role as one of aiding the operations of followers by furnishing them
information and acting primarily as a contact with the groups external environment, i.e. the
leader’s role is to serve as a logistics specialist or representative of the group to outside
groups. The leader denies responsibility and abdicates authority to the group.

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The application of Laissez-Faire style can be found with individuals or groups that the manager
views as being knowledgeable, independent, or motivated. Additionally, if the work group is
composed of high achievers, or is highly research oriented, this style has potential benefits.
Primarily horizontal communication among peers exists.
Limitations
 Group may drift aimlessly in the absence of direction from leader.
 It may make things out of control.

Advantages
 It gives quite freedom for subordinates
 It gives much responsibility and self guidance for subordinates
 It permits self-starters to do things as they see fit without leader
c. Situational Leadership style: The situational leadership style states that for a manager to be
democrat, autocratic or laissez-faire, situations force him/her.

Motivation
The Concept of Motivation
The term motivation derived from the Latin word movere meaning “to move.” In the present
context, motivation represents “those psychological processes that cause arousal, direction, and
persistence of voluntary actions that are goal oriented. Managers need to understand these
psychological processes if they are to successfully guide employees toward accomplishing
organizational objectives.
Motivation is an internal force that energizes behavior, gives direction to behavior, and underlies
the tendency to persist. This definition of motivation recognizes that in order to achieve goals,
individuals must be sufficiently stimulated and energetic, must have a clear focus or end in mind,
and must be willing and able to commit their energy for a long enough period of time to realize
their aim. Since the leading function of management involves influencing others to work toward
organizational goals, motivation is an important aspect of that function.
Because motivation is an internal force, we cannot measure the motivation of others directly.
Instead, we typically infer whether or not other individuals are motivated by watching their
behavior. As managers analyze their workforces, they can always see some people who

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outperform others of equal skill. A closer look might reveal instances in which a person with
outstanding talents is consistently outperformed by someone having lesser talents. Why? These
latter employees appear willing to exert more effort, to try harder, to accomplish their goals,
often these hard workers are described by their bosses as “motivated employees.” Motivated
individuals work hard, persist and are goal oriented.
Motivators
Motivators are things, which induce an individual to perform. While motivation reflects wants,
motivators are the identified rewards, or incentives that sharpen the derive to satisfy these wants.
They are also the means by which conflicting needs may be reconciled or one need heightened so
that it will be given priority over another. A motivator is something that influences an
individual’s behavior. It makes a difference in what a person will do.
The Motivation Cycle
The starting point in this cycle is a need or a deficiency or a state of felt deprivation an individual
experiences at a particular time. This deficiency causes tension (physiological or psychological
in balance), which will be modified by one’s culture and personality to cause certain wants
leading /motivating the individual to some kind of goal directed behavior. This leads to
satisfaction and one cycle of motivation will be completed.
The Motivation Process

1
Need deficiency

3Need 2 Directed behavior

Goal

satisfaction

From this we can understand that deficiency triggers a drive for need satisfaction, which causes
an individual to take a certain course of action that will alleviate a need and reduce a drive. The
need for food for example will result in hunger and hunger will drive or motivate the individual

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to take action (eating food), which will achieve the goal. This goal attainment will restore the
physiological or psychological balance and reduce or cutoff the drive for food.

Motivation Vs Satisfaction
Motivation refers to the drive and effort to satisfy a want or a goal. Satisfaction refers to the
contentment experienced when a want is satisfied. In other words, motivation implies a drive
toward an outcome, and satisfaction is the outcome already experienced.

Motivation Results Satisfaction

Motivation and Performance

All too often, motivation and performance are assumed to be one and the same. This faulty
assumption can lead to poor managerial decisions. The following formula for performance helps
put motivation into proper perspective:
Performance = Ability x Motivation x Environmental conditions
Thus, we see motivation is a necessary but insufficient contributor to job performance. The
multiplication sign is used to emphasize how a weakness in one factor can negate the other. The
above relationship between performance and motivation clearly shows us that managers should
hire individuals who have the ability to do what is required. After that, the management
challenge is providing environmental conditions that nurture and support individual motivation
to work toward organizational goals.
Keeping other variables constant, motivation and performance have neither positive nor negative
relationship. As motivation increases, job performance increases, reaches its maximum and the
decreases.
Optimal/maximum
-------
* After the optimal point
Performance

further motivation brings

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about anxiety, tenseness,

fretfulness, and the
anxiety eventually
decreases performance.

Motivation

Theories of Motivation
Carrot and Stick Approach
This metaphor relates the use of rewards and penalties in order to induce desired human
behavior. It comes from the old story that to make a donkey move one must put a carrot in front
of it and if it does not move beat it with stick from behind.
Despite all the researches and theories of motivation that have come to the fore in recent years,
reward and punishment are still recognized/considered by strong motivators. For centuries,
however, they were too often thought of as the only forces that could motivate people.
Carrot - money in the form of pay or bonuses.
Stick – fear such as fear of loss of job, loss of income, reduction of bonuses demotion or some
other penalty.
Failures of carrot and stick approach
1. Carrot can be obtained by any member of the organization without differentiation in
performance – through such practices as salary increases and promotion by seniority, automatic
“merit” increases, and executive bonuses not based on individual manager performance. It is as
simple as this: If a person put a donkey in a pen full of carrots and then stood outside with a
carrot, would the donkey be encouraged to come out of the pen?
2. Stick in the form of fear is not the best kind of motivating factor. It often gives rise to
defensive or refectory behavior, such as union organization, poor quality work, executive
indifference, failure of a manager to take any risk in decision-making, or even dishonesty.
Money as a Motivator

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Even if under the carrot and stick approach money as a sole motivator has been criticized, it is
used as a motivator (motivating factor) but not the only one. Money can be used as a motivator
under the following conditions.
For people who have low-level standards of living and who badly need it for their life. When the
amount is so significant that the organization uses it for competitive purposes.
When the payment is so differentiated that even at equal position discriminatory payment is
made for people with different levels of performance.

Maslow’s Need Hierarchy

One of the most widely mentioned theories of motivation is the hierarchy of needs theory put
forth by psychologist Abraham Maslow. Maslow proposed that motivation is a function of
needs, and he also proposed that humn needs are arranged hierarchically (in a form of hierarchy).
The hierarchy of needs is based on four premises:
1. Only an unsatisfied need can influence behavior; a satisfied need is not a motivator. What
motivates a person is what s/he does not have but not what s/he has.
2. A person’s needs are arranged in a priority order of importance. Thus, the priorities
(hierarchy) go from the most basic needs to the most complex.
3. As the person’s needs are met on one level, the person advances to the next level of needs.
S/he will focus on the first level need until it is minimally satisfied before moving to the next
level.
4. If satisfaction is not maintained for a once-satisfied need, it will become a priority need again.

Based on the above premises, Maslow proposed that human needs form a five-level
hierarchy.
a. Physiological Needs

These are the basic needs for sustaining human life itself, such as food, water, air, shelter, sleep,
etc. Maslow took the position that until these needs are satisfied to the degree necessary to
maintain life, other needs will not motivate people. In other words, As Maslow points out, a

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person lacking food, love and esteem wants food more than he/she wants acceptance or prestige.
These other needs would be unimportant. In the working environment, management tries to
satisfy these needs primarily through salary and by eliminating threats to physical safety.
b. Safety /Security Needs

When physiological needs are satisfied, safety needs become a priority as a motivator. Safety
needs include freedom from fear and anxiety, job security, desires for retirement and insurance
programs and so on. As with physiological needs, management attempts to satisfy safety needs
primarily through salary.
c. Social/ Love/ Affiliation Needs

Once we feel reasonably safe and secure, we turn our attention to relationships with others in
order to fulfill our belongingness needs, which involve the desire to affiliate with and be
accepted by others i.e. the need for friendship, companionship, and a place in a group. Love
needs include both giving and receiving. These needs are met by frequent interaction with fellow
workers and acceptance by others.
d. Esteem Needs

Esteem needs include the desire for both self-esteem (self respect) and public esteem, and
recognition by others. These needs take two different forms. First, we have a need for
competency, confidence and independence. We also want the prestige, status, recognition and
appreciation that others bestow on us. Satisfying esteem needs produces self-worth-pride, self-
confidence, and true sense of importance; not satisfying them produces feelings of inability and
inadequacy- feeling of inferiority, weakness and helplessness. Esteem needs can be met in an
organization through recognition by peers and superiors of the person’s work, by acquiring
organizational titles and by the accomplishment of work projects.
e. Self-Actualization/Realization Needs

Refers to the need for fulfillment, the desire to become what one is capable of becoming-to
maximize one’s potential and to accomplish something. For the athlete, it may be breaking a
world’s record; for the research scientist, it may be finding a cure for HIV/AIDS; and for the
physical therapist, it may be the satisfaction of helping a child walk or laugh for the first time. In
other words, these needs differ greatly from person to person.

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Maslow’s theory suggested that people must satisfy lower-level (physiological needs) before
working toward higher-level needs. Only when physiological, security, and social needs have
been more or less satisfied do people seek esteem. This theory also suggests that if a lower-level
need is suddenly reactivated, the individual will try to satisfy that need rather than higher-level
needs.
Maslow’s hierarchy, although intuitively appealing and frequently used in management training,
has not found widespread support from management researchers. Beyond the first two basic
needs, people vary in their need emphasis. Some may seek social-need satisfaction, while others
may emphasize esteem needs or self-actualization needs. Thus, each individual may respond
differently to organizational characteristics. Moreover, the steps in Maslow’s hierarchy may not
be necessarily experienced in a sequential manner. People may have more than one need at the
same time. Situations detect which needs are most important at a given point in time.

Herzberg’s Two Factor Theory

Herzberg developed a theory known as the two-factor theory of motivation. The initial
framework for the two-factor was derived from interviews with accountants and an engineer
using what is known as the critical-incident method. The accountants and engineers were asked
to provide interviewers with examples of time they felt exceptionally good or exceptionally bad
about their jobs or job related issues that made them feel good or bad.
According to the analysis, although an unpleasant work environment might be a reason given for
job dissatisfaction, a pleasant work environment is rarely cited as a reason for job satisfaction.
This suggested that job satisfaction and job dissatisfaction are not simple opposites.
Traditionally, managers viewed job satisfaction and job dissatisfaction as opposite ends. In
contrast, Herzberg's findings suggested the opposite of satisfaction is not dissatisfaction, but
rather ‘no satisfaction’. Herzberg believed that two entirely separate sets of factors contribute to
an employee’s behavior at work.
Herzberg labeled the factors that produced job satisfaction as motivators. His analysis indicated
these factors are directly related to job content. The absence of motivational factors may not
result in dissatisfaction, but their presence is likely to motivate employees to excel. When

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motivators are absent, workers are neutral toward work, but when motivators are present,
workers are highly motivated and satisfied. Herzberg labeled the factors that led to job
dissatisfaction as hygienes and found they are related more to the work setting, or job context,
than to job content. These factors do not necessarily motivate employees to excel, but their
absence may be a potential source of dissatisfaction, low morale, and high turnover. When
hygiene factors are poor, work is dissatisfying. However, good hygiene factors simply remove
the dissatisfaction; they do not by themselves cause people to become highly satisfied and
motivated in their work.

Motivators Leading to Job Hygienes Leading to Dissatisfaction

satisfaction
• Achievement • Policies and administration
• Recognition • Supervision
• Work it self • Relations with peers
• Responsibility • Working Condition
• Advancement • Pay
• Personal growth • Job Security
Herzberg's Motivators and Hygiene's

Thus, to the degree that motivators are present in a job, satisfaction will occur, when absent,
motivators do not lead to dissatisfaction. And, to the degree that hygienes are absent from a job,
dissatisfaction will occur, when present hygienes prevent dissatisfaction but do not lead to
satisfaction.
Communication in Organizations
Communication is the process of transmitting information among two or more people. It is the
glue that holds organizations together. Communication assists organizational member to
accomplish both individual and organizational goals, implement and respond to organizational
change, coordinate organizational activities, and engage in virtually all organizational relevant
behaviors. It would be extremely difficult to find an aspect of a manager's job that does not
involve communication. In other words communication is unavoidable in an organization's
functioning. By its very nature a manager's job requires communication. The success of every
manager and every organization depends on communication because in any undertaking
involving two or more persons, it is essential for the coordination of individual activities.

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Formal and Informal Communications

Formal communication
This is a communication, which is intentionally designed by the organization. Information
flows through the formally established channel and is concerned with work related matters.
Formal communication includes; Downward communications, Upward communication,
Horizontal communication, and Diagonal communication.
 Vertical communication is communication that involves a message exchange between two or
more levels of the organization hierarchy. Vertical communication can involve a manager
and a subordinate or can involve several layers of the hierarchy. It includes downward and
upward communications.
 Downward communication occurs when information is transmitted from higher to lower
levels in an organization. Downward communication starts with top management and flows
down through the management levels to line workers and non-supervisory personnel. The
major purposes of downward communication are to provide organization members with
information about organizational goals and policies. The kinds of media used for downward
communication include instructions, speeches, meetings, the telephone, grapevine,
memoranda, letters, handbooks, pamphlets, policy statements, procedures, etc.
 Upward communication – in such situations, the communicator is at a lower level in the
organization than the receiver. In other words, information flows from the subordinates to the
superior. The main function of upward communication is to supply information to the upper
levels about what is happening at lower levels. It includes the flow of opinions, ideas,
complaints, progress reports, suggestions, explanations, and requests for aid or decisions and
other kinds of information from subordinates up to managers. Typical means for upward
communication besides the chain of command are suggestion systems, appeal and grievance
procedures, complaint systems, counseling sessions, group meetings, etc.
 Horizontal communication is lateral message exchange either within work unit boundaries,
involving peers who report to the same supervisor, or across work unit boundaries, involving
individuals who report to different supervisors. It takes place among departments or people
on the same level of hierarchy. It is useful to coordinate activities. Horizontal
communication can take many forms, including meetings, reports, memos, telephone
conversations, and face-to-face discussions between individuals.

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 Diagonal communication involves the flow of information among departments or individuals

on different levels of the hierarchy. This occurs often in the case of line and staff
departments, in which the staff has functional authority. It is also common to find diagonal
communication among line departments, again in which one of them has functional authority.
The use of diagonal channel would minimize the time and effort expended by the
organization (upward and then horizontal).

Vertical communication (downward)

Horizontal communication
Vertical communication (upward)
Diagonal communication

Informal Communication
It is a communication, which is not deliberately designed by the organization. It is rather
created by informal groups in order to satisfy their need to interact and share information
among themselves. In the informal communication, information flows in unstructured and
unpredictable ways. In other words, it is a structure less network. Informal communication

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channel is commonly termed as grapevine because of its structure less direction of flow.
Normally the information which flow in grave vine is considered to be secret or confidential.

Chapter Seven: Controlling Function

Definition of controlling
 Controlling is the process through which managers assure that actual activities conform to
planned activities.
 Controlling is the process of regulating organizational activities so that actual performance
conforms to expected organizational standards and goals.
 It is checking current performance against predetermined standards contained in the plans.

Importance of Controlling
All the good planning efforts and brilliant ideas in the world do little good if a firm has no
system of managing control. Control, therefore, is an essential part of effective organizational
management. Specifically, control helps an organization adapt to changing conditions, limit
magnification of errors and provide the means to monitor performance.

 Adapting to changing conditions: in today’s dynamic and unpredictable business

environment, control plays a crucial role than ever. A properly designed control system
allows managers to effectively anticipate, monitor, and respond to often constantly changing
conditions.
 Limiting the magnification of errors: generally, a small error or mistake does not adversely
affect organizational operation. However, a small error/mistake left uncorrected (perhaps one
undetected as a result of a lack of control) may be magnified with the progress of time,
eventually harming the whole organization.
 To prevent failure: To determine whether people and the various parts of an organization are
on target, achieving the progress toward their objectives that they planned to achieve.

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Planning chooses goals and maps out the necessary strategy and tactics. Controlling attempts
to prevent failure (and to promote success) by providing the means to monitor the
performances of individuals, departments, divisions, and the entire organization.

The controlling process is closely associated with the other three functions of management:
planning, organizing and leading. It builds most directly on the planning function by providing
the means for monitoring and making adjustment in performance so that plan can be realized.
Still, controlling also supports the organizing and leading functions by helping ensure those
resources are channeled toward organizational objectives. A combination of well-planned
objectives, strong organization, capable direction and motivation has little probability of success
unless there exists an adequate system of control. Planning, organizing, staffing and directing
must be monitored to maintain their effectiveness and efficiency.

The Controlling Process

Although control systems must be tailored to specific situations, such systems generally follow
the same basic process. The controlling process has five major steps.
 Determine Areas to Control: The first major step in the control process is determining the
major areas to control, i.e. identify critical control points. Critical control points include
all the areas of an organization's operations that directly affect the success of its key
operations, areas where failures can not be tolerated, and costs in time and money are
greatest. Managers must make choices because it is expensive and virtually impossible to
control every aspect of an organization’s activities. In addition, employees often resent
having their every move controlled. Managers usually base their major controls on the
organizational goals and objectives developed during the planning process.
 Establishing Standards: Standards are units of measurements established by management
to serve as benchmarks for comparing performance levels. They spell out specific criteria
for evaluating performance and related employee behaviors. The exact nature of the
standards to be used depends on what is being monitored.

Standards, if possible, must be

 Specific and quantitative as much as possible.
 Flexible to adopt the changes that may occur over the future.

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 Challenging and should aim for improvement over past performance.

Generally, standards serve three major purposes related to employee behavior. For one thing,
standards enable employees to understand what is expected and how their work will be
evaluated. This helps employees do an effective job. For another, standards provide a basis for
detecting job difficulties related to personal limitations of organization members. Such limitation
can be based on a lack of ability, training, or experience or on any other job-related deficiency
that prevents an individual from performing properly on the job. Timely identification of
deficiencies makes it possible to take corrective action before the difficulties become serious and
possibly irresolvable. Finally, standards help reduce the potential negative effects of goal
incongruence. Goal incongruence is a condition in which there are major incompatibilities
between goals of an organization member and those of the organization. Such incompatibilities
can occur for a variety of reasons, such as lack of support for organizational objectives (e.g. an
employee views the job as temporary and attempts to do the minimum), and often result in
behaviors that are incompatible with reaching organizational goals. One common manifestation
of goal incongruence is employee theft, which includes wasting an organization's resources, as
well as taking equipment, materials and money.
There are three types of standards: performance standards, corollary standards and standards of
conduct.
Performance standards deal with quality, quantity, cost and time.
 Corollary standards support a given level of performance. These include minimum personnel
requirements and adequate physical resources, such as when a company knows it will need at
least five hundred workers and well-equipped factory to produce a certain number of
terminals. Standards of conduct are moral and ethical criteria that shape the behavioral
climate of the work place. They originate from law, custom and religious beliefs.

Examples of standards: Producing 800,000 units per year, increasing market share by 20%,
cutting costs by 15%, answering all customer complaints within 24 hours.

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 Measuring Actual Performance: Once standards are determined, the next step is measuring
performance. For a given standard, a manager must decide both how to1 measure actual
performance and how often2 to do so.
 Comparing Performance against Standards: This is a step where comparison is made between
the “what is” and the “what should be.” Managers often base their comparisons on
information provided in reports (oral and written) that summarize planned versus actual
results, and by working around work areas and observing conditions, a practice sometimes
referred to as Management by Wondering Around (MBWA). The purpose of comparing
actual performance against intended performance is, of course, to determine if corrective
action is needed.

Consequently, the comparison result may show that the actual performance exceeds (positive
deviation), meets (zero deviation), or falls below (negative deviation) expectations (standards).
Accordingly, if performance fulfills expectations (meets standards), no control problem exists.
However, if performance exceeds or fails to meet expectations, further investigation is required
to determine the cause. Performance that exceeds expectations may mean either superior talent or
inappropriately set standards. Performance that fails to meet expectation may likely mean
inappropriately set standards, poor talent or improper use of resources. The key question in both
cases will be, “How much variation from standards is acceptable before action is taken?” The
answer to this question will lead to the development of ranges defining upper and lower limits.
And performance outside of acceptable range servers as a red flag calling for taking the
necessary corrective action.
The managerial principle of exception states that control is enhanced by concentrating on
exceptions, or significant deviations from the expected result or standard. Therefore, in
comparing performance with standards managers need to direct attention to the exception, and by
doing so, managers can save time and effort.
 Taking Corrective Action (on time): The corrective action to be taken depends up on the type
of deviation that exists. When performance exactly meets (deviation of zero) or exceeds
(positive deviation) the standards set, usually no corrective action is necessary. However,

1
1 The means of measuring performance will depend on the standards that have been set.
2 The period of measurement generally depends upon the importance of the goal to the organization, how quickly
the situation is likely to change, and the difficulty and expense of rectifying a problem if one were to occur.

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managers do need to consider recognizing the positive performance. The type of recognition
given can vary from a verbal “well done” for a routine achievement to more substantial
rewards, such as bonuses, training opportunities, or pay raises, for major achievements or
consistently good work. Yet, favorable deviations should be examined to understand such
success. When standards are not meet, managers must carefully assess the reason why and
take corrective action. During this evaluation, managers often personally check the standards
and the related performance measures to determine whether these are still realistic.
Sometimes, managers may conclude that the standards are, in fact, inappropriate-usually
because of changing conditions-and that corrective action to meet standards is therefore not
desirable. More often, though, corrective actions are needed to reach standards. The
standards may have been based on historical data which may be inappropriate to current
conditions. In such instances, the past is a poor basis on which to predict the future.
Similarly, the use of comparative standards may prove to be problematic since no two
organizations are alike.

In taking corrective actions, managers must carefully avoid two types of errors: taking corrective
action when no action is necessary and failing to take corrective action when it is clearly needed.
Types of Controlling
In addition to determining the areas they want to control, managers need to consider the types of
controls that they wish to use. Based on the time period in which control is applied in relation to
the operation being performed, or the stage of productive cycle in which controlling is carried
out, there are three basic types of controls: preventive, concurrent, and feedback. Thus, an
organization’s performance can be monitored and controlled at three points: before, during, or
after an activity is completed.
 Preventive/Steering/ preliminary / Input Control: Preventive control focuses on the regulation
of inputs to ensure that they meet the standards necessary for the transformation process. It
attempts to monitor the quality and/or quantity of resources (financial, physical, human and
information) before they become part of the system. Preventive control is future oriented and
takes place before the operation begins. It focuses on prevention in order to preclude later
serious difficulties in the production process - its aim is to prevent problems before they
arise. Nevertheless, since preventive control can’t cover every possible contingency, other
type of controls may also be needed.

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E.g. Entrance exams for colleges and universities, policies, rules, procedures, proper selection
and training of employees, inspecting raw materials, the implementation of induction and
orientation programs-save trial and error cost, frustration of employee. Preventive control comes
from an old saying “A gram of prevention is worth a kg of cure.”
 Concurrent/Screening/ Yes-No/Checking Control: Concurrent control involves the regulation
of ongoing activities that are part of the transformational process to ensure that they conform
to organizational standards. It is designed to detect and anticipate deviations from standards
at various points throughout the processes, i.e. the controlling is carried out during the actual
transformation process. The emphasis here is on identifying difficulties in the productive
process that could result in faulty outputs. Because concurrent controls involve the
monitoring of ongoing activities, they are the only controls that can cope with contingencies
(unexpected events) that cannot be anticipated. When contingencies arise involving activities
in a transformation process, a yes/no decision is required. That is, decision must be made
whether to continue as before or follow an alternative course, or take corrective action, or
stop work altogether. In this way, concurrent controls allow adjustments to be made while
work is being done.

E.g. On the job training, on the spot observation, mid term exams, tests, quizzes
 Feedback/Post-Action/ Output Control: As the name indicates post action control focuses on
the end results of the process. It is regulation exercised after the product (goods or services)
has been completed in order to ensure that the final output meets organizational goals and
standards. The information derived is not used for corrective action on a project because it
has been completed.

The feedback control provides information for a manager to examine and apply to future
activities that are similar to the present one. That is why it is called “historical results guide
future actions.” The purpose of feedback control is to help prevent mistakes in the future and
also it can be used as a base for reward; and in cases where other (preliminary & concurrent)
controls are too costly.
E.g. Performance evaluation, financial statement analysis, final exams
Cybernetic and Non-cybernetic Controls

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A basic control process can be either cybernetic or non-cybernetic, depending on the degree to
which human discretion is part of the system. A cybernetic control system is a self-regulating
control system that, once it is put into operation, can automatically monitor the situation and take
corrective action when necessary. E.g. computerized inventory system, a heating system
controlled by a thermostat. A non-cybernetic control system is a control system that relies on
human discretion as a basic part of its process.
Characteristics of Effective Control System
Controls may have many different characteristics, but some of the most important are:
 Future–Oriented: To be effective, control systems need to help regulate future events, rather
than fix blame for past events. A well designed control system focuses on letting managers
know how work is progressing toward unit objectives, pinpointing unforeseen opportunities
that might be developed – all aids to future action
 Multidimensional: In most cases, control systems need to be multidimensional in order to
capture the major relevant performance factors, such as, quality, quantity, overhead, etc.
 Economically Realistic (Cost Effective): The cost of implementing a control system should
be less, or at most, equal to the benefits derived from the control system. The benefits
received from controls should off-set their expenses.
 Accurate: Since control systems provide the basis for future actions, accuracy is vital.
Control data that are inaccurate may be worse than no control at all, since managers may
make poor decisions on the basis of faulty data they believe to be accurate. An inaccurate
data from a control system can cause the organization to take action that will either fail to
correct a problem or create a problem when none existent. Evaluating the accuracy of the
information they receive is one of the most important control tasks that managers face.
 Acceptable to Organization Members: Control systems operate best when they are accepted
by the organization members who are affected by them. Otherwise, members may take
actions to override and undermine controls; i.e. controls will not work unless people want
them to. Too many, arbitrary, too few and too rigid controls often cause the satisfaction and
motivation of employees to decline.
 Timely: Control systems are designed to provide data on the state of a given production cycle
or process as of a specific time. In order for managers and employees to respond promptly to

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irregularities, control systems must provide relevant information soon enough to allow
corrective action before there are serious consequences.
 Reliability and Validity: Controls not only must be dependable (reliable), but also must
measure what they intend to measure (must be valid). When controls can’t be relied on and
are invalid, they are unlikely to be trusted and can lead to very bad consequences.

 Monitor-able: Another desirable characteristic of control system is that they can be

monitored to ensure that they are performing as expected. One way of checking a control
system is to deliberately insert an imperfection, such as a defective part, and then observe
how long it takes the system to detect and report it to the correct individual.
 Organizationally Realistic: The control system has to be compatible with organizational
realities. All standards for performance must be realistic. Status differences between
individuals have to be recognized. Individuals have to be able to see a relationship between
performance levels they are asked to achieve and rewards that will follow.
 Flexible: Just as organizations must be flexible to respond rapidly to changing environments,
control systems need to be flexible enough to meet new or revised requirements.
Accordingly, they should be designed so that they can be changed quickly to measure and
report new information and track new endeavors.
 Focus on Critical Control Points: Critical control points include all the areas of an
organization’s operations that directly affect the success of its key operations. The focus
should be on those areas where failures cannot be tolerated and where that costs in time and
money are the greatest.
 Easy to Understand: Complexity often means lack of understanding. The simpler the control,
the easier it will be to understand and apply. Controls often become complex because more
than one person is responsible for creating, implementing or interpreting them.
 Emphasis on Exception: A good system of control should work on the exception principle, so
that only important deviations are brought to the attention of management. In other words
management does not have to bother with activities that are running smoothly. This will
ensure that managerial attention is directed towards error and not towards conformity. This
would eliminate unnecessary and uneconomic supervision, marginally beneficial reporting
and waste of managerial time.

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Over-control Vs Under-control
Since excessive amount of control can make the occurrence of dysfunctional aspects of control
systems more likely, managers need to avoid over control. Over-control is the limiting of
individual job autonomy to such a point that it seriously inhibits effective job performance. At
the same time, managers need to avoid going too far in the other direction, which results in a
situation of under-control. Under-control is the granting of autonomy to an employee to such a
point that the organization loses its ability to direct the individual's efforts toward achieving
organizational goals.

Determining the appropriate amount of control that should exist in organizations is a significant
management decision. With the appropriate amount of control, a manager can be reasonably
certain that no major unpleasant surprises will occur and that employees will achieve
organizational goals.

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