Contents

PART:A: Principles and Rrnctions of Management

Unit - I
1. Management : An Introduction 3
2. Management As Science, Art and Profession 15
3. Levels and Functions of Management 9'
4. Coordination: Nature and Importance 32
Unit - 2
5. Principles of Management: Nature and Significance 39
6. Scientific Management: Principles and Techniques 56
Unit - 3
7. Business Environment : Importance and Dimensions 68
Unit - 4
8. Planning and Types of Plans 89
Unit - 5
9. Organising: Importance and Process 105.
10. Organisation Structure: Meaning and fyp"t tt7
I l. Delegation of Authority and Decentralisa[ion 125
Unit - 6
12. Staffing: Meaning and Importance t37
13. Recruitment: Meaning and Sources t46
14. Selection: Meaning and Process 156
15. Ti"aining and Development r62
Unit - 7
16. Directing: Importance and Principles 172
17. Supervision: Meaning and Importance 178
18. Motivation: Meaning and Importance 182
19. Leadership: Meaning and Importance 195
20. Communication: Importance and Barriers 202
 Unit - 8
21. Controlling: Importance and Process Zlg

PARTIB: Business Finance and Marketing

Unit - 9
1. Financial Management, Financial Decisions and Financial
Planning ZZg
2. Capital Structure: Meaning and Determinants zbl
3. Fixed and Working Capital : Meaning and Determinants 262
Unit - l0
4. Concept of Financial Market 270
5. Stock Exchange: Meaning and Functions 281
Unit - tl
6. Marketing and Markering Mix 295
7. Advertising : Role, Limitations and Objections 328
8. Personal Selling : Meaning and Importance 336
9. Sales Promotion and Publicity 342
Unit - 12
10. Consumer Protection: Importance and Ways 349
. x CBSE Sample
Question Paper-2009 (Solved) 367
* Model Test Papers 381
CBSE Question Papers
 +

MAI|AG Etll E lll: All I llIR 0 II U GII 011

Learning Obiectives
After studying this chapter, you will be acquainted with:
o Management: Concept
o Det'initions of Management
o Charocteristics of Management
o Objectiues of Management
c lmportance of Management

I Management: Concept
Detailed description about the Management concept has been given in the following Analysis Box:
+
4
Business Studies
 il
Managemenl An Introduction
+

Business Sfudies
Management: An Introduction

o Definitions of Management
Following are the main definitions of management.
(1) According to Harold Koontz, "Monagement is the
art ot' getting things done through others ond with
Jormally organised groups."
(2) According to George R. Terry, "Management is a
distinct process consisfing oJ planning, orgonising
actuating ond controlling; ufi/ising in eoch both
science and art, ond followed in order to occomplish
pr e- determined obj ectiu es. "
(3) Accordingto F.W. Taylor, "Manogementisthe artof
o knowing whot you want to do ond then seeing thot they do it in the best and the cheapest way."
(4) According to Peterson and Plowman , "Manogement may be det'ined osthe process by means oJ which
the purpose and objectiues of a porticular human group are determined, clarified and et'Jectuated."
o Characteristics of Management
On the analysis of various definitions, the following characteristics of management emerge:
(1) Management is Goal Oriented Process: No goal in the hand-no need of management. In
other words, we need management when we have some goals to be achieved. A manager on the basis of
his knowledge and experience ties to achieve the goals which are already decided. Hence, nothing is
wrong to say that management is a goal oriented process.
(2) Management is all Pervasive: Anything minus management is nothing or zero. Here by
anything we mean all types of activities-business and non-business. If we deduct management out of
these activities, the result will be failure or zero. It means management is necessary to conduct any type of
activities. Hence, it is pervasive or universal.
 8 Business Studies

(3) Management is Multidimensional: The management is a three dimensional activity:

(i) Management of Work: Every organisation is established for doing some work, like a school
provides education, a hospital heats patients, a factory produces, etc. Of these no work can be completed
satisfactorily without management.
(ii) Management of People: Each organization is established for doingsome workand the same is
conducted by people. Hence, it is necessary to manage the people so that the work can be accomplished
in a better way.
(iii) Management of Operations: To achieve the goals of an organisation many operations or
activities are need to be conducted, such as, production, sale, purchase, finance, accounting, R&D, etc.
Again, management is needed to make sure that operations are accomplished efficienfly and effectively.
(4) Management is a Continuous Process: The
various managerial activities cannot be performed once
for all, but it is a continuous process. A manager is busy
sometimes in doing one managerial activity and at other
time some other activity.
(5) Management is a Group Activity: It means
that it is not a single person who consummates all the
activities of an organization but it is always a group of
persons (Managers). Hence, management is a group
effort.
(6) Management is a Dynamic Function:
Management is a dynamic activity as it hasto adjust itself to
the regularly changing environment. In this context, it can
be rightly said that nothing is etemal in management.
(7)Management is an Intangible Force: Management is that power which cannot be seen. It
can only be felt."If any organization is heading toward higher levels of achievement, it signifies a existence
of good management and vice-versa.

! Objectives of Management
objectives of management can be broadly divided into the following three
( 1 ) Organisational Objectives

(2) SocialObjectives
(3) Personal or Individual Objectives.
(1) Organisational Objectives: It refers to
for the whole organisation. While
ascertain objectives
fixing these objectives, management keeps into
consideration benefit of all related parties (like owner, employee, customer, government, etc.). This also
fulfil organisational economic objective which are survival, profit and groMh.
(i) Survival: Every business wanh to survive for long. So, management by taking positive
decisions
with regard to different business activities should ensure that business survives for long.
Management: An Introduction

(ii) Profit: Profit plays an important role in facing business hazards and successful running of
business activities. So, it must be ensured that adequate profit is earned by the business.
(iii) Growth: Every business wants to grow. Management must ensure growth of business. Growth
can be measured by sales, number of employees, products, capital investment, etc. If all these show
increasing trend then it can be concluded that business is heading towards growth.
(2)SocialObjectives: Itreferstotheconsiderationoftheinterestofthesociet5rduringmanagerial
activities. An organisation is established in a society. It runs through the resources made available by the
society. That is why it becomes the responsib;ility of every organisation to account for social benefits.
Thus, social objectives are defined as the fulfillment of responsibility of an organisation towards society.
Under this objective manager promises to assure health, safety and price contol.
Main social objectives of management are included in the following list:
(i) To make available employment opporhrnities.
(ii) To save environment from getting polluted.
(iii) To contibute in improving living standard.
For example: fuian Paints has provided funds under its community development programme,
which made possible the effective utilisation of local resources by the farmers. In the same manner, Steel
Authority of India regularly provides services related to agriculture, industry, education, health, etc. to the
people living nearby to its steel plant.
(3) Personal or Individual Objectives: It refers to ascertainment of the objectives in reference to
the employees. Employee class is an initiative and empathetic resource of a company. Thus, special
attention needs to be given towards its feelings. If the company is able to satisfu its employees it will be
able to pro$ess in 'leaps and bounds'.
Main objectives of management towards employees are as follows:
(i) To give deserving remuneration, (ii) To provide good working environment, (iii) To provide a
share in profit.

! lmpoitance of Management

The above mentioned mathematical equation highlights the importance of significance of

managemenl very well. Here by anything we mean all types of activities whether business or
non-business. If we are not going to manage these activities the result will be Zero or Failure or Nothing. In
short, the importance of management is explained through the following facts:
(1) Management helps in achieving Group Goals: In is the most important characteristic of
manag€ment that it is goal-oriented activity. A manager achieves these goals by giving the proper
direction to the efforts of all individuals.
(2) Management Increases Efficiency: A manager increases efficiency through the optimum
utilization of all the resources, such as, Man, Machine, Material and Money.
(3) Management Creates a Dgmamic Organisation: Every organisation work in an ever
changing environment. To face the changing environment, many changes need to be made in the
organisation as well. But people resist changes. Manager creates a favourable environment through
introducing employees to the benefits arising by adapting changes.
10 Business Shrdies

(4) Management helps in achieving Personal Objectives: Every employee wants to get
suitable remuneration, a share in profit, participation in management, promotion, etc. in the form of his
personal objectives. This objective can only be achieved, if they work while using their full abilities.
Managers make employees able through motivation, good leadership and open communication. As a
result, they attain their individual objectives.
(5) Management helps in the Development of Society: Management has some responsibility
towards society. Managers by fulfilling their social responsibilities helps in the development of society.
These responsibilities are to provide employment opportunities, to prevent environment from getting
pollution, to make available good quality products at a reasonable price, etc.

I . Meaning of Management: Management is the process of conducting a set of functions,

such as, planning, organizing, staffing, directing and controlling to get the work done in an
efficient and effective manner.
a 2. Characteristics of Management:(i) Management is a goal oriented process,
(ii) Management is allpervasive, (iii) Management is multidimensional, (iv) Management is
a continuous process, (v) Management is a group activity, (vi) Management is a dynamic
function, (vii)Management is an Intangible force.
V 3' Objectives of Management: (i) Organisational Objectives: It refers to the
ascertainment of objectives for the whole organisation. (ii) Social Objectives: It refers to
the consideration of the interest of the society during managerial activities. (iii) Personal
or Individual Objectives: It refers to the ascertainment of the objectives in reference to
the employees.
V 4. lmportance of Management: (i) Management helps in achieving group goals,
(ii) Management increases efficiency, (iii) Management creates a dynamic
orgnisation, (iv) Management helps in achieving personal objectives, (v) Management
hblps in the development of societ5r.

I Management: Concept
6 Marks
1. What is meant by Management? Explain any four characteristics.
2.'Management is Multidimensional.' Explain.
4/5 Ma*s
3. Clarify the meaning of 'Group Efforb' in management.
4. Explain any four characteristics of Management. (c.B.s,E.2005)
5. Explain any five feahrres of management. (c.B.s.E.2006)

-$
6. Define management.
7. Clarifu the following equation : 'Anything - Management : Zero, .

8. Explain in brief, 'management' as an activity. (c.B.s.E. 2004,06)

Management An Intoduction 11

g. 'Explain,inbrief,'Management'asaprocess. (C.B.S.E.20U,06)
10. How Management is a 'Goal Oriented Process'?
11. Management is not visible, it can only be felt. Explain.
12. How is management a Continuous Process?
13. 'Explain, in brief, management as a 'Dynamic Function.'
74. Explain 'Management of people' as a dimension of management.
15. Explain in brief, 'management' as a group of people having managerial responsibility for an enterprise.
(c.B.s.E.2004)
76. State any two characteristics of management. (c.B.s.E.2004)
1'[{ark
77. What is meant by the term Management?
Ans. Management is the process of conducting a set of functions (planning, organizing, staffing,
directing and controlling) to get the work done in an efficient and effective manner.
18. What does a manager aspire while doing work?
Ans. A manager wanh to make optimum utilisation of resources (manpower, money, material,
machlnes, etc.) in order to accomplish the work efficiently and effectively.
79. Clarify the terms efficiency and effectiveness in management.
Ans. Efficiency refers to do the job in a cost effective manner. Effectiveness refers to complete the job on
time, no matter whatever is the cost.
20. What is meant by 'Doing things Right' in management?
Ans. 'Doing things Right' refers to do the job in a cost effective manner.
27. What is the meaning of 'Doing the Right Things' in management?
Ans. 'Doing the Right Things' refers to complete the job, no matter whatever is the cost.
22. Why is it said that management is all penrasive? (c.8.s,E.2009)
Ans. Because it is needed in all spheres say - business and non-business organisations.
23. 'Management is uniformty needed at all places.' Explain.
Ans. It is needed throughout the world whether it is India, America or Japan.
24. 'Management is multi-dimensional.' Enumerate any tow dimensions of management.
Ans. (i) Management of work. (ii) Management of people.
25. 'Nothing is permanent in management.'Give an example.
Ans. For example, principles of management are changing according to the changing business
environment.
26 'Management cannot be seen.' Explain.
Ans. Management cannot be seen, it can only be
27 'In an organisation employees are happy an
management is noticeable.' Which characteristic of management is highlighted by this
statement? (qB.s.E.2oo8)
Ans. Management is an intangible force.
28. Name the process of working with and through others to effectively achieve organisational
objectives by efficiently using its limited resources in the changing environment.
/- (c.8.s.E.2008)
Ans. Management.
72 Business Studies

2/ 'ln order to be successful an organization must change its goals according to thl needs of
/ the environment.' Which characteristic of management is highlighted in the
statement? (C.B.S.E. Somple Paper)
Ans. Management is dynamic.
30. Give any two characteristics of management. (C. B. S.E. Sampl e Paper )
Ans. (i) Management is goal-oriented process. (ii) Management is all pervasive.
3Ja The management principles can be applied to all types of activities.'Which characteristic
of management is highlighted by this statement? (c.B.s.E. 2008)
Ans. Management is all pervasle.
32. Name the process of designing and maintaining an environment in which individuals
working together in groups, efficiently accomplish selected aims. (c.8.5.E.2008)
Ans. Management.
33. Why is it said that management is a goal-oriented process? (c.B.s.E.2009)
Ans. Management said to goal oriented process as it helps in getting goals by coordinating the efforts of
various individuals.
34. Why is "management called a group.activity"? (C.B.S.E. 2009)
Ans. It meains that it is not a single person (manager) who consummates the whole process of
management but it is conducted by a group of persons (managers).
35. 'Management creates a dlmamic organisation." How? (Foreign 2009)
Ans. Managementcreates such type of organisation which is able to face the regularly changing
environment easily.

f Obiectives of Management
6 SIarks
36. Explain the objectives of management.
'4lE ftrarks
37. Explain inbrieftheobjectivesofmanagement. (c.8.s.E.2007)
38. Discuss tlre social objectives of management.

$ [Iarks
39. What are the three categories of objectives of management?
N. List the three examples of Social Objectives of management.
f Mark
47. What are the organisational obJectives of management?
Ans. It includes survival, profit and groMh.
42. "Management helps in development of society." How? (c.8.s.E.2009)
Ans. Management enables the organisatlon to make available employment opporfunities, hence
helping in the development of society.
43. What do you mean by personal obiectives of management?
Ans. It refers to the consideration of the interest of employees during managerial activities.
I To meet the obiectives of the firm the management of Angora Ltd. offers employment to
J physically challenged petsons. Identifu the organization's obiective it is trying to
achieve. (C.B.S.E. Somplepaper)
Ans. It is social objective.
Management An Intoduction 13

45. Management of any organization sMves to attain different obiectives. Enumerate any two
such objectlves? (C. B. S.E. Sample Paper)

Ans. (i) Organisational objectives, (ii) Social objectives.

I lmportance of Management

46. 'Anything minus management is zero.' Explain the importance of management in the light of this
statement.
47. Explainthesignificance of managementinrunningof modementerprise. (C.B.S. E.2001)
48. 'Management is the art of getting things done through others.' Explain the importance of
management in the light of this statement.
49. How is management essential for the successful running of an enterprise?
50. 'Lack of proper management results in wastage of time, money and efforts.' Do you agree with this
statement? Give reasons in support of your answer. (C.B.S.E. 2003)
51. Explain any five reasons why management is essential in any organisation? (C.B.S.E. 2006)

52. Explain by giving any four poinJs why management is important in any organisation?
(c.B.s.E. 2005)
53. 'ln the absence of management' the productive resources will remain resources and shall never become
production.' Explain the importance of management in the light of the above statement.
(c.B.s.E.2006)
54. "success of an organization largely depends upon its management." Explain any five reasons to justify the
above statement. (C-B-S-E. Sample Paper)

55. How does management help in the development of society?

56.,'Anlrthlng minus management is nothing.'rWhat does this statement tell?

Ans. It tells about the importance of management.
57. 'Anything minus management is nothing.' Hete what is the meaning of 'anything'?
Ans. It refers to all types of activities, such as, business and non-busiriess activities.
58. 'Anything minus management is nothing'. Here what is the meaning of 'nothing'?
Ans. It refers to failure or loss.
59. Name the two points of the importance of management.
Ans. (i) It helps in achieving group goals.
(ii) It increases efficienry.
60. "Management increases efficiency." How? (c.8.s.E.2009)
Ans. A manager increases efficiency through the optimum utilisation of all the resources, such as, mdn,
machine, material and money.

t\ Mr. Solution, who is an M.B.A., has been appointed at the post of General Manager in Sa-re-ga-ma Ltd.
Company. Just after his appointment, he took a decision to set up a chemical plant near a residential
colony. (The chosen location to set up the plant was favourable for many reasons to the company). After
some time, an another important decision to the amount of charity been given annually to educational
t4 Business Shrdies

instifutions and religious institutions was withdrawn giving the justification that it was an unnecessary
burden on the company. More emphasis was given to the share of company in the market and in search
of modern procedures. Apart from this, a long time labour-dispute was resolved by taking a balanced
decision.
(i) Tell whether Mr. Solution is at fault? (ii) If yes, the fault is in which context? (iti${ow can the mistake be
amended?
Ans. Yes, Mr. Solution is at fault. He is avoiding the social objective of management. There is need of
rethinking on two issues: (i) Establishing Chemical Plant and (ii) Giving Charity.
l2l, Mr. PROBLEM is working at the post of Sales Manager in Surabhi Tel. Ltd. Last year, the targeted sales
/ increased to 20,000 units from earlier target of :18,000 units. This he achieved very easily. To achieve
this, he increased the expendifure on advertisement to almost double.
(i) Did sales manager perform his duty efficiently and effectively?
(ii) If not, then how?
Ans. Mr. Problem is effective as he gets his job done but not efficient as the job is done at a very high cost.
Is there any difference in planning, organising, staffing, directing and contolling of vaiious organisations
W
V' such as a school, a club, a restaurant and a steel plant.
This case is related to which characteristic of management?
Ans. No, there is no difference as far as the functlons of management are performed by various
organisations. In other words, all the functions of management are performed in a similar manner in all
tlrpes of organisations, i.e., business or ncn-business.
This case is related with the characteristics of management, namely, 'management is all pervasive'.

Mr. Question : Sir, a manager while performing his duty efficiently and effectively tries
to best utilise the resources. This is absolutely correct. However, while
doing this what is his focus of thinking?
Mr. Answer : Right, a very nice question raised. The central focus of thinking of a manager is
'establishment of coordination'. In all ways, he/she wants to establish
coordination.
Mr. Question; Sir, coordination among whom....?
Mr. Answer : * Coordination among objectives
* Coordination among activities
* Coordination among people
* Coordination among divisions
Mr. Question : O.K. sir, thus a manager can achieve his obiectives by establishing
coordination.
Sir, Thank U.
 OIIAPTTR 2

t[AlrAG tt[ r]il AS SG r tl{ G [,

ANIAilII PRIITTSSIOI{
Different Management experts have described the nature of
management differently in their own time.

Learning Objectives
After Studying this Chapter, you will be Acquainted with:
o Nlanqgement: As a Science
* Meaning of Science
* Testing of Management as a Science
a Nlanagement: As qn Art
* Meaning of Art
* Testing of Management as qn Art
o Nlanqgement: As a Profession
* Meaning of Prot'ession
* Testing of Manogement as Prolession

! Management: A Science or An Art

There is a conflict about the nafure of management whether management is a science or an art.
Some management experts consider it as a science, while some place it in the category of Art. It is a very
old and misleading conflict. Before understanding the issue about the nature of management, it is
important to understand the meaning of science and art. The feahrres and meanings of science and art
and its presence in management will become clear in the following description.

! Management as a Science
It is important to understand the meaning of science before accepting management as a science.
o Meaning of Science
Science refers to that systematic body of knowledge which is acquired on the basis of observation
and experiments and verification of this knowledge is possible. For example, a person completes his sfudy
of engineering. During the course of his shrdy, he gets a complete theoretical knowledge of the subject.
His acquiring of knowledge in this manner is a science.
76 Business Studies

Science seems to have the following three characteristics:

(1) Systematised Body of Knowledge. (2) Principles Based on Experimentation and (3) Universarl
Validitv.
o Testing of Management as a Science
It is important to apply these characteristics of science to management in order to find out whether
management is a science or not.
(1) Systematised Body of Knowledge: It is necessary for science to be a systematised body of
knowledge. Management is also a systematised body of knowledge because it has its own theory and
principles which are developed by the management experts after years of research.
(2) Principles Based on Experimentation: After applying this characteristic of science to
management, we find that development of management took -trears for the collection of fach, their
analysis and experiments. In other words, management came into existence because of the continuous
and encouraging labour of the theorists and various people concerned.
(3) Universal Validity: Scientific principles are based on truth and they can be applied al every
time and in every situation. Thus, its universal application is possible. In the field of management too,
managerial knowledge and principles of management are considered to be based on truth and they, too,
can be applied anywhere and in every situation But the principles of management are not as exact as the
principles of science as their application may not yield the desired results always.
Conclusion: The management cannot be treated as a perfect science, but as its principles are
subject to change with time, situations and human nafure, it is better to call it Applied Science or Inexact
Science Ernest Dale has called management a soft science because its principles are not very rigid.
! Management as an Art
o Meaning of Art
Art refers to the practical application of knowledge.
For example, when a person after completing the course of
Science and Art
engineering working as an engineer in a company, his this In simple words it can be soid thot to get
work is known an art. inJormotion about o subject is science and
putting thot information to proctice is on afi.
Following are the important characteristics of Art:
(i) For example, studying engineering is a
Existence of Theoretical Knowledge.
science ond after study working os on
(ii) PersonalisedApplication. engineer is an aft.
(iii) Based on Practice and Creativity.
o Testing of Management as an Art
Whether management is an art or not will be known by the application of the characteristics of art in
management, description of which is as under:
(1) Existence of Theoretical Knowledge: Art is always based on certain theoretical knowledge.
On the basis of this knowledge one can understand how a particular work can be accomplished. In this
context management is an ar1 as a lot of literature is available in various areas of management
(2) Personalised Application: The use of available theoretical knowledge is found in varying
degree among different persons. For example, two teachers, two players, or two goldsmith will always
differ in performing their jobs. Management possesses this feature of art too There are various principles
Management as Science, Art and Profession 17

of management as developed by management experts. Managers apply these principles differently

depending on their level of knowledge. Sometimes they may get exacfly opposite results while applying
the same principles.
(3) Based on Practice and Creativity: Just as art can be embellished with the help of practice, ih
the same way managerial skill also improves with practice.Every manager has a desire to become a
complete expert in his field. They can fulfil his desire by continuous practice. A fully developed manager
not only moulds the organisation according to the changing circumstances but also has the capacity to
change the outer circumstances according to his will. Thus, management .nossesses this feature of art too.
The above analysis clearly establishes that management possesses all the characteristics of art and
on this very basis it has been accepted as an art.
o Conclusion
Therefore, we can say that management is both a science as well as an art. As a science,
management with the help of its principles provides the necessary guidance to the managers to achieve
practical efficiency. With reference to art, management, in the form of best work technique, helps the
managers to face every lype of sifuation successfully. It is, therefore, reasonable to treat management both
as a science and an art.

! Management: As a Profession or Professionalisation of Management

a Meaning of Profession
The nafure of management gives rise to an important question - whether management is a
profession. One has to learn the meaning of profession and understand its characteristics before
answering this question.
Profession refers to that economic activity which is conducted by a person having some special
knowledge and skill which is used impartially to serve various sections of the society. Following are the
main characteristics of profession:
(1) Well Defined Body of Knowledge
(2) Restricted Entry Profession?
(3 ) Professional Association Profession refersb that economic odiuity
which is conducted by aperson hauingsome
(4) Ethical Code of Conduct speciol knowledge and skill which is ured
(5) Service Motive impofiiolly to serue uorious seclions of the
o Testing of
Management as a Profession
After having understood the meanings of profession it now remains to be decided whether
management should be heated as a profession. In order to find an answer to this question it shall have to
be ascertained whether all the characteristics of a profession are found in management. To find out an
answer to this euerV, the following analysis is important:
(1 ) Well Defined Body of Knowledge : The foremost quality of a professional is the possession of
specialised knowledge. Management has ih own principles based on experiments and which requires
special competence to bringthem into use. On the basis of this speciality, management can be accepted as
a profession.
(2) Restricted Entry: The entry to a profession is restricted through acquiring an educational
degree. For example, a degree in [-aw is essential for joining the Law profession. But as for as the
18 Business Studies

management is concemed there is no such condition for being a manager. Hence, on this basis
management cannot be accepted as a professiorr.
(3) Professional Association: The third characteristic of
profession is that it must have a representative professional
association which performs the following important functions: Six Main Management
(i) To regulate ent4r, (ii) To grant certificate of practice, and Institutes of lndia
(iii) To create a code of conduct for guiding the activities of the
7.IIM Ahmedabad
profession. 2. IIM Bangalore
In India, Representative Professional fusociations with 3.lIM Kolkata
regard to other professions have already been established. There 4. IIM Indore
are representative professional associations like the Bar Council 5.IIM Kozhikode
o1 India for L.awyers. Medical Cor-rncil of India for Doctors: 6. IIM Lucknow

Institute of Charteled Accountants for Chariered Accountarrts. etc. For managers All Irrdia Mariargenrcrrt
Assc.rciation (AIMA) has been established. But it is not essential to be a member of the AIMA in order to be
a manager. Therefore, ort this b.tsis ilatrargenrent cannot be acccpied as a llofe-ssictrr
(4) Ethical Code of Conduct: Membersof aprofessionareboundtofollowacodeof conduct. By
Code of Conduct, we mean the rules and regulations framed to guide the behaviour of professionals. The
code of conduct of already recognised professions like Law. Medical and Chartered Accountant. etc.,
have already been prescribed but no such code of conduct has been laid down in connection with
management. On this basis it can be asserted that marrragenrent is not at all a profession
(5) Service Motive: The main motive of a profession isto serve the society. For example, no doubt
a doctor follows his profession for his living but to ensure that his patients get justice happens to be his chief
motive. Though there is no code of conduct regarding management but its social responsibilities are being
stressed upon increasingly. From this point of view, the,re should not l:e any hesitation to accel:t
managemenl as a profcssion
oConclusion
On the basis of the above study it can be said that management does fulfill some of the
characteristics of the profession and some of the characteristics have yet to blossom or develop. In this
way, management as a profession in India is still in its infanry and ib development is moving at a slow speed.

g 1. Management: A Science or An Art:

(l) Management as a Science: Management has all the characteristics of science. These
are: (i) Systematised Body of Iftowledge. (ii) Principles Based on Experimentation, (iii)
Universal Validity. Therefore, management can be called a science but it cannot be classified
as a science like Physics and Chemistry. It will be more appropriate to describe it as an applied
science or inexact science or soft science.
(ll) Managernent as an Art: Management has all the characteristics of art. These are: (i)
Existence of Theoretical Knowledge (ii) Persenalised Application (iii) Based on Practice
and Creativity.
Management as Science, Art and Profession 79

g 2. IVlanagement as a Profession: Under profession a man after haining and long

experience acquires proficiency with which he impartially serves different sections of
socie$.
Is Management a Profession? Management satisfies some of the conditions for being a
profession (like Well defined body of knowledge and Service Motive) but the other
characteristics (like Restricted entry, Professional association, Ethical code of conduct) have
still not developed adequately. In India, the development of management as a profession is
still at its infancy and is moving ahead gradually. Its recognition as a profession will increase
in accordance with the pace of its development.

! Management: As a Science
6 Marks
1. "Management is a science like physics or chemishy." Do you agree with this statement? Give reasons in
support of your answer.
2. Is management a 'Science'? Explain.

3. "Management is neither as precise nor as comprehensive as the natural and pure ,.,iJ.U"5fif;
Explain. rc,8,5.E.2004)
4. 'Management is a science.' Do you agree? Give any three reasons in support of your answer.
3 Marks
5. State why management is not a Pure Science2
6. Explain through an example, how 'Universal Validity' one of the feafures of Science exist in
Management?
7. Explain 'Management as a Science'.
l Mark
8. 'Management is a Soft Science'. How?
Ans. Management is a soft science as its principles are not very rigid'
9. State two features of science.
Ans. (o) Systematic body of knowledge. (b) Universal validity'
10. Name the type of science to which management is related.
Applied science.
11. Why management is not called as perfect science?
Ans. Because it is related with human being.
12. "The Principle(s) of Management are different from those used in pure science." Write any
one difference. (C.8. S.E. Somple Poper )
Ans. The management principles are not as rigid as principles of pure science.
13. "The PrinciplesofManagementaredifferentfromthoseusedinpurescience."Writeanyonedifference.
(C.B.S.E. Somple Poper )

! Management: As an Art
6 Marks
14. Test the fact that 'management is an art'.
t A5. How management a social science as well as an art?
is (c.8.s.E.2002)
16. Management is considered to be both an art and science. Explain (N.C.E.R.T./
20
Business Studies

4/5 Marks
'Management is an art.' Do you agree? Give any three reasons in support
of your answer.
'7' (c.B.s.E.2006)
18' What is the meaning of management as an Art? Briefly describe any three of its feafures.

3 Marks
19. Explain'Managementasanart'. rc.8.5.E,2007)
20. Clarifi7, how management possesses the feature of Art namely the 'Personalised Application'?
27. "Management is both Science and Art." Explain this statement in brief.
l Mark
22. What is meant by art?
Ans. It refers to achieve the desired result through application of skill.
23. Give any two points of the features of Art.
Ans. (o) Existence of rheoretical Knowredge, (b) personarised Application.
24. ls management contains all the features of the art?
Ans. Yes, the management contains all the feafures of the art.

I Management: As a profession
6 Marks
25' "Management is a profession like medical or legal profession." Do you agree
with this statement? Give
reasons in support of your answer.
26. Explain critically if management is a profession.
27. How is management not a full- fledged profession? (c.8.s.E.2002)
28. Do you think management has the characteristics of a fun-fledged profession? (N.C.E.R.T.)
4/5 Marks
29. Discuss the basic feafures of management as aprofession. (N.C.E.R.T.)
30. "Management is regarded as fully-developed profession." Do you agree?
Give reasons.
(c.8.s.E.2005)
31. "Management is a profession." Do you agree? Give reasons in support
of your answer.
(c.8.s.E.2006)
32. "Management is profession." Give one argument in favour and against of this
statement.
3 Marks
33. Write shortnote on'managementas aprofession'. (c.B.s.E.2007)
34. Is 'Management' a profession?
35. Is management a profession on the basis of 'Ethical code of conduct,?
36. Name two feafures of profession which are not available in management.
l Mark

Ans. (i) Resticted Entry. (i,) Ethical Code of conduct.

37. Name any two main management institutes of India.
Ans. (i)llM, Ahmedabad. (ii)ilM, Bengaluru.
38. what function does a representative professional association perform?
Ans. It regulates the behaviour of its members.
Management as Science, Art and Profession 27

cAsE STUDY/APPLTCATTON ORTENTED QUESTTONS

t1l Ms. Bharti passed her M.B.B.S. examination in the first division in 2006. Later on in the year 2009 she
passed her M.S. examination as an eye specialist. She was awarded a gold medal in this examination.
After completing her sfudies she joined a big hospital as an eye surgeon. She is performing ten operations
successfully every day.
Q. Now tell, what aspect of Ms. Bharti's above experience is a science and what aspect is an art?
Ans. Str,rdying for M.B.B.S. and M.S. is science and working as an eye-surgeon is an art.
t2l Mr. Amol Khan passed his B.Sc. (Non-medical) examination in the year 2006. After this he successfully
ran the business of his father. Suddenly, he thought of seeking employment. He got the job of a finance
manager in a company on the basis of his knowledge, experience and proficiency. He is doing his job
successfully.
Q.1: Now tell, is the appointment of Mr. Khan as a manager valid?
Q.2: Was not it necessary for him to do M.B.A. or some other course for this job?
Ans. (1)Yes, (2) No.

0rrry, Session
For this query session, questions from readers' side are invited.
 GIIf,PTER $

lrurlsffi0 rultGrloils 0r
MAIIIGTMETT
All the functions of management are performed at allthe levels of management
but there is only a difference of degree.

Learning Objectives
After studying this chapter, you will be acuainted with:
a Leuels of Management
* Top Leuel Monagement
* Middle Leuel Manogement
* Lower Leuel or Superuisory Monagement

o Functions of Management
* Planning
* Orgonising
x Staffing
* Directing
o Superuision
o Communication
o Leadership
o Motiuation
* Controlling

After clarifuing meaning and nafure of management, now the question arises what different
functions are pertormed by management? Apart from this, in order to successfully accomplish pre-
determined targets of an organisation, how does an idea pass through various managerial levels to
become a reality? Answer to both these questions are duly replied in this chapter.

I Levels of Management
It will be beneficial to first understand the levels of organisation and then the levels of
management.
All the employees working in an organisation/instifution can be divided into two categories.
(1) Managerial Members
(2) Non-Managerial Members
Levels and Functions of Management 23

On the basis of this division of employees, an organisation can be divided into two broad levels:
(a) Managerial Levels or Levels of Management and (b) Non-Managerial levels.
(I) Managerial Members: In this category, Chief Executive Officer (CEO), Departmental
Managers, Supervisors, etc. are included. They are called managers because they manage some or the
other person. il,,1,ri;rgei is tirarf i;ersc:rli,lro rnanages someboclv). Thus they all have subordinates. The
CEO, ranks highest in the hierarchy. Departmental manager is subordinate to the CEO. Supervisors work
under the departmental managers and so they are subordinate to them. In the same manner, workers are
subordinate to supervisors. Except workers, all others are called managers irrespective of their
designation. He is the manager only who builds managerial levels. Their link among themselves is
clarified in the following diagram.

.t
,,
Chief Executive Officer-CEO

.
\i
\1,,%_
ti
Departmental Managers

o..-^Y-^--
Suoervisors .)r

t
*.Lo
''
,,.f,'

It is uite evident from the above diagram that all the employees working in an organisation builds a
chain of hierarchy. This is known as chain of authority. Chain of authority explains the link between
superior - subordinate. In this chain one manager is linked to the other in a vertical form. In this manner,
this chain from top to bottom builds many managerial posts, which are termed as managerial levels. The
term 'Level of Management' refers to a line of demarcation between various management positions in an
organisation. Levels of management decides the authority of managers. As we move from top to bottom,
the degree of authorities goes on decreasing.
(2) Non-urtrrragerial Members: In this category, workers are included. They are those employees
who work directly on the job. The place at which such employees work is known as platfolrn area. As they
are at the lowest level of chain in an organisation, they do not have any subordinates, that is why they
cannot be called managers. For this reason, they are not counted among 'Level of Management'. They
form the non-managerial level.

t Number of Levels of Management

Levels of management do not have a definite number. Its number is fixed according to the nahtre,
size, etc. of the business. Brech has divided levels of management into the following three categories:
(1) Top Level Management
(2) Middle Level Management
(3) Lower Level or Supervisory Management
 24
Business Studies

Levels of organisation along with its various components are shown in the following
diagram:

t
Board of Directors ,/ \
Chief Execr ttive Officer / \
Chairman, Managins / -toq l-evet
Director, General /
Management
Man ager /
Depa(mental Manage
Manager
Deputy Departmental
rtmental
Manager / *,oo,"L"r"r v"nrg"r"n\
Operations/Functional
:tional Mgr
Supervisors
Foremen / ro*.rlevet or Operation"t trrtrnrg"r"n\

Non-managerial
f Workers
I Non-managerial platfor
Level
L members
I r __l
Levels of Organisation

(l) Top Level Management: In top level

management, Board of Directors, Chief Executive Officer,
Levels in The Form of Pyramid-A
etc. are included. Chief Executive Officer can be a single
Leuels of Manogement are in the form of
person or a committee of officers. Chief Executive officer Pyromid. By this we get the information that
can be called by many names, like Managing Director, os we moue down from top to bottom leuel,
General Manager, President, etc. Top Management has all the number of employees go on increosing.
the management authorities, and because of these authorities officers of these levels
are accountable to
owners or shareholders of the company.
Following functions are included in the list for Top Level Management:
(i) Determining Objectives: Top level management sets objectives for the organisation.
For
example' an objective can be set that in the following year the sales of the company has to
cross Rs 1,000
crore.
(ii) Determining Policies: Only at this levelpolicies related to the realisation of objectives
are
formed. For example, it can be a sales policy of a company to just make cash sales.
(iii) Determining Activities: Different activities to be performed for the fulfillment
of an objective
are fixed, such as sales, purchase, advertisement, production, research, etc.
(iv) Assembling Resources: Needed resources are assembled (ananged)
for the realisation of an
objective, like capital, raw-material, fixed assets, etc.
(v) Controlling the Work Performance: The work in progress is closely monitored in a company
to get desired results.
(vi) Approving Budgets: Budgets prepared by different managers are given
final shape, i.e.,
approval is given to the budgets.
(2) Middle Level Management: Middle level management lies between
top level and lower level
management. Under this, divisional heads, departmental heads, deputy departmental
heads, plant
superintendents, and operations managers (Functional Managers) are included.
Levels and Functions of Management 25

Following are the main functions of Middle Level Managers:

(i) Interpreting Policies: At this level, policies framed by top level managers are interpreted. Like
the marketing manager introduces his salesman to the sales policy of the company that at no cost credit
sales will be made.
(ii) Preparing Organisational set-up: Every middle level manager prepares outline of his
respective department in accordance with the objectives of the organisation.
(iii) Appointing Employees: Every departmental manager appoints employees to fulfill the
activities of his department.
(iv) Issuing Instructions: Departmental managers direct their subordinates about what to do and
how they have to do. Needful resources are made available to subordinates so that they can do the
assigned jobs intermittently.
(v) Motivating Employees: Middle level managers motivate their employees by various means so
that they work most efficiently to achieve organisational objectives.
(vi) Creating Cooperation: Cooperation among different divisions is reuired to successfully
achieve company's objectives and this done by middle level managers.
(3) Lower Level or Operational Management: It is also known as Supervisory Management.
Under this, various formen and supervisors are included. They are called First Line Managers.
Following are various functions of lower level managers:
(i) Submitting Workers' Grievances: Lower level managers are in direct contact with the
workmen employees. They themselves sort out the ordinary problems of workmen and submit serious
workers' grievances to middle level managers.
(ii) Ensuring Proper working Environment: Lower level managers ensure that proper
arrangement of water, elechicity, ventilation, cleanliness, etc. is made at the work place. This increases
efficiency.
(iii) Ensuring Safety of Workers: Probability to accidents can be annuled by building fences
around machines.
(iv) Helping Middle Level Management: They help middle level managers in recruiting, training
and promoting employees.
(v) Inviting Suggestions: They invite suggestions from their subordinates, as to how the uality of
work can by improved.
(vi) Creating better Human Relations: They create better human relations so that altercations
can be avoided at the workplace.

! Functions of Management
Management has been defined in the form of a process. Under the management process (planning,
organising, staffing, directing and controlling), many activities inter-related to each other are included.
These activities are known as functions or elements of management.
26 Business Studies

Functions of management are pictorially presented in seriatim in the following diagrams:

Functions of Management

:tdj.l

5. controllins j

(1) Planning: It refers to thinking before hand. In other words, planning is the determination of a
future course of action to achieve a desired result. Under planning it is ascertained that what should be
done, how it should be done and who should do it. If before the commencement of a job all these points
are not contemplated than the objective of a business cannot be achieved.
Planning is a long process, for the consummation of which following steps are taken:
(i) Setting objectives (ii) Developing premises
(iii) Identifuing altemative courses of action (iv) Evaluating altemative courses
(v) Selecting an altemative (vi) Implementing the plan
(vii) Follow up action
(2) Organising: It refers to harmonious adjustment of various parts to achieve common objectives.
In order to make the first function of management (i.e., planning) functional, 'a stmcture of roles' needs to
be famed and sustained. The process of creating this sktrcture of roles is known as organising. Planning is
just to put some idea in writing, but to convert that idea into reality, a group of people is needed. Further
to steamline the activities of this group of people, organising is reuired. Under this, the whole project is
divided into various small jobs, to assign these jobs to designated posb (which will clarifu that a particular
job will be performed at which post), to unite various jobs into one departnent, to clarifu the rights and
duties of employees to be appointed at various posts, and to define relationship among various posts
(employees).
Following steps are taken to culminate the organising function of management:
(i) Identification and Division of Work (ii) Deparhnentalization
(iii) Assignment of Duties (iv) Establishing Reporting Relations
(3) Staffing: It refers to filling and keeping filled the post with people. In planning, ideas are given a
written shape, on the other hand organising, with the objective of converting these ideas into reality,
prepares a stucfure of various posts. After organising comes staffing which deploys people on these posts
so that jobs can be performed. In view of the fact that the success of an organisation is commensurate to
howadroiflyeveryemployeeperformshisjob, the importance of staffingfunction increases even more.
Levels and Functions of Management 27

Following steps are taken to culminate the staffing function of management:

(i) Estimating the manpower reuirements
(ii) Recruitment
(iii) Selection
(iv) Placement and Orientation
(v) Training and Development
(4) Directing: It refers to instructing. guiding. communicating and inspiring people in the
organisation Under directing following four activities are included:
(i) Supervision (ii) Communication
(iii) Leadership (iv) Motivation
Brief description of these four activities is as follows:
(i) Superuision: It refers to monitor the progress of routine work of one's subordinates and gr-riding
them properly Supervision is an important element of the directing function of management. Supervision
has an important feature that face to face contact between supervisor and his subordinate is a must.
(ii) Communication: It refers to an art of transferring facts. ideas, feelir-rg, etc. from one person to
another and making him understand them. A manager has to continuously tell his subordinates about
what to do, how to do, and when to do various things. Also, it is very essential to know their reactions. To
do all this it becomes essential to develop etfective telecommunication facilities. Communication by
developing mufual understanding inculcates a sense of cooperation which builds an environment of
coordination in the organisation.
(iii) Leadership: It refers to influence others in such a manner to do work what the leader wants
them to do. Leadership plays an important role in directing. Only through this uality, a manager can
inculcate tust and zeal among his subordinates.
(iv) Motivation: [t refers to that process which excites people to work for attainment of desired
objective. Among the various factors of production, it is only the human factor which is dynamic and
provides mobility to other physical resources. If human resource goes static then other resources
automatically fum immobile. Thus, it becomes essential to motivate human resource to keep them
dynamic, aware and eager to perform their duty. Both monetary and non-monetary incentives are given
to employees for motivation.
(5) Controlling: It refers to bring the actual results closer to the desired results. Under this, the
manager monitors whether the jobs are being performed in accordance to the set plans or not. S/he also
check whether the uality and uantity of job performed is in alignment to the pre-determined
standards/parameters or not. Deviations are then checked for by matching actual performance with
pre-determined standards. After this corrective action is taken for negative deviations so that the
difference between actual result and desired results can be minimised. Thus, with the enforcement of
conkolling process all the bottlenecks coming in the way of work-progress are removed and efforts of all
the people start approaching in the desired direction. In the form of conclusion, controlling process has
five main steps:
(i) Setting performance standards
(ii) Measurement of actual performance
(iii) Comparison of actual performance with standards
(iv) Analysingdeviations
(v) Taking corrective action
28 Business Sfudies

g 1. Levels of Management:
(i) Top Level Management: It includes board of directors and chief executive officer.
(ii) Middle Level Management: It includes departmental manager, deputy departmental
manager and operations or functional managers.
(iii) Lower Level Management: It includes Supervisors and foremen.
g 2. Functions at different Levels:
(a) Top Level Management: (i) To fix objectives, (ii) To frame policies, (iii) To determine
activities, (iv) To arrange for resources, (v) controlling the work performance,
(vi) Approving budgeh.
(b) Middle Level Management: (i) Interpreting policies, (ii) Preparing organisational
set-up, (iii) Appointing employees, (iv) Issuing instructions, (v) Motivating employees,
(vi) Creating cooperation.
(c) Lower Level Management: (i) Submitting workers' grievances, (ii) Ensuring proper
working environment, (iii) Ensuring safety of workers, (iv) Helping middle level
management, (v) Inviting suggestions, (vi) creating better human relations.
g 3. Non-Managerial Level: In this level of management, workers are included. As workers
are not managers they are not the part of any managerial levels.
g 4. Functions of Management:
(i) Planning: It refers to thinking before hand.
(ii) Organising: It refers to harmonious adjustment of various parts to achieve common
objectives.
(iii) staffing: It refers to filling and keeping filled the posts with people.
(iv) Directing: It refers to instucting, guiding, communicating and inspiring people in the
organisation.
(v) Controlling: It refers to bringing the actual results closer to the desired results.

I Levels of Management
6 Marks
1. Describe, in brief, the functions of top level management in an organisation.
2. Describe, in brief, the functions of middle level management in an organisation.
3. Describe, in brief, the functions of lower level management in an organisation.
4. What are the functions of different levels of management?
4/5 Marks
5. What are the three levels of management? State any three functions of the middle level management.
(c.B.s.E.2007)
6. Write the meaning of 'Level of Management' . What are the main functions of top level management?
7. What are the three levels of management? State any three functions of top level management.
(c.B.s.E.2007)
3 Marks
8. Enumerate any three functions of a General Manager.
Levels and Functions of Management 29

9. Enumerate any three functions of a Departmental Manager.

10. State any three functions of lower level management.
11. Enumerate any three functions of middle levelmanagement. (C.B.S.E.2006)
72. Enumerate any three functions of top level management. (C.B.S.E.2006)
13. What do you mean by 'Levels of Management'?
74. Write names and two functions each of the levels or tenets of management engaged in: (a) Overseeing
the activities of the workers, (b) Taking key decisions.
15. Name any two designations and two functions given to the First Line Managers.
76. What does the pyramid form of levels of management indicate?
77. Name the Levels of management engaged in:
(i) Determining Policies (ii) Assembling Resources (iii) Interpreting Policies.
I Mark
18. Name the two categories in which all the employees of an organisation can be divided.
Ans. (o) Managerial members. (b) Non-managerial members.
19. Which are the two main categories of levels of organisation.
Ans. (o) Managerial level. (b)Non-managerial level.
20. Workers are included at which level of management?
Ans. fu they are the non-managerial members, so they can't be the part of any managerial level.
27. Workers are included at which level of organisation?
Ans. At non-managerial level.
22. What is meant by levels of management?
Ans. It refers to a line of demarcation between various managerial positions in an organisation.
23. To determine the policies is the function of which level of management?
Ans. Top Level Management.
24. Departmental managers are included at which level of management?
Ans. At middle level management.

I Functions of Management
6 Marks
25. Discuss the functions of management in brief.
26. 'Management is a series of continuous intenelated functions.' Comment.
4/5 Marks
27. Explain Planning and Organising as functions of management.
3 Marks
28. Explain briefly any three functions of management.
29. What are the elements of direction?
30. Explain the meaning of staffing function of management.
31. Explain 'direction' as a function of management.
l Mark
32. What is meant by planning?
Ans. It refers to thinking before hand.
33. What is meant by organising as a function of management?
Ans. It refers to harmonious adjustment of various elements to achieve common objectives.
34. What is meant by staffing?
Ans. It refers to filling and keeping filted the posts with people.
30 Business Studies

35. What is meant by directing?

Ans. It refers to instructing, guiding, communicating and inspiring people in the organisation.
36. What is meant by superuision?
Ans. It refers to monitoring the progress of work of one's subordinates and guiding them properly.
37 What is meant by communication?
Ans. It refers to the process of passing information from one person to another.
39. What is meant by leadership?
Ans. L-eadership means that uality which influences people for the attainment of a goal.
39. What is meant by motivation?
Ans. Motivation means a process which excites people to work for the attainment of a desired object.
40. What is meant by controlling?
Ans. It refers to bring the acfual results closer to the desired results.

CASE STUDY/APPLICATION ORIENTED UESTIONS

[1} Your uncle is working as 'Marketing Manager' in a company. At what level of management is he working?
/ What functions do you think he is performing? State any four.
Hint: My uncle is working at the middle level management. Explain any four functions of middle level
management.
t2) Your father has retired as the director of a manufacfuring company. At what level of management was he
working? what functions do you think he was performing at that level? State any two.
Ans. He was working at the top level mnagement. He was performing the following functions:
(i) Determining objectives. (ii) Determining policies.
t3l Your friend is working as a 'worker' in a company. At what level of organisation is he working? What is
the name of the place/area where he is working?
Ans. Non-managerial Level. Platform Area.
t4l Rifu is the manager of the northern division of a large corporate house. Atwhat level does she work in the
organisation? What are her basic functions?
Ans. Ritu is working at the middle level of management in the organisation. Her basic functions are:
(i) Interpreting policies and (ii) Preparing organisational strucfure.
tsl You have three brothers. They are working in three different MNCs as General Manager, Supervisor and
Deputy Personnel Manager. What functions of management do you think they are performing in their
companies? Are they performing the same functions of management? If yes, how?
Ans. All the three brothers of mine are working on three different levels of management, such as, top
level, lower level and middle level. They are performing the same functions of management, such as,
planning, organising, staffing, directing and controlling. It means all the functions of management are
performed at all the three these levels of management. But there is only a difference of degree For
example, planning is considered the most imporant function at the top while at the lower level directing is
all important.
t6l Raman is working as 'Plant Superintendent' in Tifco Ltd. Name the managerial level at which he is
working? State any four functions he will perform as 'Plant Superintendent' in this company.
(c.B.s.E.2008)
Hint: He is working at Middte Level Management. Refer to any four functions of Middte Level
Management.
try Dheeraj is working as 'Operations Manager' in Tifco Ltd. Name the managerial level at which he is
. working. State any four functions he will perform as 'Operations Manager' in this company.
(c.8.s.E.2008)
Hint: He is working at Middle Level Management. Refer to any four functions of Middle tevel
Management.
Levels and Functions of Management 31

(lrrn, Session,
Mr. Question: Sir, at one place, you are calling organisation as the second function of
management but at another place you have used the word 'company
organisation'? Sir, does this mean organisation is a function of
management and even a company can be called an organisation? How is
this possible?
Mr. Answer : A very good uestion. Listen carefully.The word organisation can be used
synonymously for two meanings:
(i) In the form of Function of Management: Organising means to decide about
the stnrcture of roles. Thus to decide about how many posts are needed to culminate
the different activities.and what will be the authorities and responsibilities of these
posts, etc.
(ii) In the form of Company/Institution/Enterprise: Organisation means
'Group of people.' In this context, a company, a school and a club, etc., all are
organisations. To conclude, we can say that organising is a function of management
and even a company or a 'group of people' can be called an organisation as well.
Mr. Question : Ok, thank you sir.
 GO|INDIilAIIll]I:
]IAIU RE AlI II I M PllBIIlI GE
Coordination makes 2 + 2 = 5 possible

Learning Objectives
After studying this chapter, you will be acquainted with:
o Meoning of Coordination
o Definitions of Coordination
a Noture of Coordination
a Coordination is the Essence of Manogement
a Coordinotion is needed at all Leuels ol Monagement
o Importance of Coordination

! Meaning of Coordination
The dictionary meaning of coordination is rapport.
Coordination ?
Thus, coordination is to synchronize the various activities of
Coordination is a process through which
an organisation. In the context of a business unit, the hormony is established omong different
meaning of coordination is to balance its various activities actiuities of an organisation, so that
(purchase, sales, production, finance, personnel, etc.) so orgonisotional objecliues can be successfully
achieued.
that objectives of business can be easily achieved.

I Definitions of Coordination
Different management experts have defined coordination from different points of view. A few of
such definitions have been reproduced below in order to make clear the meaning of coordination:
(1) According to Koontz and O'Donnell, 'Coordinotion is the essence of rtonagement t'or the
ochieuement of hormony of indiuidual et'lorts lowords the or:cornplishn'tenl of group goo1s. '
(2) According to Mcfarland, "Coordinotion is the process uhereby on execttiue deuelops an orderly
pottern of group ef.forts omong his subordinotes and secures unitgt ol octior-t irt prrrsuit of comrnon
purposes '
Coordination: Nature and Importance 33

In conclusion, coordination can be appropriately defined as fhe process which establishes

harmony among the uarious actiuities being performed in an organisotion in order to achieue the
objectiues of the organisation in on effectiue manner.

I Nature of Coordination
Coordination is a process to establish harmony among the different activities of an organisation, so
that the desired objectives can be achieved. Definitions of coordination present the following facts about
its nafure:
(1) Coordination lntegrates Group Effort: The need for coordination is felt when group effort is
needed for the accomplishment of an objective. In short, it can be said that coordination is related to
group effortand not individual effort. The question of coordination does not arise, if the job is done by one
person only.
(2) Coordination Ensures Unity of Action: The nature of coordination is of creating unity in
action. It means during coordinating process an effortis made to create unity among the various activities
of an organisation. For example, the purchase and sale departments have to coordinate their effort so that
supply of goods takes place according to purchase orders.
(3) Coordination is a Continuous Process: It is not a job which can be performed once and for
all, but its need is felt at every step. Many activities are performed in a business. Sometimes or the other, if
any one of the activity goes on flucfuating either for more or less than required, the whole organisational
balance is disrupted. Thus, a close watch has to be kept on all the activities to maintain the balance.
(4) Coordination is an All-Pervasive Function: Pervasiveness refers to that truth which is
applicable to all spheres (business and non-business organisations) and places uniformly. The nafure of
coordination is pervasive. Like making of time-table in an educational instifution is an apt example of
establishing coordination. In the game of cricket, the placement of players at pre-determined positions is
nothing but coordination. In the same manner, to synchronize the activities of different departments, like -
purchase, sales, production, finance, etc. in a business organisation is coordination.
(5) Coordination is the Responsibility of All Managers: Coordination is needed at all the
three, i.e., top, middle and lower managerial levels. Different activities performed at all the levels are
equally important. Thus it is the responsibility of all the managers that they make efforts to establish
coordination. That is why, it could not be said that coordination is of more importance to any one
particular managerial level or a manager.
(6) Coordination is a Deliberate Function:
Coordination is never established by itself but it is a
9tbsrut" effort. Only cooperation is not suffice but Cooperation ?
coordination is also needed. For example, a teacher aspires Cooperation meons the desire to work
to teach effectively (this is cooperation) but the time-table is collectiuely. It originotes effoftlessly.

not prepared in the school (this is lack of coordiation). In this

situation, classes cannot be arranged for. Here, the effort made by the teacher is meaningless, in the
absence of coordination. On the other hand, in the absence of cooperation, coordinatlon dissatisfies the
employees. Thus, both are required at a given point of time.
34 Business Sfudies

I Coordination is the Essence of Management

An important question that arises in relation to coordination is whether or not it is to be recognised as
the sixth function in the chain of management functions (e.g. planning, organising, staffing, directing and
controlling). Some managementexperts (e.g. Fayol, L.A. Allen, Tead) consider coordination
to be a separate function of management. However,
modern management experts are of. the view that
coordination is not a separate function of management, Coordination and
rather it forms a major part of all the other functions of Functions of Management
There is no function oJ management which
management. In other words, management cannot be
con be occomplished in the obsence oJ
accomplished without proper coordination and hence coordination or which does not make ellofi
management has to concentrate its efforts on the to estoblish coordination.
establishment of coordination. Modern management
experts Koontz and O'Donnell are also the supporters of this line of thinking, and it is only in this
relation that they have stated, "Coordination is the essence of management". It means when a manager
diligently performs all the management functions, he or she remains busy in establishing coordination.
This fact is highlighted through the following discussron.
(1) Coordination and Planning: While performing the function of planning, coordination forms
the centre or focus of the thinking of a manager. Planning is undertaken keeping in mind the various
activities being performed by the different departments in an organisation. For example, when a sales
manager is making a plan to increase his sales target, he also consults the production manager, the
purchase manager, the finance manager, etc. in order to avoid any problem that may arise in the fufure.
This clearly shows that coordination is very essential while performing the function of planning.
(2) Coordination and Organising: While performing the function of organising, the main work
of the organisation is divided into various sub-functions, and the relationships between the various
people performing those sub-functions are defined, with the aim of accomplishing all the activities of the
business in a systematic manner. While performing the function of organising, the manager has to make
efforts to establish coordination among the various departments as well as the various people working in
the same department. For example, work is divided among the people working in the production
department in such a manner that where the work of one person ends, the work of the next person
begins. Since any deficiency in the work of one person also affects the work of others, everybody makes
efforts to complete his work on time, and the workers do not create hurdle in each other's work.
(3) Coordination and Staffing: Organising results in the establishment of various positions in the
organisation while staffing breathes life into such positions, i.e., the various positions established during
organising are filled with people. Even while perforining the function of staffing, the manager is also
concerned about coordination. It is his effort to fill all the positions witi cala-bElnd experienced people
so that the various activities of the business may proceed without any hinderance.
Coordination: Nature and Importance 35

(4) Coordination and Directing: While performing the function of directing, a manager gives
due priority to coordination. While issuing orders and instructions to a subordinate, he has to keep in
mind the effect they will have on other people, and he should make all efforts to avoid any such adverse
effect. Such a line of thinking is nothing else but an effort to establish coordination. For example, two
people performing the same work are treated equally in order to avoid any animosity among them.
(5) Coordination and Controlling: Controlling is the constant evaluation of progress of work, so
that adverse results can be avoided and conective action can be taken in time. In the context of
coordination, controlling results in the harmonisation of the objectives of the organisation, the resources
available to achieve those objectives and the human efforts required.
From the above discussion, it can be seen that coordination is concerned with all the functions of
management. Therefore, it can be stated without any doubt that coordination is not a separate function of
management, rather it is the essence of management.

I Coordination is Needed at all Levels of Management

There are three different levels of management Top Level, Middle Level and Supervisory or Low
-
Level. If the various levels of management are evaluated from the point of view of coordination, it can be
seen that it is not concerned with a particular management level, rather its need and importance is the
same at all managerial levels. If any work is being done solely by one person, then the problem of
coordination does not arise at all since everything is being done by that one person only. Therefore, it
can be said that coordination is mainly concerned with group efforts. The work at every level of
management is performed by a group of people and hence, coordination is required in order to complele
the work successfully. Therefore, it can be said that coordination is required at all levels of management.

Not only this, if all the levels of management are looked at together, they become a group in themselves,
and as in the case of. every group, they also require coordination among themselves. Thus, coordination is

required at each level of management indMdually and also by all of them collectively as a group.

! lmportance of Coordination
The following reasons bring out the need and importance of coordination:
(1) Size of the Organisation: These days, the scale of doing business is increasing day by day.
Any increase in the scale of the business also results in an increase in the number of people employed in
the organisation, with each person having different interests, way of working, mutual understanding,
objective of working, tolerance, etc. However, all these people have to worktogether as a group despite
these differences, which is not a very easy task. Therefore, it is very necessary that through coordination a
proper environment is created so that everybody gives in his full contibution towards the attainment of
organisational goals.
36 Business Studies

(2) Functional Differentiation: There may be a clash of interests among the various
departments in an organisation. Such a sifuation becomes avery big hindrance in the achievement of
organisational goals. There is only one way to avoid clashes, and that is by establishing proper
coordination between the departments.
(3) Specialisation: ln every organisation, in order to avail the benefits of specialisation, one main
activity is divided into various sub activities, and each of these are alloted to different persons who are
experts in their particular sub-activity. Every person wants to do his work in his own
way, without having
any regard for the 'total work' to be performed. In such a sifuation, in order to complete the activities
being performed by various people successfully, it is very necessary to establish coordination among
them. It is only upon the establishment of coordination that everyone completes his or her own work on
time keeping in view the 'total work' to be performed.
(4) Inter-dependence of Different Processes: The next major point which delineates the
importance of coordination is that the various units in an organisation are inter-dependent.The h igher the
inter-dependence among the units, the greater is the need for coordination.

V 1. Meaning of Coordination: It refers to establish harmony among various parts of a

system.
g 2. Nature of Coordinaiion: (i) Coordination integrates group effort, (ii) Coordination
ensures unity of action, (iii) Coordination is a continuous process, (iv) Coordination is an
all-pervasive function, (v) Coordination is the responsibility of All managers,
(vi) Coordination is a deliberate function.
g 3. Coordination is the Essence of Management: As per modern management experts,
coordination is not a separate function of management, but it is the essence of management.
g 4. Coordination is needed at all Levels oI Management: The work atevery level of
management is performed by a group of people, that is why, coordination is required at
every level to complete the work successfully.
V 5. Importance of Coordination: (i) Size of the organisation, (ii) Functional
Differentiation, (iii) Specialisation, (iv) Inter-dependence of different processes.

! Meaning and Nature of Coordination

6 Marks
1. Discuss the meaning and nature of coordination.

4/5 Marks
2. "Coordination is the orderly arrangement of group efforts to provide unit5r of action in the pursuit of a
commonpurpose." Inthelightof thisstatement, explainthenafureof coordination. (C.8.5.E.2009)
Coordination: Nafure and Importance 37

3 Marks
3. DefineCoordination.
4. How is coordination a 'Continuous Process'?
5. Clarifu that coordination does not get established spontaneously.
6. Coordination is more than cooperation. How? Give an example.
l Mark
7. To make t'he time-table in an educational institution is the example of coordination.
Comment.
Ans. Through it harmony is established among various classes.
8. The coordination is required at which level of management?
Ans. At all the three levels.

I Coordination is the Essence of Management and lmportance of

Coordination
6 Marks
9. "Coordination is the essence of management." Do you agree? Give reasons.
10. "Coordination is the essence of management." Explain this statement with the help of examples.
4/5 Marks
11. "Coordination is not a separate function of management. lt is the essence of management." Explain with
the help of a suitableexample. (C.8.S.E.2009)
72. "Coordination is needed at all levels of management and it is the function of all managers." Explain.
(c.B.s.E.2ooe)
13. Write a note on the importance of coordination.
74. Explain the term 'Coordination' and its importance in management. (C.B.S.E. SomplePaper)

3 Marks
15. 'Coordination is the essence of management.' Ctarifiy this point of view of modern managementexperts.
l Mark
16. Why coordination is known as the essence of management?
Ans. Because it is not a separate function of management, rather it forms a major part of all the other
functions of management.
77. 'Inter-dependence of different processes' is one point of the importance of coordination.
Clarifu.
Ans. The higher the inter-dependence among the activities, the greater is the need for coordination.
38 Business Studies

Mr' Question: Sir, there is still confusion between the meaning of words, coordination
and cooperation. PIease clarify it with the help of an example from daily
routine.
Mr. Answer : OK, Listen carefully.........
The difference has already been clarified in the given chapter, but for more
clarification, let us take up an example. Suppose Mr. X gets a houser stitched. On
trying it, he finds it is 4 inches longer in length. Next morning, while all the four
members of the family are sitting on the breakfast table Mr. X says, get this houser 4
inches short by the time I retum from the office. Everybody carefully listens to the
instmction. After this Mr. X leaves for office, son for school and the daughter for
college, respectively. After some time, when Mrs. X remembered about the work,
she took the trouser to the tailor and got it short by 4 inches and kept it in the
almirah. When the son returned from his school, he recalled the job assigned by his
father. Without communicating with any other member of the family, he took the
trouser to the tailor, got it short by 4 inches and kept it at its previous place
(assuming that everybody had different tailors). Then daughter came. As soon as
she refurned, she also recalled of the work, assigned by her father. She repeated
the same action, as had already been performed by her mother and brother. In the
evening, when Mr. X refurned from the office and tied the trouser, he found that it
was now half the length. Just contemplate, why did this happened?
All
- Mr. X's wife, son and daughter - loves
him and also want to keep him happy.
him dearly, have full attachment with
That is why all three hied to fulfil the task
assigned. Their this feeling is called cooperation. Thus, they want to cooperate
with Mr. X. This feeling does not arises because of any pressure but comes on its
own. On the other hand, this error, shows the lack of coordination among all. If at
, the time of breakfast, decision had been taken as to who will perform this job, then
this error could have been avoided. Thus, coordination does not originate by itself
but for this effort has to be made.
Mr. Question: Sir, quite right, thank you.
GIIIPIEB 5

PRI]IGIPITS O] MAIIAGHNEilI:
]IATU Rt AII II SIG T I TIGA]IGT
"Principles of management are of universal nature and apply:to
every type of organisatiotl," - Henry Fayol

Learning Obiectives
After studying this chapter, you will be acquainted with:
o Principles ol Monagement : Meaning and Definitions
o How are Principles of Monagement deriued?
o Nature ot' Principles oJ Monagement
o lmportonce ot' Principles of Manogement
o Fundomentol Principles of Monagement

! Principles of Management
These days business has assumed wider dimensions as a result of which numerous problems arise in
day to day activities and the manager of the enterprise has to solve these problems. A manager needs
guidelines to grapple with the problems and run the organisation efficiently. The prirrciples of
management guide the manager. Before entering into a detailed discussion about the principles of
management, it is necessary to know the meaning of 'Principle'. Different scholars have defined
'principle' in the following manner:
(1) According to G.R. Terry, "Principle is a
t'undomental stotement or truth prouiding a
guide to the thought or oction'' . Principles and Techniques of '-----'
(2) Accordingto Edwin B' Flippo, "A principle Management
is a t'undomentol truth ond it is generolly stated The principles of monogement ore dfferent
in the t'orm of couse and et'fect relotionship." from the'techniques oi *onog"^"ntlJhe
(3) According to Koontz and O'Donnell,
"manogement principles are t'undomental
truth oJ generol ualidity which haue ualue in
predicting the result ol monogement action" while produchon with the help of modem
machines is a technique. While making use of
o technique the help ol a pnnciple is taken.
 40
Business Studies

The definitions of these scholars show that principles are in the form of that
basic truth which
explains the relationship between cause and effect and experts play an important
role in their preparation.

I How are Principles of Management Derived?

Like all other social sciences management too, has its
certain definite principles. These principles have been
developed by the management experts. These principles
Principles of Management and Values
are the outcome of the varjous problems faced by- the
The principles of management are in the form
managers. First the problems were born, then efforts were of basictruth while ualues arethe generol rules
made to solve them and these efforts resulted in a lot of of on indiuiduol's common conduct. For
research and finally, the solutions were found out. We
know these solutions in the form of principles of
management.
The principles of management are derived in the manager.
following two ways:
(l) on the basis of observation: Under this method, a manager observes and
analyses a
particular event which he faces in actual practice. For example,
the principle of 'division of work tells us
that as far as possible the whole work should be divided into different parts
and each individual should be
assigned work according to his ability and taste. If we do so, it will lead to increase
the efficiency. This
principle was stated when it was observed by some managers that dividing
the work in a proper manner
leads to better performance.
(2) On the basis of Experimental Studies: Under this method,
an experimental study is
conducted by a researcher(s) to derive a principle of management. For example,
the performance of two
groups of people, in which one is headed by a single boss whereas
the second is headed by two bosses
may be compared. When it is found that the performance of the first group is higher, principleof 'Unity
of
Command'was derived.
After having understood the meanings of 'Principle' and 'Principles of management',
it is necessary
to learn about the nafure and need for the principles of management.

! Nature of Principles of Management

The following points bring out the nafure of principles of management:
(1) Universal Applicability: Universalit5r refers to that huth
which is equally applicable in all
spheres (both business and non-business). The principles of management
are also universal in nature. All
business (industrial units, etc.) and non-business organisations (education
institutions, government
offices, playgrounds, agricultural farms, army, clubs and other social organisations),
in order to achieve
their objectives has to apply more or less the same principles.
(2) General
Guidelines: The principles of management are hot definite like the principles of
physics and chemishy. The principles of physics and chemistry
arc very clear and definite, and their
outcomes can be predicted. The principles of management, on the other hand,
are of the nafure of
general guidelines, and they cannot be applied strictly.
Principles of Management: Nafure and Significance 47

(3) Formed by Practice and Experimentation: Principles of management are the results of
various problems faced by the professional people. First of all problems appeared and then through
careful research work solutions were found. Thus, we recognise the solutions, found with the help of
practice and experience as principles, of management.
Similarly, researchers undertake experimental study to find out the principles of management. For
example, the principle of 'Unity of Comrnand' must have emerged when two groups of people must have
been compared wherein the first group of people had one boss while the second group of people had two
bosses. Undoubtedly the first group of people must have performed better.
Flexiirility: Theprinciplesof managementastheyexisttodayarenotintheformoffinaltruths.
(4)
fu and when political, economic and social changes take place, new kinds of problems arise. Old
prilrciples at'e alter-,,ci ,r!ril n.r',{ 1;r-ir-rlrpir:s ale propr.)Llndc,d Therefore,theprinciplesof management are
dynamic in nature and cannot be called stagna:rt or fixed.
i5) Mainly Bclrar'iorrral. The principles of management are directly concerned with human
behaviour. The management activity is mainly concerned with management of man, who is a social
animal having his own nature, desires and expectations which cannot be repressed or eliminated. This is
the main reason why the piincilries ol maitzi.Ir.'n-rr,!ri aLe affected by human behaviour. and often human
behaviour is the main hindrance in the successful application of management principles. For example,
the principle of division of work is usually adopted for increasing efficiency, but after doing the same work
repeatedly a person gets bored (this is human behaviour), thereby resulting in a decrease in efficiency.
(6) Relationship betureen Carrse and Effect: The principles of management establish a
relationship between cause and effect. They specifu what the ultimate outcome will be if in a particular
situation, work is done in a particular manner. For example, if according to the principle of division of
work, the work is divided into different parts, each part being assigned to a particular person according to
his interests and capabilitgr, then it will result in an increase in overall efficiency. In this ca,se, the division
ofworkisthecquseandtheincreaseinefficiency istheet'fect.lnthesamemanner, theotherprinciplesof
management also establish relationship between cause and effect.
(7) Contingent: The principles of management are not fixed or permanent. They are affected by
situations or circumstances. Therefore, the decision to implement them or not is taken according to the
sifuations or circumstances. For example, according to the principle of division of labour a worker should
be assigned a definite part of a job time and again so that his efficiency is increased. But on the contrary, if
a worker is fed up with doing a job repeatedly, the application of this principle will not be beneficial.
Therefore, it will have to be changed.

f Signilicance of Principles of Management

The principles of management are in the form of pre-determined solutions for repeatedly accuring
problems. They guide the manager. It is very important for every manager to know them thoroughly.
The importance of the principles of management becomes abundantly clear from the following facts:
(1) Provides Useful Insight to Managers: The principles of management were developed on the
basis of the experience of various professional people. The principles inform the manager about the
manner in which he should act in various situations so that he does not repeat the mistakes of the previous
managers. In this way, timely guidance reduces the wastage of resources and the objectives can be
achieved in a less expensive manner.
42 Business Studies

For example, according to one principle of management, i.e., division of work, a job is divided into
many small units. Every unit or part is assigned to different individuals. Each individual does the same
work repeatedly that has been assigned. He gets used to it which helps him to perform his job efficiently
and quickly. Consequently, the entire job is completed in an economical manner.
(2) Optimum Utilisation of Resources and Effective Administration: In every organisation
physical (material, machines, money, etc.) and human (man-power) resources are used. The function of
management is nothing but to put them to optimum use or avoid wastage of resources. And it is possible
onlywhena manager makesuseoftheprinciplesof management. Accordingtotheprincipleof 'unityof
command' there should only be one boss for an employee at a time. In case there is more than one boss,
the employee will not be in a position to work properly. Consequently, human resource will be wasted.
Therefore, if we desire to use the human resource favourably, this principle has to be adopted. Similarly,
many other principles ensure favourable utilisation of various other resources.
The primary need of every organisation is that its administrative system should be effective. Only
that administrative system is called effective where the managers can take balanced and quick decisions.
In order to take such decisions, sufficient information and authority should be available. This is made
possible with the help of the principles of management. For example, the principle of 'authority and
responsibility' advocates granting of sufficient authority, while the principle of scalar chain advocates
making adequate provision for providing information.
(3) Scientific Decisions: A scientific decision means a balanced decision. The principles of
management provide the necessary training to the managers so that they can take scientific /balanced
decisions. In the absence of these principles the managers have to adopt the method of trial and error.
According to this principle, one is expected to do a job in a particular manner and if there is some error,
some other method has to be adopted. In this way, the work is done in different ways till the error is
eliminated. This method is not proper .Therefore,the managers are trained with the help of the principles
of management which makes them capable of taking scientific decisions.
For example, the principle of 'authority and responsibility' tells us that if a subordinate is entrusted
with some respbnsibility, he should be allowed sufficient authority to accomplish it. Only in such a
situation a subordinate will be able to take a scientific decision whenever needed.
(4) Meeting Changing Environmental Requirement: In modern times only such a business
unit can remain alive and develop which can keep pace with the rapidly changing environment. In every
fieldof businessactivity (production, marketing, etc.) newtechniquesareemergingeveryday.Amanager
who can understand the changing sifuation well in time can alone face competition successfully. The
principles of management enable the managers to face this challenge.
For example, the principle of 'unity of direction' tells us that all the activities connected with the
attainment of the same objective should be completed under the direction of the same manager. In doing
so a manager would be able to have the detailed information connected with the limited activities being
done under his direction. In case the activities connected with different objectives are being done under
the direction of one manager, he will not be able to understand the changes being affected in any activity.
(5) Fulfilling Social Responsibility: The principles of management increase the efficiency of
the managers and enable them to fulfil their social responsibility. More efficient managers can make good
quality products at reasonable prices available.all the times.
Principles of Management: Nature and Significance 43

For example, the principle of 'Fair Remuneration' advocates appropriate remuneration to the
employees and helps in fulfilling responsibility towards them.
(6) Management Training, Education and Research: The advantages of the principles of
management encourage the researchers to bring in more improvement in them. The attifude of the
managers has moulded itself in such a fashion that they are doing, consciously or unconsciously,
something new. It means that the managers have come to acquire an attifude titled towards research and
development. This has helped the managerialknowledge to be more solid and scientific. The principles
of management are actually providing education and training to the managers by enriching their
theoretical and practical knowledge.
For example, in order to take advantage of the change of attifude among the managers, various big
companies have established Research and Development Departments- HRD. Consequently, many new
techniques have come to light in the field of marketing, production, finance, etc.

I Fundamental Principles of Managernent

Different management experts have explained different principles on
thebasis of theirresearch. Henry Fayol, afamous industrialistof France, has
described fourteen principles of management in his book "Generol and
[ndustrial N'lanagenteni " Explaining the difference between 'principles' and
'elements' he makes it clear that the principles of management are
fundamentally true and establish a relationship between cause and effect,
while the 'elements' of management point towards its functions. Wlriic
presenting the principles of marnagarrrelrt []a1yol has kepL rw-o thinEs in nrrnci.
Firstly. the list of the principles of management should not be long but should
be suggestive and only those principles should be explained which become
applicable in most of the situations. Secondlv. the principles of management Henry Fayol
should be flexible and not rigid so that changes can be made in them in case of (1847-7925)
need. The fourteen principles given by Fayol are as under:
(1) Division ol Work: This principle of Fayol tells us that as far as possible the whole work should
be divided into different parts and each individual should be assigned only one part of the work according
to his ability and taste rather fhon giving the whole work to one person. When a particular individual
performs the same job repeatedly, he will become an expert in doing that particular part of the whole job.
Consequently, the benefits of specialisation will become available.
For example, a furniture manufacfurer gets an order for manufacfuring 100 lecture stands. He has
five workers who will do the job. There are two ways to complete this order. First, every worker should be
asked to complete 20lectrxestands. The second method can be dishibuting different parts of the lecture
stand-legs, top board, cenhe support, assembling and polishing - to all the five workers in a manner that
only one worker does the same job for all the 100 lecfure stands. Here, Fayol's indication is to the second
way to do this job and not the former one. The principle of division of labour applies not only to the
workers but also equally to the managers. For example, if a manager is attained to work on the same kind
of activities for a long period of time, he will certainly be an expert in his particular job. Consequently,
more and beneficial decisions can be taken in a comparatively less time by him.
 M Business Studies

Positive Effect * Advantages of specialisation are obtained,

such as, i.crease ir th" quality of work,
increase in the speed ofproduction, decrease in the wastage ofresources.
* Increase in the work efficiency of the
workers.
Violating Effect ,*
The above mentioned positive effects of specialisation will not be available.
* The work efficiency of the workers
will be reduced.

(2) Authority and Responsibility: According to this principle, authority and responsibility should
go hand in hand. It means that when a particular individual is given a particular work and he is made
responsible for the results, this can be possible only when he is given sufficient authority to discharge his
responsibility. It is not proper to make a person responsible for any work in the absence of authority. In the
words of Fayol, "7'he result ol ctuthority is responsibi/ity. lt is the naturol result of outhority ond essentially
onother aspect of authoritg and wheneuer authority is used, responsibility is outomoticolly born."
For example, the CEO of a Co. has doubled the sales target of the Sales Manager for the coming
year. To achieve this target, authority for appointing necessary sales representatives, advertising
according to the need, etc. shall have to be allowed. In case these things are not allowed the sales manager
cannot be held responsible for not achieving the target. (Note: Giving less authority or more authority
than is needed both are undesirable.)
- *
Positive Effect Helpful in achieving the target.
* Increase in the confidence of the employees.
Violating Effect * Wrong use of authority in case more authority is given than is needed.
* Difficulty in achieving the target in case less authority is given than is needed.
* Cannot fix accountability of the subordinates in case the desired results are not obtained.
* Decline in the confidence of the employees.

(3) Discipline: Discipline is essential for any successful work performance. Fayol considers
discipline to mean obedience, respect for authority, and observance of established rules. Discipline can
be established by providing good supervision at all levels, clearly explaining the rules, and implementing a
system of reward-and punishment. A manager can present a good example to his subordinates by
disciplining himself.
For example, if the employees break their promise of working upto their full capacity, it will amount
to the violation of obedience. Similarly a sales manager has the authority to do business on credit. But in
case he allows this facility not to the general customers but only to his relatives and friends, then it will
amount to ignoring his respect to his authority. (Note: Both these examples give a message of indiscipline
which is an undesirable situation).
PositiveEffect*Adisciplinedorganisationha.abetter@
* Increase in the efficienry of the employees.
* Better labour management relations.
Violating Effect * Decline in the reputition of the organisation and efficiency of the employees.
* Height of disorder.
* An atmosphere of doubt and suspicion.
* Decline in the confidence of the employees.
Principles of Management: Nature and Significance 45

(4) Unity of Command: According to the principle of unity of command, an individual employee
should receive orders from only one superior at a time and that employee should be answerable only to
that superior. If there are many superiors giving orders to the same employee, he will notbe able to decide
as to which order is to be given priority. He thus finds himself in a confused situation. Such a situation
adversely affects the efficiency of the subordinates. On the other hand, when there are many superiors,
every superior would like his orders to be given priority. This ego problem creates a possibility of clash.
Consequently, their own efficiency is likely to be affected.
The principle of unity of R ght Approach Wrong Approach
command has been shown in the M2
M1 t\,4
l
following diagram:
In the first diagram, Sr, S,
and S. all the three subordinates
have one manager Mr. S, gets J1 J2 s2 vl

orders only from M, and the same Mr, Mz ) Manage6

51, 52, 53:, Subordinales
is the case with S, and 53. Here
the principle of unityof command
is being followed. Therefore, it is the right approach.
In the second diagram, all the three subordinates S,, S, and S. get their orders from two managers M,
and Mr. S, gets orders from both M, and Mrsimultaneously. (Same is the position of S, and S. also.) He is
unable to understand as to which order is to be given priority. Both the managers would like their orders
to be given priority. There is likely to be heart burning between the two. Here the principle of unity of
command is being vlolated. Therefore, this is a wrong approach.
Positive Effect * There is no confused situation for the subordinates.
* The efficiency of the subordinates increases.
* The efficiency of the superiors increases.
* It is easy to fix responsibility.
* An atmosphere of coordiality prevails.
Violating Effect * It creates a confused sihration for the subordinates.
* It reduces the efficiency of the subordinates.
* It reduces the efficiency of the superiors.
* Conflicts due to the injured ego of the superiors.
* It is difficult to fix accountability.
* Height of disorder.

(5) Unity of Direction: Unity of direction means that

there should be one head for one plan for a group of activities
Unity of Command & Unity
having the same objective. In other words, there should be one
of Direction
plan of action for a group of activities having the same objective
ln this connection Foyol feelsthatfor the
and there should be one manager to control them. For efficient running ol an orgonisation the
example, suppose an automobile company is manufacturing unity of direction is impoftant, whilethe
two products, namely, scooters and cars, hence having two unitg ol command is importont to
enhonce the elficiency of the employees.
 46
Business Studies

divisions. fu each product has its own markets and problems therefore each division
must have its own
targets. Now each division must plan its target as per its environmental conditions
to get better results.
It is necessary to distinguish between the meaning of the unity of command and the unip of
direction. Unity of command means that there should be only one manager at a time to give
command to
an employee, while the unity of direction means that there should be only one
-unug". "*"rcising control
over all the activities having the same objective.
Positive Effect * Advantage
of specialis
activity.
* Increase in the efficiency of the organisation.
* Easy to achieve objectives.
* It helps in coordination due to the unity in activities.
Violating Effect * Advantange of specialisation
is not obtained.
* Decrease in the efficiency of the
organisation.
* Difficulty in achieving the objectives.

.* Difficulty in achieving coordination in the absence of unity of activities.

Difference between Unity of Command and Unity of Direction
Basis of Unity of Comnrand Unity of Direction
Difference

l. Meaning According to this principle, every employee According to this principle, all activities
should get orders only from one manager at having similar objective should be
a time and he should be responsible for that completed under the supervision of one
manager alone. person and there should be one plan of
action for such type of activities.
2- Aim It prevents dual subordination. Itprevents overlapping of various activities.
3. Implications It affects an individual employee. It affects the entire organisation.
(6) Subordination of Individual lnterest to General Interest:
This principle can be named
'Priority to General Interest over Individual Interest.' hccording to this principle, the general
interest or the
interest of the organisation is above everything) If one is asked to place individual interest
and the general
interest in order of priority, definitely the geneial interest will be placed at the first place. For
example, if a
manager takes some decision which harms him personally but results in a great profit to the
company, he
should certainly give priority to the interest of the company and take the decision accordingly.
On the
contrary, if some decision helps the manager personally but results in a great loss to the company,
then
such a decision should never be taken.
For example, a purchase manager of a company has to purchase 100 tonnes of raw material.
His son
happens to be a supplier along with other suppliers in the market. The manager purchases
the raw
material from the firm of his son at a rate higher than the market rate. This will profit the
manager
personally, but the company will incur heavy loss. This situation is undesirable.
Principles of Management: Nature and Significance 47

PositiveEffect * Observing humanity.

* Everybody profih in the profit of the company.
* Organisational objectives are obtained.
* Coordination between the individual and organisational objectives.
Violating Effect * Humanity violated.
* Increase in jealousy.
* Hindrance in achieving organisational objectives.
* [-ack of coordination between the individual and organisational objectives.

(7) Remuneration to Employees: Fayol is of the opinion that the employees should get a fair
remuneration so that the emplbyees and the owners find equal amount of satisfaction. It is the duty of the
manager to ensure that everybody is being paid remuneration according to their work. If however, they
are not paid properly for their work, they will not do their work with perfect dedication, honesty and
capacity. As a result of this the organisation shall have to face failure. Proper remuneration depends on
some factors like the cost of living, demand of labour and their ability' Fayol feels that in order to motivate
the employees, apart from general remuneration, they should be given some n)onetary and
non-monetary incentives.
For example, suppose that the things are getting dearer and dearer and the company is getting good
profits. In such a situation, the remuneration of the employees should be increased even without their
asking. If this is not done, the employees will leave the company at the first opportunity. Expenses shall
have to be incurred on new recruitment which shall bring loss to the company.
Positive Effect * Increase in the encouragement and satisfaction of the employees.
* Development of the spirit of dedication among the employees.
* Decline in the labour furnover rate.
Violatlng Effect * Decline in the encouragement and satisfaction of the employees.
* Encouragement to dishonesty.
" *' Increase in the labour turnover rate.

(8) Centralisation and Decentralisation: According to this principle, the superiors should
adopt effective cenhalisation instead of complete centralisation and complete decentralisation. By
effective centralisation, Fayol does not mean that authority should be completely centralised. He feels
that the superiors should keep the authority of taking important decisions in their own hands, while the
authority to take daily decisions and decisions of less importance should be delegated to the subordinates.
The ratio of cenhalisation and decentralisation can differ in different situations. For example, it is
advantageous to have more centralisation in a small business unit and more decentralisation in a big
business unit.
For example, the decisions in respect of determining the objectives and policies, expansion of
business, etc. should remain in the hands of the superiors. On the other hand, authority for the purchase of
raw material, granting leave to the employees, etc. should be delegated to the subordinates.
 48 Business Studies

Positive Effect * Decrease in the work-load of superiors.

* Better and quick decisions.
* Increase in the encouragement to the subordinates.
Violating Effect * Unnecessary increase in-the workJoad of tht ilp;;iors in case of centralisation and of
the subordinates in case of decentalisation.
* Impatient and wrong decisions by the superiors in case of complete centalisation and weak
decisions by the subordinates in case of complete decentalisation.
* Decline in the encouragement to subordinates in case of complete centralisation.

(9) Scalar Chain:

(i) Meaning of Scalar Chain: Itrefers to a formal line of authoritywhich moves from highestto
the
lowest ranks in a straight line.
(ii) Fayol's Opinion: This chain must be followed in a strict manner. It means each
communication must move from top to bottom and vice-versa in a straight line. The important condition
here is that no step (post) should be overlooked
during communication.
(iii) Fayol's Ladder: Fayol has explained
this principle with the help of a ladder or double
chain as shown in the diagram.
For example, in a company the employee ,F,
wants to have contact with the employee ,p,.
According to the principle of scalar chain ,F, shall
have to reach 'A' through the medium of E,D,C,B
and then having contact with L,M,N,O shall reach
'P'. Thus 'F'shall have to take the help of all the nine
steps (posts) to have business contact with 'p,.
(iv) Utility: Due to more clear system of authority
and communication, problems can be solved faster.
(u) Gang Plank: It is the exception of the principle of Gang Plank: A Special Note
scalar chain. This concept was developed to establish a Gang Plonk con onlg be estoblished with the
direct contact with the employee of equal rank in case of employees of the equol or some leuel. For
example, in the present example no gong
emergency to avoid delay in communication. For plonk can be established between F ond O.
example, as shown in the diagram employee 'F, can have
direct contact with employee'P'. But for doing so employees 'F' and 'P' shall have to seek the prior
permission of their immediate bosses 'E' and 'O'. The details of their talk also shall have to
be given to
them.
Positive Effect * Flow of orderly information.
* Better relations because of absolute
respect for authority.
't Quick solution of problems.
Violating Effect :t
Disorderly flow of information
* Bittemess in relations because ignoring
of the close superiors.
:t
Increase in problems because of non-availability of information in time.
( I O) Order: According to the principle
of order, a right person should be placed at the right job and
a right thing should be placed at the right place. Accordingly to Fayol every enterprise
should have two
Principles of Management: Nature and Significance 49

different orders- Moterial Order for Physical Resources and S ocictl Order lor Human Resources. Keeping
the physical resources in order means that 'a proper place for everything and everything in its right
place'. Similarly, keeping the human resources in order means 'a place for everyone and everyone in his
appointed places'. Maintaining these two orders properly will ensure that everybody knows his
workplace, what he is to do and from where he would get his required material. Consequently, all the
available resources in the organisation will be utilised properly.
For example, an employee working in a factory should know the place or source from where he can
get his tools in case of need. Similarly, he should know the place where his supervisor will be available in
case of anv need. It is, however, important to note that it is not sufficient to have an alloted place for a
tool-box and for the supervisor but the availability of both at their decided place is absolutely important.
If this is not the case, it can lead to a heavy loss as a result of damage to the machines.
Positive Effect {' Complete utilisation of material and human resources.
* No loss of time in tacing the resources in need of time.
* Better discipline.
Violating Effect * Misuse of resources.
* Increase in the possibility of accidenb.
* Height of disorder.
(1 1) Equity: This principle tells that the managers should treat their subordinates in a just and kind
manner so that they develop a feeling of dedication and attachrnent for their work. All the employees
should be treated equally and impartially. Fayol tells us in connection with this principle that there should
not be any equality of treatment between a person whose work is really good and a person who is a shirker
by nature. Rather the latter should be treated sternly. Doing so would be equitable. It is because of this
point of view that Taylor has presented his differential remuneration method.
For example, a labourer completes 10 units of goods in a day. Another labourer who happens to be
a relative of the supervisor completes 8 units but both get equal remuneration. This violates the principles
of equality. The second labourer should get less remuneration than the first one.
Positive Effdct * The employees remain satisfied.
{.
Increases the sense of devotion to the organisation.
,k
Skilled employees ty to improve upon their skill.
* Unskilled employees try to achieve some skill,
Violating Effect :F
Creates dissatisfaction for the skilled workers.
't Skilled workers lose confidence in the organisation.
* Decline in the efficienry of the skilled workers.
* Increase in the carelessness of the unskilled workers.

(12) Stabilitgr of Personnel: From the point of view of management it is absolutely harmful to
change the employees frequently as it is a reflection of inefficient management. Therefore, according to
this principle there should be stability of tenure of the employees so that the work continues efficienfly.
Fayol thinks that instability in the tenure of employees is a cause of poor management and results. High
rate of labour turnover will result in increased expenses because of selecting them time and again, and
giving them training afresh. It also lowers the prestige of the organisation and creates a feeling of insecurity
among the employees which keeps them busy in finding out new avenues of work. Consequenfly, the
sense of dedication cannot be created among them.
 50 Business Studies

Forexample,itistruethatiftheworkers inacompanyarenottreatedwell andtheatmosphereinthe

company is also unhealthy, the employees will not stay for a long time. In other words, they will leave the
company at the first opportunity available. This situation is absolutely harmful.
p,:,i1:1'e []r{r,, r * Increase in the confidence of the employees. i

* lncrease in the reputation of the company.

* Skilled workers are inclined towards the company.
* Less expenses on training.
I'io!11lnir [:.fJ.,c! * An atmosphere of disbelief for the employees.
* Decline in the reputation of the company.
* Company is left by good workers.
* Heavy recruitment and taining expenses.

i13) lnitiativr::lnitiativemeansthecapacitSrtoworkwhileexpressingone'sthoughts.Accordingto
Fayol it is the duty of the manager to encourage the feeling of initiative among his employees for doing
some work or taking some decision but within the limits of authority and discipline. It will be possible only
when the manager will welcome the thoughts of his/her subordinates. By doing so the subordinates will
present new and useful ideas time and again and gradually they will become an integral part of the
organisation. In order to make this process a success a manager will have to abandon his false sense of
prestige.
For example, a salesman suggests to his sales manager to implement a new advenisement technique.
The sales manager sends him away by telling him that it is not possible and ignores the suggestion
altogether. In such a situation the salesman, who has been admonished and belittled, will nevervenfure to
offer any suggestion in fufure because his desire of taking initiative has been suppressed. On the contrary, if
his suggestion had been listened to carefully (even though not to be implemented) he could have taken the
courage to offer some suggestion in future. Such an action would simply have encouraged his initiative.
i.-sr+.'ile l'i.r,.'ct * Increase in the thinking power of the employees
* Cooperation of the employees in implementing decisions.
* Increase in the sense of attachment to the organisation.
Violating Effect * Decline in the thinking power of the employees.
* An atmosphere of non-cooperation.
* Decline in the employees' attachment to the company.

(14) Esprit De Corps: As per this principle, a manager should continuously make efforts to
develop a team spirit among the subordinates. To do this, helshe should use the word 'We' instead of 'l'
during the conversation with subordinates.
For example, a manager should always say that 'we will do this work' instead of 'l will do it'. This
behaviour of a manager will keep alive the spirit of cooperation among the subordinates.
, Posi{iue Effect * Motivation to work with team-spirit.
* Easy to achieve objective.
I
I * Sweet relationship.
i Violating Effect * Kills team spirit.
i* Difficulty in achieving objective.
i*
_p!ttg-rnep_i1 relationsh ip.
Principles of Management: Nah-re and Significance 51

Corrclusion
Clarifuing his principles of management, Fayol has pointed out that since management is related to
human beings nothing can be said with a sense of finalig. What principles are to be applied at what time, in
what situation and to what degree (or exltent) it all depends on the experience, efficiency and
-
decision-making power of the manager. Thus, the principles advocated by Fayol have an element of fleibility.

I . Meaning of Principle of Management: Management principles are those basic truths

which have the ability to predict the results of managerial activities.
IZ 2. How are Principles of Management Derived? (i) On the basis of Observation, and
(ii) On the basis of Experimental Shrdies.
g 3. Nature of Principles oI Management: (i) UniversalApplicability,
(ii) General Guidelines, (iii) Formed by Practice and Experimentation, (iv) Flexibility,
(v) Mainly Behavioural, (vi) Relationship between Cause and Effect, (vii) Contingent.
V 4. Significance of Principles of Management: (i) Provides Useful Insight to Managers,
(ii) Optimum Utilisation of Resources and Effective Adminisbation, (iii) Scientific Decisions,
(iv) Meeting Changing Environmenhl Requirement, (v) Fulfilling Social Responsibility,
(vi) Management Training, Education and Research.
Z 5- Fundamental Principles of Management: Principles advocated by Henry Fayol:
(i) Division of work, (ii) Authority and responsibility, (iii) Discipline, (iv) Unity of command,
(v) Unity of direction, (vi) Subordination of Individual to General Interest,
(vii) Remuneration to employees, (viii) Cenhalisation and Decentralisation, (ix) Scalar
Chain, (x) Order, (xi) Equity, (xii) Stability of personnel, (xiii) Initiative, and (xiv) Espiit de
corps.

! Principles of Management : Meaning and Nature

6 Marks
1. Explain the meaning and nahrre of management principles.
4/5 Marks
2. How are principles of management derived? Clarifu in detail'
3. Briefly discuss any four points of the nafure of the principles of management'
3 Marks
4. What is meant by 'Principle of Management'.
5. Whatdo you understand by the universality of principle of management? (c.8.s.E.2003)
6. Explain in brief, the meaning of 'Universal Applicability of Management Principles'.
7. What do you understand by the 'Flexibility' of principle of management?
8. 'Principles of management are general guidelines.' Explain.
9. 'Principles of management are contingent.' Explain.
52 Business Shrdies

10 State and explain any three points which highlight the nafure of principles of management.
(c.8.s,E.2004\
11 Explain the meaning of management principles and state how they are derived?
(c.8.s.E.2004)
12. Principles of management are derived 'on the basis of Experimental sfudies'. Explain.

l Mark
13. what is meant by 'Principles of Management'? (c.B.s.E. 200g)
Ans. Management principles are thhose basic truth which have the ability to predict the results of
managerial activities.
14. Why are the principles of management calted contingent? (Foreign2a09)
Ans. Because principles of management are affected by sifuations.
15. Give any two points of the nature of principles of management.
Ans. (o) Universal Applicability. (b) General Guidelines.
16. State how the management principles are flexible? (c.8.s.E,2008,2009)
Ans. They are not in the form of final truth and can be changed any time.
17 . How have the management principles been derived? (c.8.s.E,2008)
Ans. On the basis of observation and experimental studies.
18' "The principles of management are different from those of pure sciences." State any one
difference. (c,8.s.E.2008)
Ans. The principles of management are not definite like the principles of pure science.
19. Why is it said that management principles are universal?
(C.8. S.E. Sample Paper, 2008, 2009 )
Ans. Because these are applicable in both business and non-business spheres in a similar manner.

I Significance of Principles of Management

6 Marks
20 Explain briefly the importance of management principles.
2L State any five reasons as to why proper understanding of management principles is necessary.

4/5 Marks
22 Explain any four points regarding significance of principles of management. (N.C.E.R.T.)
23 Explain any two reasons why proper understanding of management principles is necessary.
(c.B.s E. 200e)
3 Marks
24. State any three reasons as to why proper understanding of management principles is necessary.
(c,B.s.E.20ul
25. 'Principles of management provide useful insight to managers.' Clarifu with the help of an example.
26. How do principles of management make possible 'effeclive administration,?
l Mark
27 How principles of management are helpful for managers in fulfilling their social
responsibilitlr?
Ans. The principles of management increase the efficiency of the managers and enable them to fulfill
their social responsibility.
Principles of Management: Nature and Significance 53

28. How principles of management are helpful in developing 'management research'?

Ans. The various advantages of the principles of management encourage the researchers to bring in
more improvement in them.

! Fundamental Principles of Management

6 Marks
29. Explain the principles of management given by Fayol with example:
(i) Unitv of Direction (ii) Equity (iii) Esprit De Corps
(iv) Order (v) CenkalisationandDecentralisation (vi) Initiative (N.C.E.R.T.)
30. What is the principle of 'scalar chain'? Explain briefly the utility of 'gang plank' with the help of a
diagram.
4/5 Marks
31. Explain the principles of 'Discipline' and 'Esprit De Corps'. (c.8.s.E.2001)
32. Explain the principles of 'Remuneration' and 'lnitiative'. (c.8.s.E.2001)
33. Explain the principles of 'Stability of tenure of personnel' and 'Equity.' (c.8.s.E.2001)
34. "Fayol's principles of Equity and Order can be applied in acfual work sifuation." Do you agree? Explain
your viewpoint by giving examples. (c.8.s.E.2003)
35. Explain the principle of 'Scalar Chain'. Explain your viewpoint by giving example. (C.B.S.E. 2003)
36. Which principle of management envisages that each group of activities having the same objectives must
have one head and one plan? Explain the principle with a suitable example (c.8.s.E.2004)
37. Explain the principles of 'Unity of Direction' and 'Esprit De Corps'. (C.B.S.E. 2006)
38. Explain briefly the principle of 'unity of command'. How does it differ from the principle of 'unity o{
direction'?
39. What is 'Gang Plank'? Show it through a diagram. (C.8.5,E.2002)
40. Which principle of management suggests that employees should be treated with Justice and kipdness'?
Why is this principle essential in management?
41. Which principle of management suggests that employees should not leave the organisation frequenfly?
Give tr,uo adverse effects if this principle is violated.
42. Explain the following principles in management:
(i) Discipline (ii) Harmony, not discord (c.8.s.E.2008)
43. Explain the following principles of management:
(a) Scalar chain; (b)Science not Rule of Thumb. (c.B.s.E.2008)
4. Name and explain that principle of Fayol which suggests that communication from top to bottom should
follow the official lines of command. fC.B.S.E. Sample Paper )
3 Marks
45. Explain the principle of'Equity'. (C.8.5.E.2001)
46. Give the meaning of the principle 'Unity of Direction' with the help of a suitable example.
(c.8.s.E.2001)
47. Give the meaning of the principle of 'Unity of Command' with the help of a suitable example.
(c.8.s.E.2002)
48. Fayol points out the danger and costs of unnecessary labour hrrnover in one of his principles. Name and
explain the principle (c.8.s.E.2004)
49. An organisation follows the principles of management. What are the positive effects of each of the
following principles of management on the organisation?
(i) Scalarchain, (ii) Equity, and (iii) Division of Work. (c.8.s.E.2005\
54 Business Studies

50 An organisation follows the principles of management What are the adverse effects of
each of the
following principles of management on the organisation?
(i) Unity of command, (ii) Order, and (iii)Stability of Tenure of personnel
(c.8.s.E.2005)
51 How is principle of 'Unity of command' usefulfor management? Explain briefly. (N. c E.R. T./
52 If an organisation does not provide the right place for physical and human resources,
which principle is
violated?Whataretheconsequencesof it? (N.C E.R.T.)
I Mark
53. State one violating effect of the principle of management - namely the 'Division of Work,
Ans. Benefits of specialisation will not be available.
54. State one positive effect of the principle of management - namely the 'Authority and
Responsibility'.
Ans. Helpful in achieving the target.
55. State one violating effect of the principle of management - namely the 'Discipline,.
Ans. Height of disorder.
56. State one positive effect of the principle of management - namely the 'Unity of Command'.
Ans. The efficiency of the subordinates increases.
57 . State one violating effect of the principle of management - namely the 'Unity of Direction,.
Ans. Decrease in the efficiency of the organisahon.
58' State one positive effect of the principle of management - namely the 'Remuneration to
employees'.
Ans. Decline in the labour turnover rate.
59 Why did Fayol introduce the concept of 'Gang plank' in the principle of .Scalar-
Chain'? rc.B.S.E 2009)
Ans. This concept was developed to contact with the employees of equal rank in case of emergency
to
avoid delay in communication.
state one positive effect of the principle of management - namely the .Esprit De corps'.
Ans. Motivation to work with team-spirit.
61 What does the principle of 'lnitiative' indicate?
@.B.S.E. 2009)
Ans. According to this principle, it is the duty of a manager to encourage the feeling of initiative among
his employees for doing some work or taking some decision
62. State the principle of 'Order'. (Foreign2009)
Ans. The meaning of this principle is to provide the right place for physical and human resources in an
organisation.

CASE STUDY/APPLICATION ORIENTED QUESTIONS

t1l The production manager of ABC Ltd. instructs a salesman to go slow in selling the product,
whereas the
marketing manager is insisting on fast selling to reach the target. Which principte of management
is being
violated in this case? State any truo consequences of the violation of this principle.
li.S.S.E. ZOOqi
Ans. The principle of 'Unity of Comrnand' is violated in this case. The following are the violating effecb of it:

(i) It creates a confused situation for the subordinates.

(ii) It reduces the efficiency of the subordinates.
tzl Hina and Harish are typists in a company having the same educational qualification. Hina is getting
Rs.
3,000 per month and Harish Rs. 4,000 per month as salary for the same working hours. Whic[ prinliple
of management is violated in this case? Name and explain the principle (c.B.s.E.2006)
Hint: The principle of 'Equity' is violating. Hence, explain this principle
Principles of Management: Nature and Significance 55

t3l The Production Manager of Bharat Ltd. instmcts a salesman to go slow in selling the product, whereas the
Marketing Manager is insisting on fast selling to achieve the target. Which principle of management is being
violatedinthecase?Stateanyoneof theconsequencesof violation of thisprinciple. (C.B.S.E.2006)
Ans. The principle of 'Unity of Command' is violating. As per this principle, an individual employee
should receive oiders from only one superior at a time and that employee should be answerable only to
that superior. The violation of this principle reduces the efficiency of the subordinates.
t4] Mohan, a manager, does not distuibute the work amongst his subordinates, either according to capabili$ or
proportionately. Which principle of management is being overlooked and why? Give one violating effect.
Ans. The principle of 'Equity' is violated as the manager is not impartial as far as the distribution of work
among the employees is concerned. It creates dissatisfaction for the skilled workers.
tsl Mohan, the manager of a business undertaking is very lax with his fellow employees and subordinates'
He does not give them parameters or rules for reporting to work and completion of assignments' Which
principle of management is being overlooked and why? Give one violating effect.
Ans. The principle of 'Discipline' is violated as the manager's behaviour is not disciplined at all. It creates
an atmosphere of doubt and suspicion.
t6l Mohan, a manager, very often speaks people at all levels, passing on instructions regarding his
department and also the other departments. Which principle of management is being overlooked and
why? Give one violating effect.
Ans. The principle of 'scalar Chain' is violated as during communication the various steps of Scalar
Chain are overlooked. It creates disorderly flow of information.
17) Mohan, a manager expects his subordinates to work for the happiness and pleasure of being in the
organisation. Which principle of management is being overlooked andwhy? Give one violatingeffect.
Ans. The principle of 'Remuneration to Employees' is violated as the manager's expectation has no use
without providing fair remuneration to the employees. lt increases the labour turnover rate.
t8l Mohan, a manager expects his subordinates to adapt the new environs and working conditions without
giving them time to settle down. Which principle of management is being overlooked and why? Give one
violating effect.
Ans. The principle being overlooked is 'stability of Personnel' as the manager is not providing so'much
opportunity to the employees so that they get settled. It increases the recruitment and training expenses.
t9l The subordinates in a company receive orders regarding their work from different operative heads for the
same task. Which principle of management is being overlooked and why? Give one violating effect.
Ans. The principle being overlooked is 'Unity of Command' as at the same time there are many
superiors giving orders to the same employee. It reduces the efficiency of the subordinates.
t10l In a particular company, no importance had been attached to the suggestions given by the subordinates.
ln 2007 the company appointed Mr. Lohrs as its Chief Executive Officer. He was an M.B.A'
degree-holder from Ll.M. Ahmedabad with an experience of a decade. On assuming the charge of his
office, he started a sort of campaign asking for suggestions from every big or small employee of the
company. In a very short time, there were about 10,000 suggestions. After studying them intensirrely
about 1500 suggestions were implemented in different fields. This campaign fetched the company an
additional profit of 50 crore rupees.
(i) What principle of management will have been working behind Mr. Lotus's thinking?
(ii) What will be the effect of implementing these suggestions on the empioyees?
Ans. (i) PrinciPle of initiative.
(ii) Their attachment with the company will increase and they will offer new and useful ideas.

[}urru Se*sinn
For this query session, questions from readers' side are invited'
 GHIPITil 6

$G I Tl{il TI G MA]IRG EM E I{T:

PRI]IGIPTES AilII TEGH]IIIIUES
scientific management attempts to etiminate wastes to ensure
maximum production at minimum cost.

Learning Objectives
After studying this chapter, you will be acquainted with:
o Meaning of Scientific Management
. Definitions ol Scientific Management
o Features of Scientific Management
o Principles of Scientific Manogement
o Techniques of Scientific Management
a Difference between Method Study and Motion Study
. Dilference between Time Study and Motion Study
o Comparatiue Study of Contribution of Taylor ond Foyol

Scientific management is a new thinking on management

propounded by Fredrick winsrow Tayror. Tayror was perstn
a who
within a very short duration (1878 -1994) rose from the ranks of an
ordinary labourer to the position of chief Engrneer. In 1g7g, he joined
the Midvale Steel Company in USA as a labourer and, due to
his hard
work and dedication, he was able to reach the position of chief Engineer
in the same company within a short span of six years. During this plriod,
Taylor conducted a number of experiments and came to the conclusion
that the amount of work a labourer was doing was far ress as
compared
to what he was supposed to be doing. He gave a number of suggestions
to solve this problem and, in doing so, he gave a scientific outrook
to
management. Taylor worked in Bethlehem Steel works upto 1901 Fredrick Winslow Taylor
and
thereafter started providing services as a management consultant. (r 856 _1915)
In
Scientific Management: Principles and Techniques 57

1903, he published a research paper titled 'Shop Monagement' and in 1911 his book 'Principles ol
Scientific Management' created ripples in the field of management. Taylor died in 1915, but his
contribution to management will always remain immortal.

! Meaning of Scientific Management

The literary meaning of scientific management is performing the work of management in a scientific
manner. In other words, discarding the traditional approaches to management and adopting newer and
more scientific approaches in their place is called scientific management. Taylor has said that before
commencing any work, a manager should first analyse it thoroughly, and only then take any decision.

I Definitions of Scientific Management

Various experts have given many different definitions of scientific management. A few of the
important definitions are:
(1) According to F.W. Taylor, "Monogement is the oct of knowing exoctly whot you want men to do and
then seeing to it that they do it in the best and the cheopest way."
l2l According to Peter F. Drucker, ' The core of scientific manogement is the orgonised study ol work. the
onolysis of work into the simplest elements ond the systemotic improuement of the workers'
performance of each elernent."
Based on the above discussion, it can be said that scientific management involves studying each
activip in detail and in doing so ensure that all the activities of the organisation are accomplished in an
economic and effective manner.

! Features of Scientific Management

Based upon the definitions, the following are the main characteristics of scientific management:
(l) Systematic Approach: Scientific management is a systematic approach to management and
its use ensures that all activities are completed in a systematic and scientific manner.
(2) Brings Complete Mental Change: Scientific management brings about a complete mental
change both in the owners as well as the employees of the organisation. Both the parties start aiming for
more and better production targets rather than merely chasing higher profits. They are able to
comprehend that increased and better production will automatically result in higher profits which will
benefit both the parties.
(3) Discards Traditional Management: The approach of scientific management completely
discards traditional management. It calls for the discarding of old techniques and adoption of new and
modern techniques, with the aim of improving the efficiency of employees.
(4) Requires Strict Observance of Rules: Scientific management requires very shict
observance of rules, because the rules are formed only after due analysis and there is very litfle chance of
error among them.
(5) lmproves the Efficiency of Workers: The main aim of scientific management is to increase
the efficiency of workers. This is done through conducting various kinds of sfudies such as time sfudy,
motion shrdy and fatigue study.
58 Business Studies

(6) Gives due Weightage to Specialisation: Scientific management involves dividing each
work into various small parts, each part being allotted to the person who is an expert in it. This results in
better and more work being performed in much less time. Hence, it can be seen that scientific
management gives due weightage to specialisation.
(7) Useful for Large Organisations: Since the scientific management system is quite expensive
to implement, it is useful only for larger organisations.
(8) Attempts to Minimise Wastes: Scientlficmanagementaimsatminimisingthewasteof time,
materials, machine, etc.

I Principles of Scientific Management

The scientific management approach propounded by F.W. I'aylor is based upon the following
four principles:
)
(I Science, not Rule of Thumb: This principle says that we should not get sfuck in a set and
continue with the old techniques of doing work, rather we should be constantly experimenting to develop
new techniques which make the work much simpler.
(2) Harmony, not Discord: fu per this principle, such an atmosphere should be created in the
organisation that labour (the major factor of production) and management consider each other
indispensable. Taylor has rcf.ened to such a situation as a rivif,rrrc/ R eooltiion' . Taylor firmly believed that
the occurrence of a mental revolution would end all conflicts between the two parties and would be
beneficial to both of them.
(3) Cooperatiotr, not Individualism: According to this principle, all the activities done by
different people must be carried on with a spirit of mutual cooperation. Taylor has suggested that the
manager and the workers should jointly determine standards. This increases involvement and thus, in
furn, increases responsibility.
(4) Development of each and every- person to hisAer greatest efficiency and prosperity:
According to this principle, the efficiency of each and every person should be taken care of right from his
selection. A proper arrangement of everybody's training should be made. It should also be taken care that
each individual should be alloted work according to his ability and interest.

I Techniques of Scientific Management

The principles of scientific management only bring out the basic philosoplry behind the theory.
The question which now arises is how to implement these principles practically? Taylor has devised
the following techniques for actually implementing the principles of scientific management:
. 1. Functional Foremanship
F.W. Taylor has propounded the functional organisation. This form of organisation is totally based
on the principle of specialisation and makes full utilisation of expertise of various experts. In a functional
organisation, work is divided into many small parts and each part is assigned to an expert. In this manner,
all the benefits of specialisation are availed of.
Taylor has defined functional organisation as follows: "Functional organisation consists of so
clivicling tlte ntanagement that each man from the assistant supelintendent shail have as few functions as
Scientific Management: Principles and Techniques 59

irr:1,-1i.rir'topelfoi'nr Ilpr;rr:rrcabii:1lre'wotlrolrrcrcltrna.,nlirtlre :rianaqrrrit,nisiiouir.l tl,'cotittnr'ci i'.,r!-r.

r )(Jr-()lriLiirlcu c-,f a :;rnclie leaiinq tttnctii.rrr

Taylor has suggested the division of the work of factory manager into two sub-departments:
(i) planning department, and (ii) production department. Four experts are appointed in each
department. The experts in the planning department do planning and the experts in the production
department help in production. Functional organisation has been clarified in the following diagram:
I

Factory Manager I

Planning Officer Production Officer I

Gang Boss

Speed Boss

Repair Boss I

lnspector

Workers

(i) Specialists of Planninq l)epartment and their F'unctions

(a) Rou ie Clerk: This clerk ensures the sequence of completing a particular work, meaning thereby
the stages it shall have to pass before being finalised. He also decides the job to be done for the day and
where it is to be done.
lb) lnstrrrction (]ard Clerk; This clerk prepares the inshuction cards for the workers and hands
them over to the gang boss. These cards contain information about the nafure of the work, procedure of
doing it, materialto be used and the details about machinery.
(rl Tirre and Cost Clerl,.: This clerk decides as to when a particular work is to be started and
finished, meaning thereby as to what time the whole work will take place. It is also decided at the same
time at what cost the product will be produced.
ldi lliscipline Officer: The discipline officer ensures that every work is being performed in a
disciplined manner.
1ii) Speciaiists o{ Production f)epartment and their Functions
(a) Gang Boss: The workers are divided into various groups from the point of view of control.
A group leader is selected who is known as the gang boss. He is expected to ensure that both the
workers and the machines are fit enough for production and that the material required for their use
has been made available to them.
 60 Business Studies

(b) Speed Boss: The main function of the speed boss is to ensure that all the workers are
performing their job at the required or expected speed. If it is not so, the speed boss tries to find out the
cause of slow speed and hence a solution for it.
(c) Repair Boss: The main function of the repair boss is to keep the machines and tools in working
condition.
(d) Inspector: He inspects the things produced and compares their quality with the standard
prescribed for them and hies to find out the difference. In case of unfavourable result he initiates corrective
action.
o 2. Standardisation of work ,<1" h ? rb enoa ,lV "/ brfif^
(Standardisationmeanssettingstandardsion.F;[;;;pi;;
the amount of work to be done by a worker in a day may be standardised{ln other words, the worker is
expected to do the standard amount of work everyday. In the same manner standards may also be set for
raw materials, machines and tools, techniques, conditions of work, et) The following is a brief description
of such standards:
(i) Standardised Material: By standardisation of material we mean that the raw material
provided should be according to the quality of finished goods required. For example, if for producing 'A'
quality of finished goods 'X' quality of raw materials are required (and the same has been determined
after due deliberation), then we can say that for 'A' quality of finished goods 'X' quality of raw materials
have been standardised. In the fufure whenever it is required to produce 'A' quality of finished goods, 'X'
quality of raw materials will be used without any hesitation. By doing so good quality of finished goods
can be produced in the least possible time.
(ii)StandardisedMachines andTools: Standardisationofmachinesandtoolsensurethatthey
are of the required quantity and type to produce the desired finished goods. For example, if for producing
'A' quality of finished goods 'X' machine and M, N and O tools are required. Once this is determined,
whenever finished goods of 'A' quality are to be produced, it can be done with the use of 'X' machine and
M,Nand O tools.Standardisationof machinesand tools will reduceerrorsonthepartofworkersasto
which machine or tools are to be used. and hence work can proceed at a much faster pace.
(iii) Standardised Methods: By standardising the optimum techniques of doing work, the latter
can proceed at a faster pace and with much greater ease. The technique determined for doing a particular
work is used uniformly whenever such work is performed.
(iv) Standardised Working Conditions: Working conditions have a very deep impact on the
efficiency of workers. In standardising working conditions, it is noted that how much temperature,
ventilation, lighting, cleanliness and safety is necessary at the work place. After due studies, the working
conditions are standardised and efforts are made to maintain them at the work place.
. 3. Simplification
Simplification means putting an end to the unnecessary types, qualities. sizes/weights. etc. For-
examol
bllt if it
)Y-"C.
machines shall have to be installed, more stock shall have to be maintained and increased labour costs
Scientific Management: Principles and Techniques 61

shall have to be borne. Therefore, it is advisable to manufacfure shoes only of the proper sizg) In other
words, simplification of the product is the answer.
Objectives of simplification:
(i) Effecting economy in the use of machines.
(ii) Bringing down the labour cost with the help of specialization. (The benefits of specialization
can be obtained by restricting specialization only to a few products.)
(iii) Affecting economy in the staff.
According to another example, a paper manufachrring company in the U.S.A. started the work of
simplification of the types of papers it was manufacturing and succeeded in reducing their types from
2000 to 200 only.
o 4. Scientific Study of Work
It means to conduct the deep analysis of all the activities being performed in the organisation with the
aim of producing maximum possible quality output at minimum costs. Taylor has conducted the
following studies:
(i) Method Study, (ii) Motion Study, (iii) Time Study, and (iv) Fatigue Study.

lfUlethod Study: It refers to identify the most suitable way to do a particular activity. To conduct
this study, process chart and operation research techniques are used. The main objective of this shrdy is to
minimise the cost of production and maximise the quality and level of consumer satisfactircn.
(ii) Motion Study: It refers to conduct the study of motions being performed by workers and
machines while doing the job. The movie camera is used to conduct this sfudy. The main objective of this
study is to eliminate the unnecessary motions. (+
For example, during an experiment it was found that while laying a brick, a mason wd-s conducting
18 different activities, but after eliminating the unnecessary activities the number of activities could be
reduced to 5, and in certain cases even down to 2 activities.
(iii)Time Study(llrefers to determine the standard time required to complete a particular activityJ
The standard time is determined on the basis of average tlme taken by the several experiences of the same
work. This shrdy is conducted with the help of a stop watch) The main objectives of the study are (i) to get
the estimated figure of labour costs, (ii) to determine thelnumber of required workers and (iii) to decide
about the suitable incentive plan.
,rr(iv) Fatigue Study: It refers to determine the duration and frequency of rest intervals to complete a
particular job. The rest refreshes the workers. They work again with their full capacity. The main objective
of this study is to maintain the efficiency level of workers. There may be so many causes of fatigue, such as,
long working hours, poor working conditions, relations wlth the |oss, gtc.
o 5. Differentaal wage System t^.i ?,.^ p h-Lt! p/gt,;'4
Taylor has advised the adoption of diffe er to motivate the employees.
According to this system wages are paid on the basis of work done and not on the basis of time spent ln
doing the work. In this system two different wage rates are used : one is the high wage rate and the other is
the low wage rate. Those workers who are able to produce the standard number of units within a fixed
duration are paid as per the high wage rate, and those workers who are not able to produce the standard
number of units within the same time are paid as per the lower wage rate.
 62 Business Studies

For example, let the standard output per day be 20 units and the two wage rates be Rs. 5 per unit and
Rs. 4 per unit respectively. Worker 'A' produces 20 units in a day and in doing so he earns Rs. 100 (20
unitsxRs.5 perunit).Another worker'B'producesonlyl8unitsinadayandhencehewillearnonly
Rs.72 (18 units x Rs. 4 per unit). In this way, even though 'B' has produced only 2 units less than 'A' the
difference in theirwages will be Rs.28 (Rs. 100 -Rs.72). fu a result, less efficientworkers will be
motivated to work more and efficient workers will be motivated to maintain their efficiency.
o 6. Mental Revolution
Mental revolution calls for a change in the mind- set of both employers and workers. fu per Taylor, a
revolution in mind-set of both the employers and the workers is required because it will promote feelings
of cooperation, and will be beneficial to both the parties. Normally, it is seen that conflict between
employers and workers results in division of profits, with both the parties demanding a larger share of
profits. This is the main reason why a mental revolution is required. According to Taylor, insiy;:ri iri
tightlrtg r.rvet'dir;ision of lrroiits. bc;ilr tlie l.)(il'ri(.'s should make i:ilorts iot inr:reasing tJ're profits, Such a
situation will result in an increase in production, and as such a high increase in profits that will make any
talk of division of profits meaningless.

! Comparative Study of the Contribution of Taylor and Fayol

Both Taylor and Fayol have been outstanding management experts. Their conhibution in the field
of management has indeed been invaluable. Taylor was such a personalityr who started his career as a
labourer. That is why he has seen the workers very closely, understood their problems and recognised the
level of their efficiency. Taylor conducted many experiments regarding the efficiency of the workers and
finally reached the conclusion that a worker works much less than what he should actually do. He gave a
number of suggestions in order to increase the work efficiency of the workers. The focus of Taylor's study
was the work efficiency of the workers. That is why he is called ef.ficienct sper-ic/rst
On the contrary, Fayol started his career as a high ranking manager. This is why he has observed and
understood the problems of the high ranking managers. Fayol brought into existence many invaluable
principles in order to solve the problems of high ranking managers. His focus of study has been the
problems of the high ranking managers and for this simple reason he has come to be known as an
orit tr in lslr.oljr re st:r:cio/i.sl
There are some similarities and dissimilarities in the contribution of both these specialists in the field
of management. They are as follows:
o Similarities
we find the following similarities in the thought process of raylor and Fayol:
(1) Solution to Managerial Problems: Both the management experts have presented solutions
to the managerial problems based on their experience and experiments. The solutions presented by both
these experts are present in the shape of principles.
(2) Stress on Practical Aspect: Taylor and Fayol have both been directly connected with the
reality of work. That is why they both have laid stress upon the practical aspect of work. In other words,
they gave their suggestions about improvement where such improvements were possible. They did not
lay down any principle which cannot be brought into the parameters of practicality.
Scientific Management: Principles and Techniques 63

(3) Stress on Good Industrial Relations: Both the experts are of the opinion that if good
relations between the owner and the workers are established, the organisational aims can be easily
achieved.
o Dissimilarities
Following are the dissimilarities in the ideas of Taylor and Fayol:
Difference between Taylor and Fayol
Basis of Difference Taylor Fayol

1. Perspective Related to production activities/related Related to higher level of management.

to factory area.

2. Unity of Command Unity of Command is violated. A worker The Principle is applied stricflY.
works under the supervision of eight
specialists simultaneously.

3. Applicability It is applied in special situations. It is applied universally.

4. Basis of Formation Established principles of scientific Presented personal experiences in the

management by observations and form of universal tnrth.
experimentation.
5. Focus Increasing productivity with the help of Reforming the entire adminishation by
simplification, the study of time and following different principles.
speed, etc.

6. Personality Scientific Professional

7. Expression Scientific management. General thinking about adminishation.

In conclusion, it can be said that these days many changes have crept into the world of management.
It is because of these changes that the principles of Taylor appear to be a little old ones' On the other hand,
principles advocated by Fayol get credence in the modern context. Even then Taylor's contribution
cannot be Considered insignificant as his principles certainly guide the managers in some way or the other'

V 1. Meaning of Scientific Management: To discard the traditional approaches to

management and adopt newer and more scientific approaches in their place is called
scientific management.
g 2. Features of Scientific Management: (i) Systematic approach, (ii) Brings complete
mental change, (iii) Discards the traditional management, (iv) Requires strict observance of
rules, (v) Improves the efficiency of workers, (vi) Gives due weightage to specialisation,
(vii) Useful for large organisations, (viii) Attempts to minimise wastes.
g 3. Principle of Scientific Management: (i) Science, not rule of thumb, (ii) Harmony,
not discord, (iii) Cooperation, not individualism, (iv) Development of each and every
person to his/her greatest efficiency and prosperity.
g 4. Techniques of Scientific Management:
(i) Functional Foremanship: (a) Experts of Planning Department: Route Clerk, Instruction
Card Clerk, Time and Cost Clerk, Discipline Officer; (b) Experts of Production Department:
64 Business Sfudies

Gang Boss, Speed Boss, Repair Boss, Inspector.

(ii) Standardisation of work: (a) Standardised material, (b) Standardised machines
and
tools, (c) standardised methods, (d) standardised working conditions.
(iii) Simplification
(iv)Scientificstudyof work:(a)Methodstudy, (b)MotionShrdy, (c)Timestudy, (d)Fatigue
sh-rdy.
(v) Differential wage system.
(vi) Mental Revolution.
Z 5. Comparative study of the Contribution of Taylor and Fayol:
(A) Similarities: (i) Solution of Managerial Problems, (ii) Stress on practical aspect
(iii) Stress on good industrial relations.
(B) Dissimilarities: (i) Perspective, (ii) Unity of Command, (iii)Applicability, (iv)
Basis of
Formation, (v) Focus, (vi) Personality, (vii) Expression.

I Meaning and Features of Scientific Management

4/5 Marks
1. Write any four feafures of Scientific Management.

3 Marks
2. What does scientific management mean?
3. Write three feafures of 'scientific Management,.

l Mark
4. Name the petson who has propounded .Scientific Management'.
Ans. Fredrick Winslow Taylor.
5. State any two features of scientific management.
Ans. (a) It is a systematic approach.
(b) It brings complete mental change.
6. scientific management is useful for which type of organisations?
Ans. It is useful for larger organisations.

! Principles of Scientific Management

6 Marks
7 . Explain the principles of Scientific Management given by Taylor. (N.C.E.R.T./
4/5 Marks
8. Explain anytwoprinciplesofScientificManagement. (Foreign 2009)
9. Explain the principles of scientific management. (c.8.s.E.2009)
3 Marks
10. Describe Taylor's principle of 'Harmony, not discord' in about 50 words.

l Mark
11. State any two principles of 'scientific Management,.
Ans. (i) Science, not rule of thumb. (ii) Harmony, not discord.
Scientific Management: Principles and Techniques 65

12. What is the meaning of the principle of scientific management namely the 'Cooperation not
Individualism'?
Ans. According to this principle, all activities done by different people must be carried on with a spirit of
mufual cooperation.
13. List any two principles of 'Scientific Management'formulated by Taylor for managing an
organisation scientifically . (C.B.S.E. SomplePaper)
Ans. (i) Science, not rule of thurnb. (ii) Harmony, not discord.

! Techniques of Scientific Management

6 Marks
14. Explain in brief the techniques of scientific management.
15. Explain the technique of 'Functional Foremanship' and the concept of 'Mental Revolution' as
enunciated by Taylor. (lJ.c.E.E.T.)
16. Discuss the following techniques of scientific work sfudy:
(a) Time Study (c) Fatigue Shrdy
(b) Motion Study (d) MethodStudy (N.C.E.R.T.)
4/5 Marks
17. Explain 'Differential Piece Rate' and 'Functional Foremanship'as techniques of scientific management
(c.8.s.E.2009)
18 Explain any five techniques of scientific management. (c.8.s.E.2009)
19 Develop an imaginary plan of differential piece rates to be introduced for the workers, engaged in sewing
shirts. (c,8.s.E.2002)
20. What contradiction do you find in the principle of 'Unity of Command' and the iechnique of 'Functional
Foremanship' and why? (c.8.s.E.2002)
21,. Explain 'Time-Study' and 'Fatigue Shrdy' as techniques of scientific management. (C.8.5.E.2004)
22. Explain 'Method Study' and 'Motion Str-rdy' as techniques of scientific management. (C.8.5.E.2004)
3 Marks
23. How does the technique of 'Motion Sh-rdy' help to improve the efficiency of workers. Give any two points
in support of your answer.
24. How does the technique of 'Time Shrdy' help to improve the efficiency of workers? Give any two points
in support of your answer.
25. Which technique of Taylor suggests that each worker should be supervised by specialists? Give the
designation of any two types of specialists suggested by Taylor. (c.B.s.E.2005)
26. Name and explain the technique of Taylor which is the strongest motivator for a worker to reach standard
performances. (c.8.s.E.2006)
27. What do you mean by 'Differential Wage System'?
28. What does mental revolution imply in scientific management?
29. How does scientific management bring complete mental change?
30. What are the aims of 'time' and 'motion' study?
31. What do you mean by 'Simplification'?
32. Write a note on 'functional foremanship'.
I Mark
33. What is the job of 'Speed Boss' under functional foremanship?
Ans. He ensures that all the workers are performing their job at the required speed
66 Business Studies

34. As a technique of scientific management what is the meaning of 'standardisation of Work'?

Ans. It refers to set the standards for different factors, after due deliberation.
35. As a technique of scientific management what is the meaning of 'simplification'?
Ans. It means putting an end to unnecessary types, qualities, sizelweight etc.
36. What is meant by'Method Study'?
Ans. It refers to identify the most suitable way to do a particular activity.
37 . What is the main objective of 'Motion Study,? (c.8.s.E.2008)
Ans. The main objective of this study is to eliminate the unnecessary motior.rs.
38. What is meant by'Time Study'?
Ans. It refers to determine the standard time required to complete a particular activity.
39. What is meant by'Fatigue Study'?
Ans. lt refers to determine the duration and frequency of rest intervals to complete a particular job.
40. What is meant by'Mental Revolution'?
Ans. It calls for a change in the mind-set of both the employers and the workers.
41. Whatismainobjectiveof 'Method-Study'? (c.8.s.E.2008)
Ans. Its main objective is to minimise the cost of production and maximise the quality and level of
consumer satisfaction.
42. What is main objective of 'Time-Study'? (c.8.s.E.2008)
Ans. The main objective of time-study is to get the estimated figure of labour costs, to determine the
number of required workers and to decide about the suitable incentive plan.
43. Different techniques were developed by Taylor to facilitate principles of scientific
management. One of them is 'Fatigue Study'. What is the objective of this study ?
(C.B.S.E. Somple Poper)
Ans. The main objective of this study is to maintain the efficiency level of workers.
M. What is the main objective of fatigue study? (c.8.s.E.2008)
Ans. 'k Refer to Q 43.
45. What is the main objective of simplification in scientific management? (C.8.5.E,2008)
Ans. Effecting economy in the use of machines.

I Comparative Study of Contribution of Taylor and Fayo!

6 Marks
46. 'Taylor's principles of scientific management and Fayol's principle of management are mutually
complementary.' Do you agree with this view? Give any four reasons in support of your
answer. (c.8.s.E.2003)
47 . Discuss the difference between the contribution of Taylor and Fayol. (N.C.E.R.T.)
3 Marks
48. Write the similarities found in the views of Taylor and Fayol.
I Mark
49. Distinguish between Taylor and Fayol on the basis of 'unity of command'.
Ans.

Basis of Difference Tavlor Favol

Unifu of Command Unity of Command is violated. The Principle is
A worker work under the supervision applied shictly.
of eight specialists simultaneously.
Scientific Management: Principles and Techniques 67

50. Distinguish between Taylor and Fayol on the basis of 'Personality'.

Ans.

Basis of Difference Tavlor Fauol

Personality Scientific Professional

cAsE sTUDy/AppLrcATroN oRTENTED QUESTTONS

t1l Ms. Libra is working as CEO in the Bagan Tea company. Her company manufactures tea with ten brand
names (e.9. Hari Patti, Lal Patti, Swad, Mehak, Khushboo, Morning Tea, etc.). Every brand has five
flavours. Tea of every taste is packed in the packing of 10 grams, 20 grams' 30 grams, 40 grams, 50
grams, 60 grams, 70 grams, 80 grams, 90 grams, 100 grams, 150 grams, 200 grams, 250 grams, 300
grams,350 grams,400 grams, 450 grams, 500 grams, 600 grams, 700 grams, 800 grams, 900 grams, 1
Kg, 2 Kg, 3 Kg, 4 Kg and 5 Kg. In this way the company sells tea of one brand in 135 (1x5x27) packets and
all the brands put together are sold in 135 x 10 = 1350 packets.
Q. 1. What in your opinion is the mistake being committed by Ms Libra?
Q. 2. With what technique of scientific management can she improve upon her mistake?
Q. 3. What benefit shall she get with the help of the technique suggested by you?
Hint: Intensive study points out that there is no justification in selling tea in so many brands, so many
tastes and huge number of packings. This variety of production can be decreased, e.g. let there be only
four brands with each brand having only one taste and each taste should be packed in 10 grams, 50
grams, 100 grams , 200 grams, 500 grams, lKg,2Kg,S Kg packets. Thus the number of packets can be
reduced to 32 (4x 1x8) packets. By doing so all the advantages of simplification can be obtained, e.g.,less
number of machines, economy in stock, decrease in the cost of labour, etc.

0rrrr, Session
For this query session, questions from readers' side are invited.
GHAPIER T

BUSTITESS rlrurn0ilMHtr :

IM PORIAIIGI AlI II DI M E]ISI ll lIS

The study of the business environment is compulsory for
the survival and growth of the business.

Learning Objectives
After studying this chapter, you will be acquainted with:
o Meaning o/Business Enuironment
a Characterisfics o/ Busi ness Enuironment
a lmportance ol Busirress Enuironment
o Componenh o/Business Enuironment
a Internal Enuironment
a External Enuironment
a Dimensions o/ Business Enuironrrtent
o Economic Enuironment in India
c Economic Reforms since 7997 or New Economic Policy or Changing Scenario of
Indian'Ecortomic Enuironment
a Impact of chcnges in Gouernment Policy on Business and Industry

AilAIYStS BOII
-: COMMENCE:-
Mr. Answer : Genflemen, let us talk about business environment today.
Mr. Question : Sir, we have heard about environment. but what is this business environment?
Mr. Answer : Well, first of all you tell us, what do you think about environment?
Mr. Question : Sir, in my opinion the forces present around us (e.g. air, sunlight. noise. weather,
etc- ) form environment.
Contd...
Business Environment : Importance and Dimensions 69

Mr. Answer Absolutely correct. Well, now teli us what is their importance?
Mr. Question : Sir. allthese forces (environment) affect us. They provide us both joy and distress.
Mr. Answer You are telling it right ..........
Since we are influenced by these forces, studying them regularly is important' For
example, the moment we get information about the winter season, we should
arrange for the winter clothings otherwise physical distress is certain.
Now to listen........
Just as we do not live in a vacuum and remain sunounded by various forces, in the
same way business cannot be run in a vacuum, but .............. .
Mr. Question Sir. does it mean thzrt Air, Sunlight. W<:ather. etc at'r lhe br-rsirtess environment.
Mr. Answer No. have patience and listen carefully ....... .
In broad terms. The sum total of alt the factors influencing business is called
business environment.
A business is run not in a vacuum but in a society. While doing business it has to
come in contact with various social factors. These factors are - customers'
suppliers, competitors, government policies, political structure, constifutional laws,
etc. All these factors are outside the business and business has no contol over
them. They are called external factors influencing business.
NIr. Questior-t Sir. hotv clo i.he customers inlluencr: busit-rcss?
Mr. Ansruer e.g. if the customers in large numbers stop buying the products of a particular
company, the sales will come down and its profits will decline. The example of
COKE and PEPSI is there for you to see.
Mr. Question O K. Sir.
Sir. you have tolcl us that customers. sup,pliers. etc. are the external factors
ilfluencing business Do yotr thir-rk. ihere ale some internal factors also?
Mr. Answer Yes, objective, policies, organisation stucture, management information system,
production methods, production capacity, etc. are the factors which exist within
ihe business and influence the decisions of the business. They are called intemal
factors influencing business. These are generally within the control of business.
Mr. Question Sir. it means that the sun'i total of both the external and internal factors constiiute
the business environment.
Mr. Answer You are right ...........
Now, listen ahead
This is the broad meaning of business environment. There is a limited meaning of
business environment and, in reality, that is in prevalence-
Mr. Question Sir, kindly tell in detail.
Mr. Answer Listen ..........
The external factors influencing business are called extemal environment and the
internal factor influencing business are called intemal environment.
Mr. Question Sorry for the interruprion. Sir The factors of the internal etrvironment are within
tlte control <,,i tl ie ltusinr-1,:, r-r:til lltt-: i,tclr;rs i.ri 11.v.ii.:,,lu1 etivirottment are beyond
cor,trol Arn Iright Sir'?
70 Business Studies

Mr. Answer Absolutely conect..... Well done Now listen further

The extemal environment can further be divided into two parts:
(i) Micro environment: Micro environment means the sum total of those factors
which affect or influence the firms of a indushT separately, e.g., customers,
suppliers, competing firms, etc. These factors are closely related to the business
and they can be taken under control by making efforts.
(ii) Macro Environment: This is the sum total of all these factors which influence
almost all the firms of the industry equally e.g. government policies, political
stmcture, constitutional laws, etc. The business has a distant relationship with
these factors and conhol over them is almost impossible.
Mr. Question Sir, Sir
Mr. Answer No, not yet, listen ahead ........
We can draw the following conclusion from the foregoing analysis:
(i) Intemal environment: Complete Control.
(ii) Micro environment: Control is possible.
(iii) Macro environment: Control almost impossible.
Limited and generally accepted meaning of business environment:
'Business enuironment means the sum total of those factors which influence the
business ond ouer which the business hos no control.,
Mr. Question Sir. it mear.rs that only rracro ettvironurent is business environnrent because
control over it is impossible
Mr. Answer 101% conect.
Mr. Question I have understood the meaning of business environnrent, but. sir. what is the rreefl
of studying it.
Mr. Answer A very good question.....
At the beginning of this discussion you had observed that we get joy and distress
from environment. The same thing applies here. In the business environment
opporfunities and threats are always present. An organisation can benefit itself by
continuous scanning the opportunities and can forestall the possible threats.
Mr. Question Sir. it means that in order to live and develop in today's competitive age the
businessman shou]d continue studying business environmeni
Sir, any example regarding this ... .....
Mr. Answer : Yes, listen ...........
The motorcycle industry in the U.K. declined due to not keeping a watch over
business environment. It did not attack any importance to produce
international-level product to match the Japanese motorcycle indusbry. Therefore,
they suffered. If the U.K. motorrycle industry had adopted the right policy in time, it
would not have suffered like this.
Mr. Question : O.K. Sir. Thank U.
: The encl :--
Business Environment : Importance and Dimensions 7t

! Meaning of Business Environment

Business environment means the sum total of those factors which influence the business and over
which the business has no control.

! Characteristics of Business Environment

Following are the chief characteristics of the business environment:
(1) Totalality of External Forces: Business environment is the sum total of all those factorVforces
which are available outside the business and over which the business has no control. It is the group of
many such forces, that is why, its nature is of totality.
(2) Specific and General Forces: The forces present outside the business can be divided into two
parts specific and general.
-
(i) Specific: They are the forces which affect the firms of an industry separately, e.g., customers,
suppliers, competitive firms, investors, etc.
(ii) General: They are the forces which affect all the firms of an industry equally, e.g.. social.
political, legal and technical situations.
(3) Inter-relatedness: The different factors of business environment are co-related. For example,
let us suppose that there is a change in the import-export policy with the coming of a new government. In
this case the coming of new government to power and change in the import-export policy are political and
economic changes respectively. Thus, a change in one factor affects the other factor.
(4) Dynamic Nature: As is clear that environment is a mixfure of many factors and changes in
some or the other factors continue to take place, therefore, it is said that business environment is dynamic.
(5) Uncertainty: Nothing can be said with any amount of certainty about the factors of the business
environment because they continue to change quickly. The professional people who determfne the
business strategy take into consideration the likely changes before hand. But this is a risky job. For
example, technical changes arevery rapid. Nobody can anticipate the possibility of these swift technical
changes. Anything can happen, anytime. The same is the situation of fashion.
(6) Complexity: Environment comprises of many factors. All these factors are related to each
other. Therefore, their individual affect on the business cannot be recognised. This is perhaps the reason
which makes it difficult for the business to face them.
(7) Relativity: Business environment is related to the local conditions and this is the reason for
business environment happens to be different in different countries and different even in the same
countryr at different places.

! lmportance of Business Environment

It is not sufficient to know only the meaning of business environment. The more important aspect is
to know as to why we want to study it. In other words, what is its importance. The importance of business
environment is highlighted by the following facts:
(1) First Mover Advantage: The sfudy of business enVironment enables us to know about the
opporhrnities available. A company which is more conscious about the changes taking place in the
business environment is the first mover. It takes advantage of it by becoming the first supplier. In other
 72 Business Studies

words, a company which has the capacity to know the possibilities of the opportunities
available can be
the greatest beneficiary. For example, the ASIAN PAINTS a leading company of the paint industryr,
at
one stage lagged behind because of technology. This was smartly understood by another company,
GOODLASS NEROIAC (GN). 1n order to exploit this situation, the latter company
entered with a
contract with a foreign company named KANSAI PAINTS (KP) with the purpose of acquiring latest
technology. The KP made available to the GN the Cathodic Electro Depcsition (CED) technology.
On
this very basis,theGNwasabletoobtain thecontractfor theentire paintrequirementsoftheMARUTI
UDYOG. In this way, the GN earned huge profits by entering the market with the latest
technology. It was
a first mover advantage of the company.
(2) Warning Signal: Along with the availability of opportunities provided
by the study of business
environment, we also come to know about the threats accompanying them. If the knowledge about the
threats is available in time, efforts can easily be made to face or surmount them. This is possible
only by
regularly studying the changes taking piace in the business environment. For example, there
was a time
when the customers got dissatisfied at the slow supply of cars in the market. The Maruti Udyog Ltd.
was
sharp enough to recognise the threat of new companies entering the market in time. Bef.orethe
other
companies could do anything, the Maruti Udyog Ltd. was able to increase the supply of its
cars manifold
and was thus able to nullifu the effect of the possible threat. In this way, the Maruti forestalled
the possible
danger by the study of business environment.
(3) Taping Useful Resources: An organisation needs a member
of resources to camT on its
business (e.g. material machine, man, money etc.). With the help of these resources goods
and services
are produced. A business gets resources from the environment and provides goods and
services to the
same environment. A study of business environment tells a business the requirements
of the environment
and what can it make available to get its needs fulfilled. Therefore, it is possible to get useful resources
from
the business environment.
(4) Coping with Rapid Changes: These days business is being run in a rapidly changing
environment. Various factors connected with business, e.g. competition, fashion, number of customers,
technology, etc. are changing quickly. Changes do not affect business as much as the rapidity
of the
changes. It means that if the speed of the change is a little less it can be faced with comparativl
ease but to
face the rapidity of change is a very difficult task. This can be possible only by constant vigil
over the
business environmeni and sfudying it simultaneously.
(5) Assisting in Planning and Policy: The knowledge of the business environment presents the
basis for pianning and policy. For example, the ITC Hotels decided to establish many
new hotels abroad
and irr India only after a careful sfudy of the business environment. They felt that tourism industry
was the
biggest indusky in the worid. Its future was particularly bright in India. The Government also has
a special
interest in the development of this industry because of many reasons (for example, the receipt
of foreign
exchange, increase of employment, etc.). The ITC Hotels formulated their future shategy onthe
basis of
this information. In this way, anyone can defeat their competitors by formulating their plans.
(6) lmprovement in Performanc e: ln every organisation
the sfudy of business environment has
an important role as far as its performance is concerned. Those organisation which keep
a constant eye on
it and analyse it correctly definitely win the race and remain alive for a long time.
On the other hand, those
organisations which do not care about it cannot remain steadfast in the market, are likely to
close down.
Business Environment : Importance and Dimensions 73

Therefore, it can safely be asserted that an organisation can improve its present as well as future with the
help of the sfudy of business environment.

I Components of Business Environment

The different components of the business environment are shown in the following diagram:

Components of Business Environment

I

!nternal Environment I
External Environment I

1. Objectives Micro Environment

2. Policies or
3. Organisation Structure Operating Environment
4. Management
lnformation System
5. Production Method
6. Production Capacity 1. Customers 1. Economic Environment
etc. 2 Suppliers 2. Political Environment
3. Competitors 3. Social Environment
4. Public 4. Legal Regulatory
5. Marketing lntermediaries Environment
etc. 5. Technological
Environment
etc.

I A. lnternal Environment
Internal ehvironment includes all those factors which influence business and which are present
within the business itself. These factors are usually under the conhol of business. The sfudy of internal
factors is really important for the shrdy of internal environment. These factors are:
(i) Objectives of Business, (ii) Policies of Business,
(iii) Production Capacity, (iv) Production Methods,
(") Management Information System, (vi) Participation in Management,
(vii) Composition of Board of Directors, (viii) Managerial Attihrde,
(ix) Organisational Struchrre, (x) Features of Human Resource, etc.
Note: All the above factors do influence the decisions of business, but since all these factors are
usually under the control of business, they cannot be wholly included in the business environment.

I B. Externa! Environment
External environment includes all those factors which influence business and exist outside the
business. Business has no conhol over these factors. The information about these factors is important for
the sfudy of the external environment. Some of these factors are those with which a particular company
74 Business Studies

has very close relationship. However, there are some other factors which influence the entire business
community. On this very basis, the external environment can be divided into two parts:
(1) Micro Environment or Operating Environment: Micro environment means that
environment which includes those factors with which business is closely related. These factors influence
every industrial unit differently. These factors are as under:
(i) Customers (ii)Suppliers (iii) Competitors
(iv) Public (v) Marketing Intermediaries.
(i) Customers: Customers of an industrial unit can be of different types. They include household,
government, industry. commercial enterprises, etc. The number of different types of customers highly
influence a firm. For example, suppose a firm supplies goods only to the government. It means that firm
has only one customer. If because of some reason their relations get soured, the supply of goods will stop
and in that case the closure of that firm is certain. This clearly indicates that the customers do influence
business. Therefore, a firm should make efforts to have different kinds of customers.
(ii) Suppliers: Like the customers, the suppliers also influence business. If a business has only one
supplier and he gets annoyed because of some reason, the supply of goods can be stopped and the very
existence of the business can be threatened or endangered. Hence, efforts should be made to have
various suppliers.
(iii) Competitors: The competing firms can influence business in a number of ways. They can do
so by bringing new and cheap products in the market, by launching some sale promotion scheme or other
similar methods.
(iv) Public: Public has different constituents like the localpublic, press or media, etc. The attitude or
behaviour of these constituents can affect business units. For example, the local population can oppose
some established firm whose business is excessively noisy. Similarly, if the media gives some favourable
report about a particular company the price of its share can register an increase on this count.
(v) Marketing Intermediaries: The marketing intermediaries play a significant role in developing
any business unit. They are those persons who reduce the distance between the producers and agents.
For example, a company sells its goods with the help of agents and if because of some reason all the agents
get annoyed with the company and refuse to sell its goods, there can be a crisis for the company.
(2) Macro Environment or General Environment: Macro environment means that
environment which includes those factors which have a distant relation with business. A prominent
feature of these factors is that they influence all the business units almost in the same way.
NOTE: We haue alreody seen that the internal enuironment is under the control of business, and therefore,
it cannot be wholly included in the business enuironment. Similorly, the micro enuironment hos a uery close
relahonship urith business and, therefore, if not immediotely ot leost it can be controlled to a large extent
within o short span ol time. On the contrary, there is remote relotionship of macro enuironment with
business. In othei words, business hos n o control ouer it. ln foct, macro enuironment is in reolity the business
enuironment.'lts foctors ore called Dimensions o/ Business Enuironment. We shall now study these
dimensions.
Business Environment : Importance and Dimensions 75

I Dimensions of Business Envaronment

Dimensions of business environment (or macro environment or general environment) have the
following important factors:
[Note: General environment can be classified into two major categories: (i) Economic
Environment, (ii) Non-economic Environment (Political Environment, Socia[ Environment, Legal
Regulatory Environment and Technological Environment)l
(1) EconomicEnvironment (2) Political Environment
(3) SocialEnvironment. (4) Legal Regulatory Environment
(5) TechnologicalEnvironment
o (1) Economic Environment
Among the various factors of macro environment, the economic environment has a special
significance. Economic environment can be divided into three parts. We shall now sfudy their effect on
business. They are as under:
(i) Economic system. (ii) Economic policies. (iii) Economic conditions.
(i) Economic System: It is necessary to know aboutthe economic system prevailing in a countryr in
order to understand the economic environment. Economic system influences the freedom or openness of
business. Economic system is mainly of three kinds:
(a) Socialistic Economic System, (b) Capitalistic Economic System, (c) Mixed Economic System.
(a) Socialistic Economic System: Under this system, business is directed and conholled by the
government. In other words, individuals have no freedom to run business. The government owns all the
means of productions. No individual has the right to have private property. All persons enjoy the benefits
of centrally planned economy. All have equal rights. This system of economy is mainly adopted by
Russia, China, Hungary and Poland.
(b) Capitalistic Economic System: Under this system, private ownership of business is given
importance. Hence, business gets extended. It is also known as free market economy. Under this, all
means of production (such as labour, land, capital, etc.) are owned by private people. What to produce,
how to produce and by whom it will be produced- all such considerations are determined by the market
forces. Hence, it can be said that there is a complete freedom of consumption, production, savings,
investment, etc. Such type of economic system is prevailing in U.s.A. and canada.
(c) Mixed Economic System: Under this system, business is owned both by the government and
individuals. Under this, several basic indushies are run under the control and ownership of the
government. As far as the private sector is concerned, it is run by the private persons, but to save the
interest of the country government regulates its activities. India is a good example of countries following
this concepts of economy.
(ii) Economic Policies: Economic policies deeply influence the business of a country. The
economic policies are laid down to direct the economic activities. Economic activities include
import-export, employment, tax struchrre, industry, public expenditure, public debt, foreign investment,
etc. In order to direct all these economic activities, the following economic policies are laid down:
(a) Export Import Policy, (b) Employment Poliry, (c) Taxation Policy,
(d) IndustrialPolicy, (e) Public Expenditure Policy, (f) Public Debt Policy.
(g)Agriculture Policy, (h) Foreign Investment Policy.
76 Business Sh.rdies

All these policies influence business. For example, under the import-export policy, restrictions on
imports will benefit the indigenous industry.
(iii) Economic Conditions: Economic conditions are those conditions which are related with the
possibilities of economic development of a country. On the basis of the economic conditions the
government starts various programmes for the welfare of the people. These programmes influence
business. Businessmen are influenced by these programmes and they start their own programmes like the
advertisement policy, discovery of new market, bringing new products in the market, new methods of
production, etc. Some of the examples of economic conditions are as under:
(a) Foreign Capital, (b) Supply of Natural Resources, (c) Level of Economic Development,
(d) Rate of Interest, (e) National Income, (f) Industrial Development.
(g) Foreign Trade, (h) General Price Level.
Impact of Economic Environment on Business
The following are the chief examples of the impact of economic environment on business:
(i) After reforms were introduced in the banking sector. the bank loans were allowed on easy terms. lt also
led to better services. It helped really fast development of business.
(ii) Thechange intheeconomic environmentresulted inthe establishmentofLeasingCompanies.Mufual
Funds and Venture Capital Business.
o (2) Political Environment
Political environment is the outcome of a combination of various idealogies advocated by different
political parties. Factors connected with the activities of the government are included in it, e.g.. the type of
government (single party government or multi party government), the attitude of the governmenttowards
different industries, progress in passing different laws, the platforms of the political parties, the tendency of
the applicants for different posts, efforts by various groups to get effective support for themselves, etc.
Every politicalparty has a different attitude towards business community. A living example of this can be
seen during elections in the shape of fluctuations in the share market. It is quite possible that the mere
possibility of a particular political party coming into power can make the prices of share rise sky high. It is
true conversely when the possibility of some other political party coming into power may bring the price of
shares really nose-diving. It clearly shows that the attitude of the first political party towards business is
positive which gets reflected in the positive effect on the share market. On the other hand, the negative
attifude of the second political party towards business is reflected in the nose-diving of prices of shares in
the share market merely on the possibility of its coming to power.
lmpact of Political Environment on Business
The following are some of the examples of the impact of the political environment on business:
(i) In the year 1977, the Janata Government adopted a stringent attifude towards the multinational
companies. As a result of this attitude the multinational companies tike the IBM and the Coca-Cola had
to ignore India.
(ii) The new government encouraged the multinational companies for investment in India. This led to the
opening of the doors of the Indian marketforthe multinational companies. Consequently, the Coca-Cola
entered the Indian market once again.
(iii) lt was only because of the political interest that Hyderabad came to be known as Cyberabad In other
words, it came to be recognised as the centre of Information Technology (lT). fu a result of it many I.T.
Companies came to be established there.
Business Environment : Importance and Dimensions 77

o (3) Social Environment

Business is born and develops in society. Therefore, the effect of various social factors on business is
but natr-tral. Social factors include customs, fashions, traditions, wishes, hopes, level of education,
population, standard of living of the people, religious values, distribution of income, corruption, family
set-up, consumers' consciousness, etc.
lmpact of Social Environment on Business
All social factors influence business in some way or the other. For example, the production of things
should be according to the fashion. Similarly religious values also influence business. For example, some
years ago the manufacfurers of Vanaspati Ghee used to import animal fat for manufach-rring ghee. On the
basis of the strong public protests the government cancelled the import licence of these manufacfurers.
Similarly, with the news that some popular cold drinks contain pesticide elements, people protested
against it and minimised the consumption of these cold drinks.
o (4) Legal Regulatory Environment
Many acts are passed from time to time in order to control and regulate business activities. The
sum-total of all these Acts creates legal regulatory environment. Acts are mostly passed to regulate such
business activities as sale-purchase, industrial disputes, labour, regulating partnership business,
regulating company business, foreign exchange, etc.
In India, the following Acts have been passed in connection with the above business activities:
(i) Sale of Goods Act, (ii) Indushial Disputes Act.
(iii) Minimum Wages Act, (iv) Indian Partnership Act,
(v) Companies Act, (vii) Trade Mark Act,
(viii) EssentialCommodities Act, (ix) Consumer Protection Act.
(*) Standards of Weights and Measures Act.
All these Acts influence business decisions.
lmpact of Lega! Regulatory Environment on Business
The following are the examples of the impact of the legal regulatory environment on business:
(i) By removing control on the capital market, a huge amount of capital was collected by issuing various
new issues in the primary market.
(ii) With introduction of relaxation in Foreign Direct Investment (FDI) and Foreign Exchange, many
multinational companies entered the Indian market. Consequently, there has been a tremendous
increase in the foreign exchange reserves in the country.
o (5) Technological Environment
I'echnology includes new methods of production of goods, services and discovery of new
implements. Technological changes make available better methods of production and that makes the
optimum use of the raw material possible. The iechnological changes offer both the possibilities and
threats for business. In case a company understands these things well in time it can achieve its objective,
otherwise the very existence of the company is threatened. For example, it becomes a technological
change for the automobile industry to produce vehicles which consume less petrol in view of the ever
increasing prices of petrol. Only that company will be able to survive which can move with the changes
taking place in the environment. Therefore, the companies should constantly watch the technological
changes so that they are able to exploit the business opportunities.
78 Business Studies

!mpact of Technological Environment on Business

The following are the examples of impact of technological environment on business:
(i) Withthe advent of televisioninthemarket,the cinemaandtheradioindustryrwereadverselyaffected.
(ii) With the anival of the photostat machines in the market, the carbon paper industry suffered a setback.
(iii) With the entry of synthetic thread in the market, the cotton cloth industry was badly affected.
(iv) The digital watches have almost eliminated the market of the taditional watches.

! Economic Environment in lndia

Economic environment is an important constifuent of business environment. There are three main
constifuents of this environment as indicated in the following diagram:

We have already studied economic system, economic policies and economic conditions under the
dimensions of business environment. Now we shall study it in the Indian context.
o (1) Economic System of lndia
Economic system is one of the major parts of economic environment. Economic system is of three
types:
Socialistic Economic System.
-
Capitalistic Economic System.
-
Mixed Economic System.
-
India has adopted the mixed economic system.
Features of Mixed Economic System: The chief characteristics of the mixed economic system
are as under:
(i) Different sectors of business public, private and mixed.
(ii) -
More attention to public interest.
(iii) Encouragement to private sector.
(iv) Cenhal planning.
(v) Freedom in the choice of employment.
o (2) Economic Policies of tndia
In order to direct the economic activities in India, the following major economic policies have been
framed.
(i) lmport-export policy to control import-export in the countryr.
(ii) Employment policy to make employment available to the people of the country.
(iii) Tax policy to form a stmcfure of direct and the indirect taxes.
Business Environment : Importance and Dimensions 79

(iv) Industrial policy to encourage industrial development in the count4r.

(v) Public expenditure policy in order to control public expendifure.
(vi) Public debt policy in order to control public debt.
(vii) Agriculture policy in order to develop agriculture in the country.
(viii) Foreign investment policy to invite foreign capital in the country.
(ix) Monetary policy in order to establish a balance between the demand and supply for money.
. (3) Economic Conditions in lndia
The major economic conditions and their explanation is as under:
(i) Foreign Capital: Foreign capital means investment made by foreigners in India. The foreign
capital in India is increasing at the rate of 4 billion dollars every year.lt is a good sign for the economic
environment in India.
(ii) Supply of Natural Resources: In India, the supply of nafural resources (like the coal mines,
iron mines, forests, etc.) is abundant and they are fully being exploited.
(iii) Level of Economic Development: The economic development in India is also balanced.
This rate is about 5.5 per cent per year.
(iv) Rate of Interest: Sometime back the rate of interest in the system of banking was determined
by the Reserve Bank. Now all the banks in the counky have been given the freedom to determine their
own rates of interest. That is why the rates of interest in respect of various banks happen to be different.
(v) National lncome: In India, national income is increasing at a slow speed.
(vi) Industrial Development: There is instability in the industrial development of India. For the
last one decade it has been observed that sometimes there is some progress and while sometimes there is
no progress at all.
(vii) Foreign Trade: There is continuous progress in the foreign hade of India.
(viii) General Price Level: In India, the general price level is under complete conhol. This is a
good indicator for the economic condition of the country.

! Economic Reforms since 1991 or New Economic Policy or Changing

Scenario of lndian Economic Environment
The process of economic reforms was started by the government of India in 1991 for taking the
country out of economic difficulty and speeding up the development of the country. The centre of
economic reforms has been liberalisation, prioatisation and globalisation. These three terms mean:
(A) Liberalisation: Liberalisation means to unshackle the economy from bureaucratic cobweb to
make it more competitive. Following are its chief features:
(i) To do away with the necessip of having a license for most of the industries.
(ii) Freedom in determining the scale of business activities.
(iii) Removing reshictions for the movement of goods and services from one place to another.
(iv) Freedom to fix the prices of goods and services.
(v) Reduction in the rate of taxes.
(vi) Freedom from unnecessary control over economy.
(vii) Simplifuing import-export procedure.
(viii) Simplifuing the process of athacting foreign capital and technology.
 80 Business Studies

(B) Privatisation: In brief, privatisation means such an economic process through which some
public sector undertaking is brought either partially or completely under private ownership.
Broadly speaking, establishing a new enterprise in private sector instead of a public sector is also
privatisation. Not only this, depriving public sector of the job of production which was earlier reserved for
it or transfering its production, without depriving it, to the private sector also amounts to privatisation. Its
chief features are given below:
(i) Reducing the role of public sector and increasing the role of private sector.
(ii) Reducing fiscal burden of the government.
(iii) Reducing the size of the government machinery.
(iv) Speeding up economic development.
(v) Improving management of enterprises.
(vi) Increase in govemment treasury.
(vii) Increasing competition by opening industries reserved for the public sector to the private sector.
(C) Globalisation: Globalisation means integrating the economy with the rest of the world.
Following are its chief features:
(i) Free flow ofgoods and services in all the countries.
(ii) Free flow of capital in all the countries.
(iii) Free flow of information and technology in all the countries.
(iv) Free movement of people in all the countries.
(v) The same conflict solving technique in all the counhies.
c Obiectives of Economic Reforms
Following are the objectives of economic reforms:
(i) Modernisation of the industrial system of the country.
(ii) Encouraging private investment.
(iii) Attracting foreign investment.
(iv) Eliminating unproductive controls.
(v) Connecting Indian economy with the world economy.
(vi) Controlling fiscal deficits. (Fiscal deficit comes into play when the total expendih-rres of the countryr
exceeds its total incomes)
(vii) Increasing foreign exchange reserves.
(viii) Contolling unprofitable industrial units in the public sector.
o Maior Steps of Economic Reforms
For the attainment of the above-mentioned objectives, the government of India has taken the
following major steps:
(1) New IndustrialPolicy, (2) New Trade Policy
(3) FiscalReforms, (4) Monetary Reforms
(5) Capital Market Reforms, (6) Phasing out Subsidies
(7) Dismantling Price Controls
We shall now sfudy these aspects of the economic reforms in detail.
(l) New Industrial Policy
Under Indushial Policy, keeping in view the priorities of the country and its economic development,
the roles of the public and private sectors are clearly decided.

l
Business Environment : Importance and Dimensions 81

Under the New Industrial Policy, the industries have been freed to a large extent from the licences
and other controls. In order to encourage modernisation, stress has been laid upon the use of latest
technology. A great reduction has been affected in the role of the public sector. Efforts have been made to
encourage foreign investment. Investment decision by companies has been facilitated by ending
restrictions imposed by the M.R.T.P. Act. Similarly, Foreign Exchange Regulation Act (FERA) has been
replaced by Foreign Exchange Management Act (FEMA).
Some important points of the New Industrial Policy have been highlighted in the following detaiis:
(i) Abolition of Licensing: Before the advent of the New Industrial Policy, the Indian industries
were operating under strict licensing system. Now, rnostly the industries have been freed from licensing
and other restrictions.
(ii) Freedom to lmport Technology: The use of latesttechnology has been given prominence in
the New Indushial Folicy. Therefore, foreign technology coilaboration has been allowed.
(iii) Contraction of Public Sector: A policy of not expanding unprofitable industrial units in the
public sector has been adopted. Apart from this. the government is following the course of disinvestment
in such public sector undertaking. (Selling some shares of public sector enterprises to private sector
enhepreneurs is called disinvestment. This is a medium of privatisation).
(iv) Free Entry of Foreign Investment: Many steps have been taken to attract foreign
investment, such as:
(a) In the year \991,517" of foreign investment in 34 high priority industries was allowed without seeking
government permission.
(b) Non-Resident Indians (NRIs) were allowed to irrvest 100% in the export houses, hospitals, hotels, etc.
(c) Foreign Investment Promotion Board (FIPB) was established with a view to speedily clear foreign
investment proposals.
(d) Restrictions which were previously in operation to regulate dividends repatriation by the foreign
investors have been removed. They can now take dividends to their native counkies.
(v) MRTP Restrictions Removed: Monopolies and Restrictive Trade Practices Act has been done
away with. Now the companies do not need to seek government permission to issue shares, extend their
area of operation, and establish a new unit.
(vi) FERA Restrictions Removed: Foreign Exchange Regulation Act (FERA) has been replaced
by Foreign Exchange Management Act (FEMA). It regulates the foreign transactions. These transactions
have now become simpler.
(vii) Increase in the Importance of Small lndustries: Efforts have been made to give
importance to the small industries in the economic development of the countn;.
(2) New Trade Policy
Trade policy means the policy through which the foreign trade is controlled and regulated. fu a result
of liberalisation, trade policy has undergone tremendous changes. Especially the foreign hade has been
freed from the unnecessary controls. The age-old restrictions have been eliminated at one go. Sorne of the
chief characteristics of the New Trade Policy are as follows:
(i) Reduction in Restrictions of Export-Import: Restrictions on the exports-imports have
almost disappeared leaving only a few items.
 82 Business Studies

(ii)
Reduction in Export-lmport Tax: Export-import tax on some items has been completely
abolished and on some other items it has been reduced to the minimum level.
(iii) Easy Procedure of Export-tmport: Import-export procedure has been simplified.
(iv) Establishment of Foreign Capitat Market: Foreign capital market has been established for
sale and purchase of foreign exchange in the open market.
(v) Full Convertibility on Current Account: In the year lgg4-95,
full convertibility became
applicable on cunent account.
Here it is important to clarifu the meaning of cunent account and full convertibility. Therefore, this
has been done as follows:
Current Account: Transactions with the foreign counties are placed in two categories: (i) tansaction
with cunent account, for example, import-export. (ii) Capital account tansactions, like investnent.
Full Conttertibilitgt: In short, full convertibility means unrestricted sale and purchase of foreign
exchange in the foreign exchange market for the purpose of payments and receipts on the
items
connected with current account. It means that there is no government restriction on the
sale and purchase
of foreign exchange connected with current account. On the other hand, sale and purchase of foreign
exchange connected with capital account can be canied on under the rates determined
by the Reserve
Bank of India (RBI).
(vi) Providing Incentive for Exp.rt: Many incentives have been allowed to Export
Oriented
Units (Eou) and Export Processing zones (EpZ) for increasing export trade.
(3) Fiscal Reforms
The policy of the government connected with the income and expenditure is called fiscal policy.
The
greatest problem confronting the Indian government is excessive fiscal
deficit. In the year 1990-91, the
fiscal deficit was 87o of the GDP. (lt is important to understand the meaning of fiscal deficit
and GDp.)
(i) Fiscal Deficit: A fiscal deficit means that the countryr is spending more than its income.
(ii) Gross Domestic Product (GDP): The GDP is the sum total of the financial value of
all the
produced goods and services during a year in a country.
Generally, the financial deficit is calculated in the form of GDP's percentage. presently, the
government of India is making efforts to take it to 3%.
o Solutions of Fiscal Deficit
In order to handle the problem of fiscal deficit, basic changes were made in the tax system.
The
following are the major steps taken in this direction:
(i) The rate of the individual and corporate tax have been reduced in order to bring more people in the tax
net.
(ii) Tax procedure has been simplified.
(iii) Heavy reduction in the import duties has been implemented.
(4) Monetary Reforms
Monetary policy is a sort of control policy through which the Central Bank controls the supply of
money with a view to achieving the objectives of the general economic policy. Reforms
in this policy are
called monetary reforms. The major points with regard to the monetary reforms are given
below:
Business Environment : Importance and Dimensions 83

(i) Statutory Liquidity Ratio (SLR) has been lowered. (A commercial bank has to maintain a definite
percentage of liquid funds in relation to its net demand and time liabilities. This is called SLR. In liquid
funds, cash investment in permitted securities and balance in current account with nationalised banks
are included.)
(ii) The banks have been allowed freedom to decide the rate ol interest on the amount deposited.
(iii) New standards have been laid down forthe income recognition for the bank. (By recognition of income,
we mean what is to be considered as the income of the bank? For example, should the interest on the
bad debt be considered as the income of the bank? Directions have been issued in this context.)
(iv) Permission to collect money by issuing shares in the capital market has been granted to nationalised
bank.
(v)Permission to open bank in the private sector has also been granted.
(5) Capital Market Reforms
The market in which securities are sold and bought is known as the capital market. The reforms
connected wlth it are known as capital market reforms. This market is the pivot of the economy of a
country. The government has taken the following steps for the development of this market:
(i) Under thePortfoliolnvestmentScheme,thelimit forinvestmentbythe NRIs andforeigncompaniesin
the shares and debenhrres ofthe Indian companies has been raised.
(Portfolio Investment Scheme means investing in securities.)
(ii) In order to control the capital market, the Securities and Exchange Board of India (SEBI) has been
established.
(iii) The restriction in respect of interest on debenfures has been lifted. Now, it is decided on the basis of
demand and supply.
(iv) The office of the Controller of Capital Issue which used to determine the price of shares to be issued has
been dispensed with. Now. the companies are free to determine the price of the shares.
(v) Private sector has been permitted to establish Mutual Fund.
(vi) The registration of the sub-broker has been made mandatory.
(6) Phasing out Subsidies
Cash Compensatory Support (CCS) which was earlier given as export subsidy has been stopped.
(CCS can be understood with the help of an example. If an exporter wants to import some ravv material
which is available abroad for Rs. 100, but the same material is available in India for Rs. 120 and the
governments wants the raw material to be purchased by the exporter from India itself for the protection of
indigenous industries, the government is ready to pay the difference of Rs. 20 to the exporter in the form
of subsidy. The payment of Rs. 20 will be considered as CCS). In addition to this, the CCS has been
reduced in case of fertilizers and petro products.
(7) Dismantling Price Control
The government has taken steps to remove price control in case of many products. (Price Control
means that the companies will sell goods at the prices determined by the government). The efforts to
remove price control were mostly in respect of fertilizers, steel and iron and petro products. Restrictions on
the import of these products have also been removed.

! lmpact of Changes in Government Policy on Business and lndustry

During the last few years, many efforts have been made by the government of India to introduce
some economic reforms. The chief among them happen to be the New Industrial Policy, the New Trade
Policy, fiscal reforms, monetary reforms, capital market reforms, dismantling price conhol and phasing
 84 Business Studies

out subsidies. We have now to find out the effect of this policy of revitalising the economy on the
business and industry. Some important points in this respect are the following:
(i ) lncr+:asing Cc-,rnpetition: Today, business is facing all round competition. The competition
for Indian companies has increased especially in service industries like: Telecommunication, Airlines,
Banking, insurance, etc. Competition has crossed the national boundaries and assumed a global shape.
The following are the chief competitors:
(i) New and old Indian companies, (ii) Multinationalcompanies, (iii) Import.
Increasing competition has adversely affected many companies. For example, once a popular
Westem Coloured Television has lost much ground in the TV market and its contribution to the market is
almost negligible.
(2) More Demandin5; (lustomers: fu a result of the economic reforms, the customers have
complete information about the goods available in the market. Earlier, they used to purchase goods and
services without much inquiry because of the lack of information. But these days because of the
availability of enough information the area of customers' demand has increased considerably. Now, they
have started buying good quality goods and services.
(3) Rapidl-v Changing T<rchnological Environment: Rapid changes are taking place in the
technological environment as compared to other factors in respect of business environment. The reason is
increase in competition. These days only that particular company can remain steadfast in the market
which markets, products of better convenience. This is possible only by using latest technology. latest
technology makes modern machinery and production process available. Big firms are grappling with this
environment but for the smaller firms it is an alarm bell.
('4) Necessity for Clrange: Before the implementation of economic reforms (before 1991) the
businesses were more stable. Policies once laid down used to continue for a long time. However, these
days because of the free economic environment the various factors of business environment are
undergoing rapid changes. Consequenfly, the businesses have become unstable and the policies have to
be changed quickly.
(5) Need for Developing Human Resource: It is a big challenge to achieve success in business
these days. It is not easy for the ordinary employees to face this challenge. It needs a thoroughly
accomplished human resource equipped with the latest information. There has been a shortage of trained
human resource in India. That is the reason that their demand is now rapidly increasing.
t6) Market Orientation.There are two points of view with regard to the marketing activities-
Production Oriented and Market Oriented. According to the production oriented view point first the
goods are manufacfured and then the market is visited for marketing the manufactured goods. On the
other hand, according to the market oriented viewpoint, first of all the market is surveyed and then
production is undertaken. In other words, previously it was thought that whatever was the quality of the
product, the customers would accept it. But now this thinking has changed and it is now accepted that the
production should caterto the demand ortaste of the customers. These days the latterthought is in vogue.
(7) Loss of Budgetary Support to the Public Sector: fu a result of economic reforms, the
importance of public sector has declined. This is evident in the reduction of budgetary support by the
government to the public sector enterprises. These days the public sector enterprises have clearly
understood that in order to make their development possible and to remain alive for a long time, they shall
have to create their own resources.
Business Environment : Importance and Dimensions 85

Conclusion: In conclusion, it can be obsenred that economic reforms have influenced the Indian
business and industry in a positive way. The challenges emerging out of these reforms have been faced.
The Indian market has become customer oriented and customer friendly techniques are being used to
have better relations with the customers.

g 1. Meaning of Business Environment: It refers to the sum total of those factors which
influence the business and over which the business has no control'
g 2. Characteristics of Business Environment: (i) Totality of external forces,
(ii) Specific and general forces, (iii) Inter-relatedness, (iv) Dynamism, (v) Uncertainty,
(vi) Complexity, (vii) Relativity.
g 3. Importance of Business Environrnent: (i) First Mover Advantage, (ii) Warning
signal, (iii) Taping useful resources, (iv) Coping with rapid changes; (v) fusisting in planning
and policy, (vi) Improvement in performance.
g 4. Components of Business Environment:
A. Internal Environment: Internal environment includes all those factors which influence
business and which are present within the business itself . These factors are usually under the
conhol of the business.
B. External Environment: External environment includes all those factors which
influence business and exist outside the business. Business has no control over these factors.
The external environment can be divided into two parts:
(i) Micro Environment: Micro environment means that environment which includes
those factors with which business is closely related.
(ii) Macro Environment : Macro environment means that environment which includes
those factors which have a distant relation with business.
g 5. Dimensions of Business Environment: (i) Economic environment, (ii) Political
environment, (iii) Social environment, (iv) Legal regulatory environment, (v) Technological
environment.
g 6. Components of Economic Environment: (i) Economic system. (ii) Economic
policies, (iii) Economic conditions.
V 7. Economic Environment in India: (i) Economic System of India: India has
adopted the mixed economic system. (ii) Economic Policies of India: In order to direct
the economic activities in India many economic policies have been framed' Such as -
Import-Export Policy, Employment Policy, Tax Policy etc. (iii) Economic Conditions in
tndia: In major economic conditions of India are included the foreign capital, supply of
nafural resources etc.
V 8. New Economic Policy: The centre of the economic reforms has been Liberalisation'
Privatisation and Globalisation.
(i) Liberalisation: It refers to unshackle the economy from bureaucratic cobweb to make it
more competitive.
(ii) Privatisation: It refers to such an economic process through which some public sector
undertakings are brought either partially or completely under private ownership.
(iii) Globalisation: It refers to integrating the economy with the rest of the world.
 86
Business Studies

v 9. Impact of changes in Government poricy on Business and Industry:

(i) (ii) More demanding customers, (iii) Rapidly changing
tec (iv) Necessity for change, (v) Need for developrng hrilun
res tion, (vii) Loss of budgetary support to the public sector.

I Meaning, Characteristics and lmportance of Business Environment

4/5 Marks
1. what do you mean by Business Environment? Explain any four characteristics of it.
2. Discuss any five points of the importance of Business Environment.

3 Marks
3. clarifiy 'warning Signal' as an importance of Business Environment.
4. How business environment is helpful in the 'improvement of performance,?
5' How 'first mover advantage' is made available by the business environment?
Give an example.
I Mark
6. What is business environment?
Ans' It refers to the sum total of those factors which influence the business and over
which the business
has no control.
7. Give one example of 'specific force' present outside the business.
Ans. Customers.
S why business environment is known as 'totarity of externar forces,?
Ans. fu it is the group of many outside forces, that is why, its nafure is of totatity.
9. 'Nothing can be said with any amount of certainty about the factors
of the business
environment.' Why?
Ans. Because they continue to change quickly.
10 Is the effect of various factors of business environment on business can
be recognised
separately?
Ans. No, as all the factors of business environment are related to each other.
11' Explain 'Relativity' as one of the characteristics of busiess environment.
Ans. It means that business environment is related to the local conditions.
12. Govt' of lndia seriously thinking to allow oil marketing public sector undertakings to fix
their own price for Petrol and diesel. Which economic ..Jo.- is the reason
of this change in
government policy.
Ans. The reason for the change in the government's policy is 'Liberalisation'.
13 State any two impacts of change of government policy on business and industry.
Ans- (i) Increasing competition. (ii) More demanding customers environment.

I Components of BI..,SINESS Environment

4/5 Marks
14. Explain any five cornponents of macro environment.
15. What is micro environment? Explain any four components of it.

3 Marks
L6. What are the components of internal environment? Write any six.
Business Environment : Importance and Dimensions 87

17. What do you mean by external environment?

18. What is economic system?
19. Write six Indian economic policies'
20. Give two examples of the impact on business organisations of changes in socialenvironment.
(c.B.s.E. 2004)
21. Give any two examples of the impact on business organisations due to change in economic
environment' rc'B's'E' 2004)
22. Write two impact of legal-regulatory environment on business.
23 . What is meant by 'poliiical environment' of business?
(c.8.s.E.2005)
24. Write three impact of political environment on business.
25. Write three impact of technological environment on business'
(1 Mark Questions)
26. What is internal environment?
Ans. It refers to all those factors which influence the business and present within the business itself and
are under the control of the business.
27. What is external environment?
Ans. It refers to all those factors which influence business, exist outside the business and business has no
control over these factors.
28. What is micro environment?
Ans. It refers to all those external factors whcih are closely related with business and influence each
industrial unit differentlY.
29. What is macro environment?
Ans. It refers to all those external factors which have a distant relation with business and influence all
business units almost in the same way.
30. Give two examples of marketing intermediaries.
Ans. These are traders and agents.
31. Why economic policies are framed?
Ans. The economic policies are laid down to direct the economic activities.
32. Write any one effect of economic environment on business'
Ans. After reforms were introduced in the banking sector. the bank loans were allowed on easy terms.
33. Write any one effect of legal-regulatory environment on business.
Ans. By removing control on the capital market, a huge amount of capital was collected by issuing
various new issues in the primary market'
34. Just after declaration of Lok Sabha Elections 2009 results, the Bombay stock exchange's
price index (Sensex) rose by 2100 points in a day. Identifu the environmental factor which
led to this rise. G'B'S'E' SamplePaper)
Ans. Environment of Politics
I Economic Et'lvironment in lndia
4/5 Marks
35. Explain the economic environment of India.
3 Marks
36. Explain any three economic conditions of India..
l Mark
37. Which economic system is followed in India?
Ans. It is mixed economic sYstem'
 88 Business Studies

38. What is mixed economic system?

Ans' It refers to that system in which business is owned both by the government and
individuals.
39' Name the policy to be framed to encourage industrial development in India.
Ans. It is industrial policy.

I Changing Scenario of lndian Economic Environment and its Effect

4/5 Marks
40. Explain, in brief, any five economic changes that have been initiated by the Government
of India since
1991. (c.8.s.E.2004)
4r. Explain briefly any five major changes initiated by the Government of India since 1991
to modernise
India's Industrial System.
rc.8.5.E.2005)
42. Discuss in brief, the various aspects of 'New Industrial policy.,
43. What changes were made in the industrial policy in the recent past?
44. Explain the impact of changes of government policy on business and industry.

3 Marks
45. What is new h.ade poticy?
46. What are the salient features of New lndustrial policy?
47. Write a brief note on 'Capital Market Reforms,.
48. Whar is Monetary Reforms? Write its two main points.
I Mark
49. What is meant by Liberalisation?
Ans. It refers to utrshackle the economy from bureaucratic cobweb to make it more competitive.
50. What is meant by Globalisation?
Ans. It refers to integrate the economy with ihe rest of the world.
51. What is meany by privatisation?
Ans' It refer to such an economic process through which some public sector undertaking is brought
either
partially or completely under private ownership.
52. What is'Irade policy?
Ans. It refers to the poticy through which the foreign hade is regulated.
53. What is Fiscal Policy?
Ans. It refers to the policy of the government connected with the income and expendifure of the country.
54. What is Fiscal Deficit?
Ans. It means that the county is spending more than its income.
55. What is Gross Domestic product?
Ans' It refers to the sum total of the financial value of all the produced goods and services during year
a in
a country.
56. What is Price Control?
Ans. It means that companies will selt goods at the prices determined by the government.
57. What is Markef Orientation Concept?
Ans. Under this concept, first of all market is surveyed and then production is undertaken.

0rrry Session
For this query session, questions from readers' side are invited.
 CHIPIIR 8

PlA]tlillrG Alilt TYPES 0l PlAllS

"The manager who acts without planning must learn to live without profit.
"lf you fail to flan, you plan to fail."

Learning Objectives
After studying this chapter, you will be acquainted with:
o Meaning ond Definitions of Planning
o Features of Planning
. Importance ol Plonning
. Limitotions of Plonning
o PlanningProcess
. Types of Plans

Planning is the basic function of management and with it start the other functions of management.
So long, planning does not determine the objectives and the methods of achieving those objectives, the
other functions like organising, staffing, directing and controlling are meaningless

I Meaning of Planning
Plannin! forms that part of management which lays down the objectives and varicus activities to be
done for the attainment of those objectives. Under this it is ciecided what is to be done, how it is to be
done, when it is to be done and by whom it is to be done.
-
Deciding about all these aspects is called planning. A
problem about taking decisions on these matters arises Planning?
when there are more than one possible answers. It refers to thinking before hond.
Therefore, it can be said to be a process of choosing.

I Definitions of Planning
Some of the important definitions of planning are as under:
(1) Accordingto Koontz aridO'Donnell, "Planningisdecidinginoduancewhattodo,howtodoit.when
to do it. ond u;ho is to do it "
(2) According to Haimann, "Plonning is deciding in odoonce ttrhot is lo be done"
(3) According to M.E. Harley, "Plaruting is deciding in oduance whot is to be done. lt inuolues the selection
of objectioes, policies. procedures and programmes from omong alternatiues"
 90 Business Sfudies

The above mentioned definitions tell us that planning involves choosing and its chief objective
is to
anticipate the fufure course of events and give it a desired direction. In reality planning becomes necessary
when there are many alteratives to choose from.

! Features of Planning
After studying various definitions of planning, the following facts come to light about its nature and
feafures:
(l) Planning focuses on Achieving Objectives: Management begins with planning and
planning begins with the determining of objectives. In the absence of objectives no organisation
can ever
be thought about. With the determining of objective, the way to achieve the objective is decided in the
planning. In case, it is necessary to change the previously decided course of action for the attainment
of
objectives, there is no hesitation to do so. It is thus clear that planning is helpful in the attainment
of
objectives.
For example, a company decides to achieve annual sales of Rs 12 crores. After deciding upon
this
objective, planning to achieve this objective shall immediately come into force. It was thought to
achieve
this objective by giving advertisement in the newspapers. After sometime it comes to be known
that the
medium of advertisement appeared to be incapable of achieving the target. In such a sifuation the
medium of advertisement can be changed and it can be shifted from newspapers to television In this
way,
every possible change is made through the planned action for the purpose of achieving the objective.
(2) Planning is Primary Function of Management: Planning is the first important
function of
management. The other functions, e.g., organising, staffing, directing and controlling come later. In the
absense of planning no other function of management can be performed. This is the base of
other
functions of management.
For example, a company plans to achieve a sales target of Rs 72 crores ayear.ln order to achieve
this
target the second function of management, i.e., organising comes into operation. Under it the purchase,
sales, production and financial activities are decided upon. In order to complete these activities,
different
departments and positions are decided upon. The authority and responsibility of every position are
decided upon' After the work of organising, information about the number of different people at different
levels required to achieve the objective shali have to be provided. This job will be performed
under
staffing. Similarly, planning is the base of other functions like directing and controlling.
(3) Planning is Pervasive: Since the job of planning is performed by the managers at
different
levels working in the enterprise, it is appropriate to call it all pervasive. Planning is an important function
of
every manager, he may be a managing director of the organisation or a foreman in a factory. The time
spent by the higher level managers in the process of planning is comparatively more than the time
spent by
the middle-level and lower-level managers. It is, therefore, clear that all the managers working in an
enterprise have to plan their activities.
For example, the decision to expand business is taken by the higher-level managers. The decision to
sell products is taken by the middle-level and lower-level managers.
(4) Planning is Continuous: planning is a continuous process because:
(a) Plans are prepared for a particular period. Hence, there is need for a new plan
after the expiry of
that period.
Planning and Types of Plans 97

(b) In case of any discrepancy plans are to be revised.

(c) In case of rapid changes in the business environment plans are to be revised.
(5) Planning is Futuristic: Planning decides the plan of action - what is to be done, how is it to be
done, when it to be done, by whom is it to be done, all those questions are related to fufure. Under
planning, answers to these questions are found out. While an effort is made to find out these answers, the
possibility of social, economic. technical and changes in legal framework are kept in mind. Since planning
is concerned with fuh-rre activities. it is called fufuristic.
For example, a company is planning to market a new product. While doing so it shall have to keep in
mind the customs and the interests/tastes of the people and also the possibility of any change in them.
(6) Planning involves Decision Making: Planning becomes a necessity when there are many
alternatives to do a job. A planner chooses the most appropriate alternative. Therefore, it can be asserted
that planning is a process of selecting the best and rejecting the inappropriate. It is, therefore, observed
that planning involves decision making.
For example, Mr. Anthony lives in a town where only commerce stream is taught in schools. His
daughter has passed matric and wants to get admission in 10 + 1. It is evident that there is only one option
for her, i.e., commerce. She doesn't have to think or plan anything. On the other hand, if all the three
faculties- art, science & commerce were available in the schools, she would have to definitely think and
plan about the subject of study. It would have been be nothing but decision making in this case.
(7) Planning is a Mental Exercise: Planning is known as a mental exercise as it is related to
thinking before doing something. A planner has mainly to think about the following questions:
(i) What to do? (ii) How to do it? (iii) When to do it? (iv) Who is to do it?

! lmportance of Planning
Planning is the first and most important function of management. It is needed al every level of
management. In the absence of planning all the business activities of the organisation will become
meaningle-ss. The importance of planning has increased all the more in view of the increasing size of
organisations and their complexities. Planning has again gained importance because of uncertain and
constantly changing business environment. In the absence of planning, it may not be impossible but
certainly difficult to guess the uncertain events of future.
The following facts show the advantages of planning and its importance for abusiness organisation:
(1) Planning provides Direction: Under the process of planning the objectives of the
organisation are defined in simple and clear words. The obvious outcome of this is that all the employees
get a direction and all their efforts are focussed towards a particular end. In this way, planning has an
important role in the attainment of the objectives of the organisation.
For example, suppose a company fixes a sales target under the process of planning. Now all the
departments, e.g., purchase, personnel, finance, etc., will decide their objectives in view of the sales
target. In this way, the attention of all the managers will get focussed on the attainment of their objectives.
This will make the achievement of sales target a certainty. Thus, in the absence of objectives an
organisation gets disabled and the objectives are laid down under planning.
 92 Business Sfudies

(2) Planning reduces Risks of Uncertainty: Planning is always done for future and fufure is
uncertain. With the help of planning possible changes in fufure are anticipated and various activities are
planned in the best possible way. In this way, the risk of future uncertainties can be minimised.
For example, in order to fix a sales target a survey can be undertaken to find out the number of new
companies likely to enter the market. By keeping these facts in mind and planning the future activities, the
possible difficulties can be avoided.
(3) Planning reduces Overlapping and Wasteful activities: Under planning, fufure activities
are planned in order to achieve objectives. Consequently, the problems of when, where, what and why
are almost decided. This puts an end to disorder and suspicion. In such a situation coordination is
established among different activities and departments. It puts an end to overlapping and wasteful
activities. Consequently, wastages moves towards nil, efficiency increases and costs get to the lowest
level.
For example, if it is decided that a particular amount of money will be required in a particular month,
the finance manager will arrange for it in time. In the absence of this information, the amount of money
can be more than or less than the requirement in that particular month. Both these sihrations are
undesirable. In case, the money is less than the required amount, the work will not be completed and in
case it is more than the requirement, the amount will remain unused and thus cause a loss of interest.
(4) Planning promotes Innovative ldeas: It is clear that planning selects the best alternative out
of the many available. Ail these alternatives do not come to the manager on their own, but they have to
be
discovered. While making such an effort of discovery, many new ideas emerge and they are studied
intensively in order to determine the best out of them. In this way, planning imparts a real power of
thinking in the managers. It leads to the birth of innovative and creative ideas.
For example, a company wants to expand its business. This idea leads to the beginning of the
planning activity in the mind of the manager. He will think like this:
x should some other varieties of the existing products be manufacfured?
x should retail sales be undertaken along with the wholesales?
x should some branch be opened somewhere else for the existing or old product?
x should some new product be launched?
In this way, many new ideas will emerge one after the other. By doing so, he will become habifuated
to them. He will always be thinking about doing something new and creative. Thus, it is a happy situation
for a company which is born through the medium of planning.
(5) Planning facilitates Decision Making: Decision making means the process of taking
decisions. Under it, a variety of alternatives are discovered and the best alterative is choien. The planninl
sets the target for decision making. It also lays down the criteria for evaluating courses of action. In this
way, planning facilitates decision making.
(6) Planning establishes Standards for Controlling: By determining the objectives of the
organisation through planning all the people working in the organization and all the ciepartments are
informed about 'when', 'what' anC 'how' to do things. Standards are laid down about their work, time
and cost, etc. Under controlling, at the time of completing the work, the acfual work done is compared
with the standard work and deviations are found out and if the work has not been done as desired the
person concerned is held responsible.
Planning and Types of Plans 93

For example, a labourer is to do 10 units of work in a day (it is a matter of planning), but actually he
completes 8 units. Thus there is a negative deviation of 2 units. For this, he is held responsible.
(Measurement of actual work, knowledge of deviation anC holding the labourer responsible falls, under
controlling). Thus, in the absence of planning controlling is not possible.

I Limitations of Planning
Planning is needed both in the business and non-business organisations. Some people think that
planning is based on the fuhrre anticipations and nothing can be said with certaint5r about fuhrre.
Therefore, it is a useless process. In fact, these people point towards the difficulties in the way of planning.
If planning has to be successful and purposeful, the managers should be aware of these difficulties and
limitations of planning. Following are the limitations of planning:
(1) Planning Creates Rigidity: Although the quality of flexibility is inherent in planning, meaning
thereby that in case of need changes can be brought in, but it must be admitted that only small changes are
possible. Big changes are neither possible nor in the interest of the organisation. Since it is not possible to
introduce desired changes according to the changed situations, the organisation loses many chances of
earning profits. For this limited flexibilit-v in planning, both the internal as well as external factors are
responsible. These facts are called internal and external inflexibitity. They are the following:
(i) Internal Inflexibility: At the time of planning the objectives of the organisation, its policies,
procedures, rules, programmes, etc. are determined. It is very difficult to bring in changes time and again.
It is known internal inflexibility.
(ii) External lnflexibility: External inflexibility means various external factors that cause limited
flexibility in planning. These factors are beyond the control of the planners. The chief among them are:
political climate, economic changes, technical changes, natural calamities, policies of the competitors, etc.
For example, in political context, as a result of change, a new government brings up a new hade policy,
policy of taxation, import policy, etc. All these changes make every sort of planning- a meaningless waste.
Similarly, a change in the policies of the competitors suddenly make all type of planning ineffective.
(2) Planning does not work in a Dynamic Environment: Planning is based on the anticipation
of fufure happenings. Since future is uncertain and dynamic, therefore, the future anticipations are not
always true. Therefore, to consider planning as the basis of success is like a leap in the dark. Generally, a
longer period of planning, makes it less effective.Therefore, it can be said that planning does not work in
dynamic environment.
For example, a company anticipated that the government was thinking about allowing the export of
some particular product. With this hope the same company started manufacturing that product. But the
government did not allow the export of this product. In this way, the rvvrot-lg anticipation proved all
planning wrong or incorrect. It brought loss instead of profit.
(3) Planning Reduces Creativity: Under planning allthe activities connected v;ith the attainment
of objectives of the organisation are pre-determined. Consequently, everybody work as they have been
directed to do and as it has been made clear in the plans. Therefore, it checks their incisiveness. It means
that they do not think about apprcpriate ways of discovering new alternatives. According to Terry,
"Planning strangulates the initiative of the employees and compels them to work in an inflexible manner. "
 94 Business Sfudies

(4) Planning Involves Huge Costs: Planning is a small work but its process is really big. Planning
becomes meaningful only after haversing a long path. It takes a lot of time to cover this path. During this
entire period the managers remain busy in collecting a lot of information and analysing it. In this way,
when so many people remain busy in the same activity, the organisation is bound to face huge costs.
(5) Planning is a Time Consuming Process: Planning is a blessing in facing a definite
situation
but because of its long process it cannot face sudden emergencies. Sudden emergencies can be in the
form of some unforeseen problem or some opportunity of profits and there has been no planning for all
these situations before hand and which now requires immediate decision. In such a situation, if the
manager thinks of completing the planning process before taking some decision, it may be possible that
the sifuations may worsen or the chance of earning profit may slip away. Thus, planning is time
consuming and it delays action.
(6) Planning does not Guarantee Success: Sometimes the managers think that planning
solves
all their problems. Such a thinking makes them neglect their real work and the adverse effect of such an
attitude has to be faced by the organisation. In this way, planning offers the managers a false sense of
security and makes them careless. Hence, we can say that mere planning does not ensure success, rather
efforts have to be made for it.
o Conclusion
After having studied the limitatlons of planning, it cannot be concluded that planning is unnecessary
or it is only a luxury which only big organisations can afford. But the reality is different . It is an important
part of management and it deserves sufficient attention. It is not a question of whether plans should be
formulated or not, but how well they should be planned. The plans can be made effective after removing
the hurdles coming in their way.

I Flanning Process
When we look at planning in the context of management process, it is called activity, it being a part of
management. But on the other hand, when it is studied separately it is called a process because to
complete this one has to clear many steps one after the other. So far as the number of steps included in the
planning process are concerned it depends on the size of the organisation. Different organisations can
have different planning process.
Planning is needed in order to solve a problem or take
advantage of some profitable situation. In this context, a
manager makes an analysis of the strengths and weaknesses
of the enterprises. This analysis keeps in mind the internal and
external environment of the enterprise. For example, if the
3. ldentifying Alternative Courses ofAction
government is thinking of establishing a factory for the
development some rural area an intelligent manager would 4. Evaluating Alternative Cou6es

certainly like to take advantage of this situation. Planning

5. Selecting an Allernative
starts from this very point. The following steps are generally
taken in the business organisations during the planning 6. lmplementing the Plan

process.
7. follow up Action
Planning and Types of Plans 95

(1) SettinS Objectives: Objectives are those end points for whose attainment all the activities are
undertaken. In the planning process objectives are determined and defined first of all so that all the
employees concerned can be informed about them to get their complete cooperation. Objectives have a
hierarchy of their own, e.g., organisational objectives, departmental objectives, and individual
objectives. They are determined and defined in the same hierarchical order.
For example, a company wants to raise its sales to rupees 2000 crore. (This is the organisational
objective). This objective can be defined in this way - say the company has four major products and their
expected sales are rupees 1000 crores, 500 crores, 300 crores and 200 crores respectively. In this context
the objectives of different departments will be determined. For example, the Production Department will
come to know the amount of production of each product. In the end, all the employees of different
departments will be told about it and what is expected of them.
(2) Developing Premises: The basis of planing are those factors/assumptions which influence the
possible results of different alternatives. Before taking a final decision about any alternative a forecast of
these assumptions is made. The rate of success of planning will be in direct proportion to the rate of the
success of forecasting. The assumptions/premises of planning are of two types:
(i) Internal Premises: Capital, labours, raw material, machinery, etc.
(ii) External Premises: Governmental policies, business competition, tastes of customers, rate of
interest, rate of taxes, etc.
For example, a company wants to expand its business. It has an alternative to establish a factory in
rural area. In this case its internal premises can be capital, raw material and availability of labour and the
external premises can be the indushial policy of the government. The manager shall have to make a
forecast of all these assumptions. In other words, it shall have to be considered that necessary capital, raw
material and labour will become available. It shall also be necessary to find out whether the government
policy will not oppose the establishment of such a factory.
(3) ldentifying Alternative Courses of Action: Generally, there is no work which has no
alternative method of doing it. On the basis of the objectives of the organisation and the limitations of
planning, alternative courses of doing a particular work can be discovered. For example, if an
organisation has the object of expanding its business, it can be done in many ways like: (i) by expanding
the existing business, for example, if a company is engaged in producing particular size of T.V. sets, it can
start producing T.V. sets of different sizes; (ii) by entering
other area of production, for example, a T.V. company
can start producing refrigerators; (iii) by entering into Minimum Preliminary Criteria?
some collaboration with some other organisation and ln t'act it is not as difficultto Jind out alternatiue
start a new business; (iv) by taking over some other courses os it is to reduce the list of olternatiue
business enterprise, etc. courses. Alternotiue courses should be the
minimum possible so thot they can be deeply
(4) Evaluating Alternative Courses: All those
onolysed. To reduce the size of the list ol
alternative courses which are upto the expectations of the olternotiue courses o minimum preliminarg
minimum preliminary criteria are selected for intensive criterio should be decided upon and those
sfudy. It will be seen as to what extent a particular alternatiues which do not fuffil the minimum
alternative course can help in the attainment of the criterio, should be deleted from the list in the
objectives of the organisation. There is, however, one uery beginning. For example, if the minimum
capital limit is rupees ten crores all the
problem which confronts us while analysing these olternatiue courses less than that will be left
out.
 96 Business Studies

alternative courses. Every alternative course has its merits and demerits. For example, a particular
alternative course can be highly profitable but it requires investment of more capitai and has a long
gestation period to yield profits. Similarly, another alternative course needs less capital investment, has a
short gestation period to yield profits but the profits are not sufficient. In such a situation the planners
should evolve a new alternatlve course by a rnixfure of different alternative courses.
(5) Selecting an Alternative: After a careful analysis of different alternatives the best one is
selected. Sometimes the analysis yields more than one alternative course with similar merits. Keeping in
view the uncertainties of fufure it is justifiable to select more than one good alternative course. One of such
alternatives is adopted and the other is kept in reserve. In case the future forecast proves wrong and the
first alternative course fails, the reserye one can immediately be brought into operation and failuie can be
averted.
(6) Implementing the Plan: After having decided the chief plan and the subsidiary plans, they are
to be implemented. After implementing the plans the sequence of different activities has to be decided. In
other words, it is decided as to who will do a particular job and at what time.
(7) Follow Up Action: The process of planning does not end with the implementation of plans.
Plans are formulated for fufure which is uncertain. It is of great importance that there is a constant review
of plans so as to ensure success in the uncertain future. The moment there appears to be changes in the
assumptions on which the plans are based, there should be corresponding changes in the plans also. In
this way we can say planning is a continuously movrng process.

I Types of Plans
Planning is a process and a plan is its outcome. Plan is a sort of commitment to accomplish all the
activities needed for the attainment of special results. From this point of view there are many plans. The
following study will help in understanding different kinds of plans.
Every organisation has a cental goal which is also called rnission. A business organisation is
considered meaningful only if it has some goal. Goal is that standing plan which justifies the establishment of
the organisation. It shows the significance of the business of the organisation and it tells us in what ways the
organisation is different from other similar organisations. For example, the goal of an educational
organisation can be the education of girls. Similarly the goal of a hospital can be to serve only heart patients.
In the context of achieving the goal
many plans are prepared. First of all the
objectives of the organisation are
determined. Competition is boldly faced and
shategy to convert objectives into reality is
formulated. Policies are put forward to bring
unanimity in the decisions of different
h:randg€rs. After having laid down policies the
sequence of activities is determined which is
called a procedure. In this way, methods,
rules, budget, programmes, etc. are chief
factors of planning. All these are called plans.
A highJevel plan gives birth to a lower-level
plan and therefore, they are shown in the
form of a hierarchy. This is shown here in a
triangle.
Planning and Types of Plans 97

o (1) Objectives
Objectives are those end points for the attainment of
which all the activities are undertaken.
Following are the examples of objectives:
(i) To improve the communication system to
hold regular staff meeting and publish a
newsletter.
(ii) To cross the 20,000 crore mark in turnover of
soaps.
(iii) To make available the employment to 100
people everyyear.
(iv) To reduce quality rejects to 37".
The objectives should have the following features:
(i) They should be unambiguous.
Purpose?
Purpose is the chief role of the organisahon
which is determined by the society where it
urorfts. Such os the purpose of a school is to
giue education. Orgonisotions similar in noture
haue the some purpose.
Mission?
Mission or goal tells us thot how an
organisotion is diflerent from the organisations
of the same type. This is difJerent in case ol
euery organisotion, e.9., aschool can hauethe
i mission to impofi educotion only in the subjed

(ii) They should be linked with the outcome and I ol Commerce.

not with the activities performed to achieve

them.
(iii) They should be measurable.
Objectivb?
(iv) Time limit should be prescribed to achieve Objectiue is a speciol torget to be ochieued by
them. an orgonisation, e.g., it can be the objediue of
(v) They should be achievable. a school to impart education in the subject of
commerce to 700 students
. (2) Strategies
Shategies refer to those plans which are prepared in
view of the move of the competitors and whose objective is
to make possible the optimum utilisation of resources. For Strategy?
example; if a rival organisation in an effort to increase the It refers to a plon which tokes into occount
sale of its product is going to reduce the price of its product the enuironmental oppoftunities ond threots
or is thinking about new methods of advertisement or is and the orgonisational strengths ond
weaknesses and prouides on optimol match
going to introduce some gift scheme to attract the between the orgonisation and the
consumers, we shall have to plan our strategy accordingly in enuironment.
the light of all these things.
Strategy is both external and internal. When we formulate our plans keeping in view the plans of our
rivals, it will be external strategy. If, however, there is a possibility of a problem within the organisation
because of some change, preparing to face such an evenfuality in advance is called internal strategy. For
example, installing computer in the office can result in reduction of the staff. On implementing such a plan,
there will be the opposition of the employees, and efforts will have to be made in advance to face such a
sifuation so that the new policy is implemented and the employees are also not dissatisfied.
o (3) Policies
Policies are tho-se generai statements'"^,,hich are decitied for-ihe quitlar-rt:e r>f thrz ernployees while
taking decision. Their purpose is to lay down a limit within which a particular work can be done or a
98 Business Sfudies

decision taken. Objectives decide what is to be achieved

and the policies tell us how it can be achieved. Sometimes we
hear the following trings in connection with policies: Policy?
(i) Personnel Policy: Under this policy it can be Itreferstothose generol stotements which are
decided for the guidonce of the employees
decided that the basis for the promotion of employees will while toking decision.
be their age. Once this is decided, no departmental
manager will need the permission of the General Manager regarding the promotion of the employees.
(ii) Sales Policy: Under this policy it can be decided thatthe goods will be sold only on cash payment.
(iii) Price determining Policy: Under this policy it is decided how the sale price of anything will
be fixed. It means what amount of profit will be added to the cost in order to determine the sale price, what
will be the trade discount and what will be the conditions for cash discount.
In reality, policy is a continual decision which guides the managers in view of the repeated
appearance of similar problems or sifuations.
o (4) Procedures
Procedures are those plans which determine the sequence of any work performance. For
example,the recovery of money from the debtors can be done in the following order:
(i) Writing letters. (ii) Contacting on telephone
(iii) Meeting personally. (iv) Taking legal action
This is the procedure of collecting money from all the Procedure?
debtors. There is a difference between policies It relertotheplanthot determine the sequence
and
of any work performance.
procedures. There can be two policies of the organisation
regarding the recovery of money from the debtors:
(i) Tight Collection Policy, and (ii) Lenient Collection Policy. Under the first policy an effort is made to
recover money from the debtor is by treating him harshly. Under the second policy the debtor willbe given
enough time for the payment of money while heating him leniently. In both these policies the
above-mentioned procedures will remain the same. In other words, the steps taken for the recovery of
money from the debtors remain the same.
o (5) Methods
Method is that plan which determines how different
activities of the procedure are completed. A method is not
related to all steps but only to one step of the procedure. It Method?
is more detailed than procedr-rre. There may be many It refers to that plon which determines how
methods to do a particular work. After extensive study, a dilJerent octiuities of the procedure are
completed.
method has to be selected from which a worker feels
minimum fatigue, increase in productivity and there is reduction in costs. A method selected like this is put
in routine and it is called the standard method. The efforts are continuously made to improve this selected
method so that unnecessary or unproductive activities can be deleted.
o (6) Rutes
Rules tell us what is to be done and what is not to be done in a particular sifuation. In the presence of
rules there is no need to take any decision. Whatever is said in the rules has to be followed without any
Planning and Types of Plans 99

thinking. For example, the rule 'No Snroking in the

Foctory' is applicable to everybody and it must be
observed. Provision for punishment in case of Rule?
non-observing of the rule can also be made. It refers to the plan that tells us whot is to be
There is a difference between rule and policy. Policy done and whot is not to be done in a particular
only guides and gives an authority to the officer to take
decision within a certain limit. For example, goods can be sold on credit is a question of policy. But who is
to be given goods on credit or who is not to be given this facility depends on the sales manager. In other
words, he shall have to make use of his reasoning. On the other hand, rules are static and there is no
reasoning involved. For example, a definite percentage of interest will be charged on the amount of
money payable on account of credit sales after the lapse of ten days. This is a rule which is applicable to all
customers without distinction.
There is a difference between rule and procedure. Rules tell us what should be done and what should
not be done? On the other hand procedures lay down the manner to complete a particular work. For
example, it is a rule that no interest will be charged if the payment is received within ten days of the sale.
But after ten days, writing letters, contacting through teiephone, having personal meeting and taking legal
action is a procedure through which balance amount is sought to be collected.
. (7) Budgets
Budgels clescribe the clesirecl results in numerical
terrns A budget is that planning which provides details
about estimated money, material, time and other
Budget?
resources for the achievement of pre-determined
It relers to the quantitatiue
expression of the
objectives of various departments. For example, the sales
action.
department's budget gives estimated figures about the
type of material thatwill be purchased, its quantit5r. the time of purchase and the amountto be spenton it.
Similarly, budget of other departments are also prepared.
A budget is related both to planning and controlling. When we prepare a budget it is related to
planning and when we use it as a tool to measure the deviations, it gets connected with controlling. In this
way the manager compares the actual progress with the figures given in the budget and the information
about success and failure is obtained.
Sales Budget
(For the Year Ending Dec., 31, 2009)
Product Area Sales (in Units) Selling Price (Per Unit) Total Sales
(Rs.) lRs )

East Zone 50,000 20 10,00,000

West Zone 1,00,000 20 20,00,000
X
North Zone 80,000 20 16,00,000
Sorrfh Tonp 40.000 20 R OO OOO

Total .54 00 000

East Zone 1,00,000 30 30,00,000
West Zone 2,00,000 30 60,00,000
Y
North Zone 1,00,000 30 30,00,000
South Zone i oo ooo 3n qo oo ooo

Total 2.10.00.000
100 Business Studies

o (8) Programmes
A programme means a single-use comprehensive
plan laying down the what, how, who and when of
accomplishing a specific job. Through programme the Programme?
managers are informed in advance about various needs It refers to a plon thot couers a relotiuely large
so that there is no problem in future. The progrmmes can organisational actiuities and specilies main
be of different types, e.g., production programme, steps, their order ond timing and the
depoftment responsible for eoch step.
training programme, sales promotion programme,
managementdevelopmentprogramme, etc. In case of sales promotion progrname, the what, how, who,
when of everything right from the purchase of the raw material to the manufacfuring of the product is
defined. The moment a work is completeC for which the programme has been designed, its utility ends. In
other words, a new programme is designed ior every new work.

g l. Meaning of Planning: It refers to thinking before hand.

g 2' Features of Planning: (i) Planning focuses on achieving objectives, (ii) Planning is
primary function of management, (iii) Planning is pervasive: , (iv) Planning is continuous,
(v) Planning is futuristic, (vi) Planning involves decision making, (vii) Planning is a mental
exercise.
Z 3. Importance of Planning: (i) Planning provides direction, (ii) Planning reduces risks of
uncertainty, (iii) Planning reduces overlapping and wasteful activities, (iv) Planning
promotes innovative ideas, (v) Planning facilitates decision making, (vi) Planning
establishes standards for conholling.
g 4' Limitations of Planning: (i) Planning creates Rigidity, (ii) Planning does not work in a
dynamic environment, (iii) Planning reduces creativity, (iv) Planning involves huge costs,
(v) Planning is a time consuming process, (6) Planning does not guarantee success.
V 5. Planning Process: (i) Setting objectives, (ii) Developing premises, (iii) Identifuing
alternative courses of action, (iv) Evaluating alternatives courses, (v) Selecting an
alternative, (vi) Implementing the plan, (vii) Follow up action.
Z 6. Types of Plans:
(i) Objective: It refers to that end point for the attainment of which all the activities are
undertaken.
(ii) Strategy: It refers to a plan which takes into account the environmental opportunities
and threats and the organisational strengths and weaknesses and provides an optimal
match between the organisation and the environment.
(iii) Policy: It refers to that
general statement which is decided for the guidance of the
employees while taking decision.
(iv) Procedure: It refers to that plan which determine the sequence of any work
performance.
(v) Method: It refers to that plan which determines how different activity of the procedure
willbe completed.
(vi ) Rule : It tells us what is to be done and what is not to be done in a particular situation.
(vii) Budget: It refers to the quantitative expression of the plan of action.
Planning and Types of Plans 101
-

(viii) Programme: It refers to a plan that curves a relatively large organisational activities
and specifies main steps, their order and timing and the department responsible for each
step.

I Meaning and Characteristics of Planning

6 Marks
1. planning.
Explain briefly any six features of G.B.S'E' 2004' 05,06)
2. six.
What are the features of planning? Explain any (C.8.5.E.2007)
3. What are the main featuresto be considered by the managementwhile planning? (N.C.E.R.T./
4/5 Marks
4. Explainanyfivefeaturesof planning. G.B'5.E.2009)
3 Marks
5. Define Planning.
6. 'Planning is the basic function of management.' Explain. (c.8.s.E.2001)
7. Explain any two feafures of planning. (c.8.s.E.2002)
8. State any six feafures of planning. (c.8.s.E.2004)
9 . What are the main points in the definition of planning? (N.C.E.R.T.)
10. Explain, how'planningisamentalexercise'. (c.8.s.E.2008)
11. Explain how "planning is a continuous process." (c.8.s.E.2008)
12. Explain how 'planning is futuristic'? (c.8.s.E.2008)
13. Why is planning an all-pervasive function of management?
l Mark
74. What is meant by'Planning'?
Ans. It refers to thinking before hand.
15. Why planning is known as 'Futuristic'?
Ans. Because it is related with future.
16. The planning function of management is conducted at urhich level of management?
Ans. At all the three levels of management.
17. At which level of management more time is consumed on planning as compared to other
levels?
Ans. At top level of management.
18. One of the functions of Management is considered a base for all other functions. Name that
function. (C.B.S.E. Somple Paper)
Ans. It is planning.

I lmportance of Planning
6 Marks
19. Explain briefly any sixpoints which highlightthe importance of planning. (c.8.s.E.2004)
20. Define planning. State any four reasons, why planning is important? (c.8.s.E.2004)
702 Business Sfudies

27. "Planning is an importantfunction of management." Explain by giving any six points. (C.8.5.E.2006)
22. Explain why planning is necessary for effective management? (c.B.s.E.2007)
23. Is planning actually worth the huge costs involved? Exptain. (N.C.E.R.T.)
24. "Planning is beneficial for all." Explain 1n brief the benefits of planning as a function of management.
25. 'Planning is of vital importance in the managerial process.' Do you agree? Explain, in
brief, any five
reasons in support of your answer. (c.8.s.E.2005)
4/5 Marks
26. Explainanyfivepointsof importanceofplanningforalargebusinessenterprise. (C.8.5.E.2009)

3 Marks
27. Explain how 'planning facilitates decision making'. (N.C.E.R.l C.B.S.E. 2008)
28. Explain how planning reduces the risk of uncertainty. (c.8.s.E.2008)
29. Explain how planning facilitates decision making. (c.8.s.E.2008)
30. How does planning facilitate control? Justify your answer with the help of a suitable example.

l Mark
31. State any two points of the importance of planning.
Ans. (a) It provides direction. (b) It reduces risks of uncertain!.
32. How the happening of 'Overlapping and wasteful activities' can be reduced?
Ans. Through planning.

f Limitations of Planning
6 Marks
33. Explain in brief any six limitations of theplanning. (C.B.S.E. 2005, 06)
34. 'Though planning is an important tool of management, yet it is not a remedy for all types of problems'.
Do
you agree with this statement? Give any five reasons in support of your answer. (C.B.S.E. 2003)
35. Does planning have limitations? Explain any five such limitations. (c.8.s.E.2007)
36. why does planning sometimes fail inspite of the best efforts of management?
37. "Planning is not a guarantee of success of business." Comment.

4/5 Marks
38. Explain any five limitations of planning. (c.8.s.E.2009)
39. In spite of best efforts of managers sometimes planning fails to achieve desired results due to its
limitations. Explain any four limitations of planning.

3 Marks
40. Explain briefly any three limitations of Planning. (c.8.s.E.2001)
47. How does planning restrict creativity? (c.8.s.E.2002)
42. Explain any two limitations of planning. (c.8.s.E.2002)
43. State any six limitations of planning. (c.8.s.E.2004)
M. Briefly explain 'rigidity' as a limitation of planning.
45. How 'costs' create hurdle in planning?
Planning and Types of Plans 103

Mark l
46. 'Planning strangulates the initiative of the employees and compels them to work in an
inflexible manner.'What does it mean?
Ans. It refers to - planning reduces creativity
47. Does mere planning ensures success?
Ans. No, efforts have to be made to get success.
48. 'Planning eliminates changes/uncertainties'. Do you agree? Give reason in support of your
answer. O.B.S.E' SomPlePaPer)
Ans. No, I do not agree because planning only anticipates not eliminates changes/uncertainties.

! Planning Process
6 Marks
.
49 Explain the process of planning. (c.8.s.E.2006)
50. What are the steps taken by management in the planning process? (N.C.E.R.T.)
4/5 Marks
51. Explain any four steps of planning process.
3 Marks
52. Explain the steps involved in the process of planning. (C.B.S.E. Somple Paper)
l Mark
53. What is meant by 'selecting an alternative' as a step in the planning process? (C.8.5.E.2009)
Ans. It means choosing the best possible alternative after a careful analysis of various alternatives.
54. Give two examples of internal premises of planning.
Ans. (a) Capital (b) Raw Material.
55. Give two examples of external premises of planning.
Ans. (o) Govt. policies (b) Business competition.
56. What step is taken to reduce the list of alternative courses duting planning ptocess?
Ans. A minimum preliminary criteria is determined.
57 . State first two steps in the process of planning- (c.8.s.E.2009)
Ans. (a) Setting objectives, (b) Developing premises.
58. What is meant by 'follow-up action' as the step involved in the planning process?
(Foreign 2009)
Ans. It means a constant review of plans so as to ensure success in the uncertain fufure.
I Types of Plans
6 Marks
59. Explain, in brief, any six types of plans.
4/5 Marks
60. Explain 'objective' and 'policy' as types of plans using suitable examples' (c.8.s.E.2008)
61. Explain'method' and'rule' astypesofplan. (c.8.s.E.2008)
62. What is budget? Give an example of a sales budget'
63. Explain 'Procedure' and 'Programme' as types of plans, with a suitable example. (c.8.s.E,2008)
3 Marks
64. What is meantby 'Policy' as a type of Plan? (c.8.s.E.2004)
104
Business Studies

65. What is meant by 'Procedure' as a type of plan? (c.8.s.E.2004)

66. "No Smoking in the Factory" is a rule. Comment on it.
67. What is meant by 'Programme' as a type of plan?
68. whatkind of strategic decisions are taken by business organisations? (N.C.E.R.T.)
69. Why are rules considered to be plans? (N.C.E.R.T./
l Mark
70. State any two types of plans.
Ans. (i) Objectives (ii) Strategy.
7l' Name the type of plans in which the move of competitors is considered.
Ans. It is strategy.
72' In which type of plans the sequence of activities to complete a job is determined?
Ans. Under procedure.
73. 'No smoking in the factory'. This statement is related to which type of plans?
Ans. It is related with rule.
74' A Company needs a detailed plan for its new project 'Construction of a Shopping
Ma1,.
Whattypeofptanisit? (C.B.S.E. Simptepoper)
Ans. It is a programme.
75. What is meant by'Policy'as a tgrpe of plan? G.B.S.E.200))
Ans. Policies are those general statements which are decided for the guidance of employees
while taking
decisions.
76. Give one difference between policy and procedure. (c.8.s.E.2009)
Ans. Policies are guide to thinking while procedures are guide to action.
77. Define'obiectives'as types of plans.
foreign2009)
Ans. Objectives are those end points for the attainment of which all the activities are undertaken.
78' A company needs a detailed plan for its new project, 'Construction of a Shopping
Mall,.
Whattypeofplanisit? (C.B.S.E. Simptepoperl
Ans. The company will prepare .programme'.

0rrrr, $ession
For this query session, questions from readers' side are invited.
 0RGAlilSHG:
IMP||RIATGT IIIII PRI|GESS
"A poor organisation could run a good product into the ground and
that a good organisation which has comparatively poor product
could run a good product out of the market." Kenneth C. Towe
-
Learning Objectives
After studying lhis chapter, you will be acquainted with:
o Meaning of Orgonising
. Delinitions of Organising
o Characteristics o/ Orgonising
. Intportance of Organising
o Orgonising Proces.s
o Meaning, Charocteristics, Aduantages and Lirnifofions of Formal Organisotion
o Meaning, Characteristics, Aduantages ond Limitations of lnt'ormal Orgonisation
. Difference between Formol ond Int'ormal Organisation

! Meaning of Organising
After having decided about the first function of management, i.e., planning, managers are
responsible for designing an organisation stmcture. We call
this function 'Organising'. It includes the process ol
determining what activities are to be conducted, how the Organising?
activities are to be grouped, how responsibility and authory, It relers to harmonious odjustment of vonous
paftsto achieue common objediues.
are to be delegated and who reports to whom.

I Definitions of Organising
Different scholars have given different views about the meaning of organisation:
(1) According to Haney, "Orgonisotion is hornror-rious od.iustnrent o.f specialised parts Jor the
accomplishtnent of sonte conlmon purpose or purposes
 106 Business Sfudies

(21 According to Haimann, "Orgonisatiort is the sfructural t'rctn'teu,tork within which uarious efforts ore
coordinoted oncl related to each otl-ter "
(3) According to McFartand, An identifiable group of people contriburing tlteir et't'orts tou.,ords //re
attainment oJ gools is colled orgclnisolion "
A sfudy of the above-mentioned definitions makes it clear that organisation is a process of
determining and grouping of activities and creating formal relationship among employees of an
enterprise.

! Characteristics of Organising
From the sfudy of the various definitions given by different management experts, we get the
following information about the characteristics or nafure of organisation:
(l) Division of Work: Division of work is the basis of an organisation. In other words, there can be
no organisation without division of work. Under division of work, the entire work of business is divided
into many departments. The work of every department is further sub-divided into sub-works.
(2) Coordination: Underorganisationdifferentpersonsareassigneddifferentworksbuttheaimof
all these persons happens to be the same - the attainment of the objectives of the enterprise. Organisation
ensures that the work of all the persons depends on each other's work even though it happens to be
different. Hence, it helps in establishing coordination.
(3) Plurality of Persons: Organisation is a group of many persons who assemble to fulfil a
common purpose. A single individual cannot create an organisation.
(4) Common Objectives: There are various parts of an organisation with different functions to
perform but all move in the direction of achieving a general objective.
(5) Organisation is a Machine of Management: Organisation is considered to be a machine of
management. It is that machine in which no part can afford to be ill-fitting or non-functional. In bther
words, if the division of work is not done properly or posts are not created,conecfly the whole system of
management collapses.

! lmportance of Organising
The importance of organising becomes clear with the help of the following points:
(1) Benefits of Specialisation: Under organising allthe activities are sub-divided into various
work or jobs. For all the sub-worls, competent people are appointed who become experts by doing a
particular job time and again. In this way, maximum work is accomplished in the minimum span of time
and the organisation gets the benefit of specialisation.
(2) Clarity in Working Relationship: Organising clarifies the working relations among
employees. It specifies who is to report whom. Therefore, communication becomes eff.ective.lt also help
in fixing accountability.
(3) Optimum Utilisation of Resources: Under the process of organising the entire work is
divided into various small activities. There is a different employee performing every job. By doing so,
there is no possibility of any activity being left out or any possibility of unnecessary duplicating any job.
Consequenfly, there is optimum utilisation of all the available resources (e.g. material, machine, financial,
human resource, etc.) in the organisation.
Organising: Importance and Process 107

(4) Adaptation to Change: Organising process makes the organisation capable of adapting to
any change connected with the post of the employees. This becomes possible only because of the fact
that there is a clear scalar chain of authority for the managers right from the top to the lower level.
Whenever, a managerial post falls vacant, it is immediately filled up by promotion. Since every
subordinate is well aware of the working of his boss, there is no difficulty for his taking up the new post.
(5) Effective Administration: It has generally been observed that there is always a condition of
doubt about the authority of the managers among themselves. The process of organising makes a clear
mention of each and every activity of every manager and also of their extent of authority. It is also made
clear as to whom shall a manager order for a particular job. Everybody also knows to whom they are
accountable. In this way, the confusion about authority is put to end. Consequently, effective
administration becomes possible.
(6) Development of Personnel: Under the process of organising, delegation of authority is
practised. This is done not because of the limited capacity of any individual, but also to discover new
techniques of work. It provides opportunities of taking decisions to the subordinates. By taking advantage
of this situation, they try to find out the latest techniques and implement them. Consequently, it helps
them to grow and develop.
(7) Expansion and Growth: Theprocess of organisingallowsthe employeesthefreedomtotake
decisions which helps them to grow. They are always ready to face new challenges. This situation can
help in the development of the enterprise. This helps in increasing the earning capacity of the enterprise
which in tum helps its development.

Conclusion: The above analysis makes it clear that the process of organising by clearly defining
the posts, roles, authorities and relations creates a strucfure with the help of which the objectives defined
under planning are hrrned into reality. It is said that the organising has the same importance for
management as a structure of bones in a human body. It means that organising is a very important
function of management.
! Organising Process
In order to complete the organising function of management, following steps are taken:

(1) Identification and Division of Work (2) Departmentalisation

(3) Assignment of Duties (4) Btablishing Reporting Relations
(1) Identification and Division of Work: The first step of organising is the identification and division of
work. At this step, the total work is dMded into various activities. For example, the various activities of a mobile
phone manufacturing company can be like this (i) purchase of raw material, (ii) purchase of manufacfured
-
parb, (iii) production, (iv) stocking of goods, (v) research, (vi) advertisement, (vii) sales, (viii) financial
arangement, (ix) maintenance of accounb, (x) conespondence, (xi) anangement of employees, etc.
 108 Business Studies

(2) Departmentalisation: After various activities have been designed in order to achieve the
objectives of the company, starts the departmentalisation of activities. The activities of the same nature
are grouped together and assigned to a particular department (lt is known as grouping), e.g., purchase of
raw material, purchase of manufacfured parts, etc. are given to the purchase department. And
production, stocking the goods, research activities are given to the production department. Similarly,
advertisement and sales can be given to the marketing department and the financial arrangemenh,
maintenance of accounh and correspondence can be put in the charge of finance deparhnent. The
grouping of activities and departmentalisation has been shown in the following diagram where the
objective of the comapny is to produce mobile phones.

Note: (i) If the said mobile phone producing company has its own textile business also, first of all
two divisions of the company will be created, e.g., Mobile Phone Division and Textile Division. Then in
every divisioir the activities will be determined and later on the work of grouping activities and
departmentalisation will be completed. (ii) The above process undertaken in respect of the manufacturing
for single product is called functional and for more products it is called divisional departmentalisation.
(3) Assignment of Duties: At this stage, the responsibility of each individual or post is decided,
e.9., the purchase manager will be given the task of purchasing goods, the sales manager will be given the
work of sale of goods, the advertising manager will be given the work of advertisement and in the same
way the finance manager will be given the responsibilitgr of making financial arrangements. While
assigning these duties, it is important to match the nature of the work and the capabilities of the person to
whom the work is given.
(4) Establishing Reporting Relations: When two or more than two persons work for the
attainment of common goals their inter-relationship must be defined very clearly. Everybody should
know who is his superior and who is his subordinate? For example, the purchase manager will be the
superior for all the employees of the purchase department; they will receive orders from him and will also
be responsible to him.
Organising: Importance and Process i09

I Formal and lnformal Organisation

The strucfure of an organisation is both formal and informal. In other words, two kinds of
relationship can be established among the employees - firstly, the relationship that is definite and defined
before hand, and secondly, those relations which are not definite and defined before hand. We will now
study them in detail.

I A. Formal Organisation
A formal organisation means an organisation in which the responsibilities, authority, and mutual
relationships among all the employees working in an enterprise are clearly defined.
According to Chester Bernard, "An orgonisotion is lormal tuhen the octilifies of tu:o or more
persons are consciotrs/v coordinoted towards ct common objectitte"
o Main Characteristics of Formal Organisation
Following are the main characteristics of formal organisation:
(f) lt has Defined lnter-relationship: Formal
organisation is a sort of arrangement which clearly defines
mutual relationship. Everybody knows their authority and
Formal Organisation?
It refers to theorgonisotion structure which is
responsibilities. This clearly shows who willbe reporting to de-signed by the monogementto accomplish
whom. a pafticular tosk.
(2) It is Based on Rules and Procedures: It is
important to observe all the pre-determined rules and procedures in the formal organisation. The
objectives laid down under planning are thus achieved.
(3) It is Based on Division of Work: The chief basis of formal organisation is the division of
work. It is this that connects the efforts of different departments with each other.
(4) lt is Deliberately Created: It is deliberately created in order to achieve the objectives of the
organisation in an easy manner.
(5) It is lmpersonal: Under it, personal feelings are ignored and strict discipline is observed. It is
not the person but the work that happens to be important.
(6) It is More Stable: Under this changes cannot be intoduced because of the needs of individuals
and their wishes. Therefore, it is more stable.
o Advantages of Formal Organisation
Following are the advantages of formal organisation:
(1) Easy to Fix Accountability: Since the authorilr and responsibility of allthe employees have
been already fixed, inefficient employees can easily be apprehended and in this way their accountability
can be fixed.
(2) No Overlapping of Works: In the formal organisation, everything moves in an orderly
manner. Therefore, there is no possibility of any work being left out or unnecessarily duplicated.
(3) Unity of Command Possible: It is possible to observe the principles of unity of command in
view of the presence of scalar chian of authority.
(4) Easy to Get Goals: Under the formal organisation, it is easy to achieve the goals of the
organisation because there is an optimum use of all the material and human resources.
 110
Business Sfudies

(5) Stabitlty in Organisation: All the people work by observing rules and remain
confined
within the domain of their authority. This leads to the establishment of good relationship which in
turn
leads to stability to the organisation.
o Limitations of Formal Organisation
Following are the limitations of formal organisation:
(1) Delay in Work: Every activity is bound by rules which causes unnecessary delay in the
completion of work.
(2) Lack of lnitiative: In this organisation, the employees have to do what they are asked
to do
and they do not have a chance of some independent thinking. This, therefore, kills initiative.
(3) Mechanisation of Relations: The relationship of all the people are defined. This leaves
no
chance of any mutual interplay and thus the knowledge of other people and their experience cannot
be
exploited.

I B. lnformal Organisation
An informal organisation is that organisation which is
not established deliberately but comes into existence
because of common interests, tastes, and religious and Informal Organisation?
communal relations. The chief quality of this organisation It refers to the natural groupings of people in
lies in friendly relationship and cooperative nature. In this the work situation to meet Dersonol needs.
organisation, an individual does not help another individual in his activities simply because he is
responsible for it but because it is his personal liking. For example, in a formal organisation a supervisor
in
a purchase department consults only the manager of his department regarding
all his problems connected
with his activities, but in an informal organisation any manager of any department or supervisor can be
consulted. Not only this, a supervisor can talk directly to the general manager.
According to Chester Bernard, "l-hot orgonisofion i.s inlormal utLtere the ntutual relati<-tns circ
est<rb/i.sh ed Ll n conscio us/ g t'c r c o m m ct n ob i e ct i tt e s
o Main Characteristics of Informal Organisation
Following are the main characteristics of informal organisation:
(l ) Based on Formal Organisation: This is based on formal organisation where people
also
have informal relations. (lt means first of all the formal organisation is established and then informal
organisation is created out of it.)
(2) lt has no Written Rules and Procedures: In this organisation, there are no written rules and
procedures to govern inter-relationship. But there are group norms which have to be
observed. For
example, employees working in an organisation and belonging to a particular communi$ form a separate
group in an informal way. Gradually some norrns do emerge - like helping the member of their group
to
find solution to the problems related to his work or his own self. Similarly, they protect the members of
their community from the managerial exploitation. In this way, all the persons joining this informal group
will be bound to observe the norms of the group.
Organising: Importance and Process 111

(3) Independent Channels of Communication: In this organisation relations among different

people are not defined because a person at the lowest rank can have direct contact with the person at the
highest level. The flow of communication cannot be specified.
(4) lt is not Deliberately Created: Informal
organisation is not deliberately created. It emerges out of
mutual relationship and tastes. Organisation Chart?
(5) lt has no Place on Organisation Chart: Orgonisation chofi is o drowing urhich shous
the relohonship among the uorious posfs
Informal organisation has no place on the properly estoblished in the orgonisation.
prepared organisation chart. Moreover, there is no
information about it even in the organisation manual.
(6) It is Personal: It is being personal means that Organisation Manual?
under this the feelings of individuals are kept in mind and In the organisation manual the outhorities
nothing is imposed upon them. ond responsibilities o/ uorious posfs
established in the orgonisation are
(7) lt lacks Stability: There is generally a lack of exploined. lt olso giues other releuant details.
stability in such an organisation. For example, an individual
mixes with one group of people today but can cross over to another group tomorrow. Not only this, an
individual can be a member of more than one group at a time.
o Advantages of Informal Organisation
Following are the advantages of Informal Organisation:
(1) Effective Communication: In the absence of any definite course, it is an eff.ective system of
communication. Messages can be quickly conveyed from one place to another with the help of this
system.
(2) Fulfils Social Needs: In the informal organisation, people having similarity of thoughts and
ideas form a groupof their own. All the people in the group stand by one another in all the organisational
or personal matters.
(3) Fulfils Organisational Objectives: Here there is no pressure of formal organisation. In the
informal organisation, the subordinates put their ideas before the superiors without any fear or hesitation.
It helps the superiors to understand their difficulties and immediate solution of the problem is sought out.
Since the problems are easily solved it becomes easier to achieve the objectives of the organisation.
. Limitations of Informal Organisation
Following are the disadvantages of Informal Organisation:
(l ) It creates Rumours: All the persons in an informal organisation talk carelessly and sometimes
a wrong thing is conveyed to the other person which may bring in honible results.
(2) It resists Change: This organisation resists change and lays stress on adopting the old
techniques.
(3) Pressure of Group Norms: In this organisation, people are under pressure to observe group
nolrns. Sometimes the people assembled in informal group lose sight of their objective and all decide to
oppose their superiors unanimously. Such a situation adversely affects productivity.
This is clear from the above description that both the types of organisations have their merits and
demerits. On the one hand, formal organisation is helpful in attaining the objectives of the organisation
 772 Business Studies

very easily, but on the other hand, the informal organisation is not less important if used properly. In short,
informal relations among the employees are complementary to formal relationship. In this context i1 is;
si;lrl 1'r.'ilr l',-rt'ri1i c'.ci rrlrrr;rrrjl oi-i.rn;,r.'l;1ion.s dre necessaru tor enu qroLtp aclion just os fri,o blc-iies art:
llsse,rlio/ to n;uke a p,cit oj scis.soi.s work,.tt'tlt' In this context, it will also be appropriate to say that, the
attitude of the management towards informal organisation should be positive.
I Difference Between Forma! and lnformal Or.ganisation
The difference between both the organisations is clear in the diagram and table ahead.

i\
\\
Manager
"l I
Purchase Production Manaoer ' Finance Manager
I I
2l

i:. ,
PurchaseSuperintendent Production Sunerintendent FinanceSuperintendent
I I I

Formal Organisation
.'- - -) lnformal Oroanisation

It is clear from the above diagram that in a formal organisation the General Manager, Purchase
Manager and Purchase Superintendent have a chain relationship and they have to conduct themselves
within the limitations of this chain. In other words, a purchase superintendent has to convey his ideas only
to the purchase manager. Similarly, this chain shall operate in the production and finance departments
also. On the conhary, in an informal organisation a purchase superintendent can have talk with the
production manager on the strength of his personal relationship. Similarly, a finance superintendent can
place his problem before the General Manager.
The difference between the formal and informal organisations can be easily understood from the
following table:

iigt-1TlDi8f:Ig-]-----!11,,1|()r.ganisatio" i lnformal organisation

I Nleanirrg j An orgunisation created by the i en e, orgu,iration born out .f
U"r" of ,mutual
I management in the form of strucfure of "r*ro--u,* "r*organisation
^r.f
i relations is called informal
L I authorifu is called formal orqanisation.
authority I and it
I 2. Origin i It is established because of the rules and It is established because of social
i i policies of the orqanisation.

Authority comes into existence because

of individual virtues. AuthoritSr moves
lgrryLuf.dj of it can be horizontal.
I Behaviour is pre-determined. It means Behaviour depends on individual
I that it is known before hand who will do attachment which means it is not
i what and how will he do it; who will be pre-determined.
I the boss and who willbe the subordinate.
Organising: Importance and Process 113

Communication is defined. It moves Communication is not defined. It can

according to the scalar chain of authority.
7. [.eadership Because of their high ranks, the
managers are the leaders.
move in any direction.
It is temporary and less stable.
Forecasting is not possible in it.

E] 1. Meaning of Organising: It refers to harmonious adjustment of various parts to achieve

common objectives.
t4 2. Characteristics of Organising: (i) Divison of work, (ii) Coordination, (iii) Plurality of
persons, (iv) Common objectives, (v) Organisation is a machine of management.
M 3. lnrportance of Organising: (i) Benefits of specialisation, (ii) Clarity in working
relationship, (iii) Optimum utilisation of resources, (iv) Adaptation to change, (v) Effecfive
Administation, (vi) Development of personnel, (vii) Expansion and growth.
i!: 4. Concepts of Organising: (i) Organisation as a process, (ii) Organisation as a strucfure
of relationship.
g 5. Organising Process: (i) Identification and division of work, (ii) Departnentalisation;
(iii) Assignment of Duties, (iv) Establishing Reporting Relations.
Z 6. Formal Organisation: It refers to the organisation structure which is designed by the
management to accomplish a particular task.
Main Characteristics of Formal Organisation: (i) It has defined inter-relationship,
(ii) It is based on rules and procedures, (iii) It is based on division of work, (iv) It is
deliberately created, (v) It is impersonal, (vi) It is more stable.
Advantages of Formal Organisation: (i) Easy to fix responsibility, (ii) No overlapping of
- works, (iii) Unity of command possible, (iv) Easy to get goals, (v) Stability in organisation.
Limitations of Formal Organisation: (i) Delay in work, (ii) Lack of initiative,
(iii) Mechanisation of relations.
tz 7. Informal Organisation: It refers to the natural groupings of people in the work
sifuation to meet personal needs.
Main Characteristics of Informal Organisation: (i) Based on formal organisation,
(ii) It has no written rules and procedures, (iii) Independent channels of communication,
(iv) It is not deliberately created, (v) It has no place on organisation chart, (vi) It is
personal, (vii) It lacks stability.
Advantages of lnformal Organisation: (i) Effective communication, (ii) Fulfils social
needs, (iii) Fulfils organisational objectives.
Limitations of Informal Organisation: (i) It creates Rumours, (ii) It resists change,
(iii) Pressure of group norms.
g 8. Difference between Formal and Informal Organisation: (i) Meaning, (ii) Origin,
(iii) Authority, (iv) Behaviour, (v) Flow of Communication, (vi) Nature, (vii) Leadership.
174 Business Shrdies

B# rf--',rning, Ininortance er)ri I,rr,c*asq nt i)rqanisinq

6 Marks
1 Describe the steps involved in the process of 'Organising'. (C.B.S.E. Sample Poper)
2 Explain the importance of organising as a function of management.
4/5 Marks
3. Aman, Avneesh and Amrish have decided to start a business of manufacfuring toys. They identified the
following main activities which they have to perform:
(i) Purchase of raw materials
(ii) Purchase of machinery
(iii) Production of toys
(iv) Anangement of finance
(v) Sale of toys
(vi) Identifuing the areas where they can sell their toys
(vii) Selection of employees
In order to facilitate the work they thought that four managers should be appointed to look after:
(a) Production (b) Finance
(c)Marketing (d) Personnel.
(1) Identifu the function of management involved in the above mentioned para.
(2) Quote the lines from the above para which help you in identifuing this function.
(3) state the steps followed in the process of this function of management. (c.B.s,E. 20og)
3 Marks
4. Defi ne'Organising' as a function of management. (c.8.s.E.2003)
5. State three steps in the process of organising. (C,B,S,E,2OO4)
6. "Organisation is a machine of management." Comment.
7. How effective administration is possible through organisation?
l Mark
8 'Organisation is a mechanism of management.' What does this statement indicate?
Ans. It indicates about the importance of organisation.
How'effective administration' is possible through organising?
Ans. It makes clear the activity ol every employee and also of their extent of authority.
10 What is meaning of 'Departmentalization' as a step of organising process?
Ans. At this stage, the activities of similar nature are assigned to a particular department.
11. 'Identifuing and dividing the work' is the first step in the process of one of the functions of
management. Identifo the function. (c.8.s.E.2008)
Ans. Organising function of management.
72. Name the functions of management urhich co-ordinates the physical, financial and human
resources and establishes productive relations among them for achievement of specific
goals. (c.8.s.E.2008)
Ans. Organising function of management.
Organising: Importance and Process 115

fr Fornra! Organisation
6 Marks
13. What is meant by formalorganisation? Explain any five features of formal organisation. (C.8.5.E.2009)
14. Explain the merits and limitations of formal organisation.
4/5 Marks
15. State two advantages and two limitations of formal organisation.
(3 Marks)
(C.B,S,E,2OO8\
16. State any three advantages of 'Formal Organisation'
77. What is meant by 'formal organisation'? List any two limitations of 'formal organisation'.
(c.B.s.E.20081
18. What is meant by 'formal organisation'? List any two advantages of formal organisation.
(c.8.s.E.20081
I Mark
19. Name the organisation which is based on rules and procedures.
Ans. Formal organisation.
20. Name the organisation which is deliberately created.
Ans. Formal organisation.
21,. Name the organisation which has the benefit of 'Easy to Fix Responsibility'.
Ans. Formal organisation.

22. Formal organisation has the limitation of 'Delay in work'. comment.

Ans. Under it every activity is bounded by rules which causes unnecessary delay in work.

t lnforrnalOrganisation
6 Marks
23. What is meant by 'lnformal Organisation'? Explain any five features of informal organisation.
(Foreign 2009)
24. Explain the advantages and limitations of informal organisation.
4/5 Marks
25 Give the meaning of informal organisation with the help of a suitable example.
(c.8.s.E.2002)
26 The employees of Manik Ltd., a software company, have formed a Dramatic group for their recreation.
Namethetypeoforganizationsoformedandstateitsthreefeatures. (C.B.S.E. SamplePoper)

3 Marks
27. Explain the meaning of informal organisation.
28. What is meant by 'informal organisation'? List any two limitations of informal organisation.
(c.B.s.E.2oo8l
,C'B'S'E' 2008)
29. State any three advantages of informal organisation.
l Mark
30. Out of fornral rod informal organisations which one is established first?
Ans. Formal organisation.
 116
Business Sfudies

31. Name the organisation which is directed by.Group Norms,.

Ans. Informal organisation.
32. lnformal organisation is not deliberately created. Then how it is created?
Ans, It emerges out of mufual relations and tastes.
33. What is organisation chart?
Ans' Organisation chart is a drawing which shows the relationship among the various posts
established
in the organisation.
34. What is organisation manual?
Ans' In the organisation manual the authorities and responsibilities of various posts established
in the
organisation are explained. It also gives other relevant details.
35' Name the organisation which has the advantage of 'Effective Communication,.
Ans. Informal organisation.
36 Name the organisation which has the limitation of .resisting change'.
Ans. Informal organisation.

! Formai anct lr:formal Or.oanisation

6 Marks
37 ' How will it be appropriate to say that the attitude of management towards
informal organisation should
be positive?
38' "lnformal organisation is considered better than formal organisation." Do you agree with this statement?
Give reasons.
39' "Formal organisation is considered better than informal organisation." Do you agree with this statement?
Give reasons.

4/5 Marks
40. Distinguish between 'Formal' and 'rnformal' organisations (any fourpoints). (c.8.s.E.2007)
3 Marks
4l' "Formal Organisation is Impersonal while informal organisation
is Personal." ClarifiT this statement.

I Mark
42' Distinguish between formal and informal organisations on the basis of .leadership,.
Ans.

Q,rry, $ssion
For this query session, questions from readers' side are invited.
 llBGA]I ISAIIOil SINUGIUBE:
MEA]II]IG AilII TYPTS
"The wrong organisation structure will seriously impair business
performance and may even destroy it."- Peter F. Drucker

Learning Objectives
After studying this chapter, you will be acquainted with:
o Meaning ol Organisotion Structure
. Definitions of Organisotion Structure
o DesignlFormslTypes of Organisation Structure
o Meoning, aduantages, limitations ond utilities of Functional Organisation
o Meoning, aduantages, limitations ond utilities of Diuisional Organisation
o Functionol ond Diuisional Organisotion : A comparatiue Study

I Meaning of Organisation Structure

Organisation strucfure refers to that specific pattern of
relationships which is created during organising process.
Another important question in this respect is whether
Organisation Strucfure?
the pattern or form or design of organisation strucfure can It refers to the outcome ol orgonising
be similar in allthe organisations. The answer will be in the
negative because the nafure of work and its size are different in respect of each enterprise. Therefore,
organisational structure is designed in accordance with these characteristics of the enterprise. Thus, there
can be many forms or designs of organisational structure. In any enterprise the organisational structure
once decided undergoes changes according to the sifuations. In conclusion, it can be said that
organisational stmcture does not have any standardised design which may be adopted by all the
enterprises. It can have many forms or designs and a detailed description of all this will be given ahead in
this chapter.

J Definitions of Organisation Structure

Following are the major definitions of organisation structure:
(1) According to Hrrrlev, "Orgoli.sotirlr \/n r.fu/-c.s .irc pdlter,)s of r clotic.tnshii.t atr)ot)q lhe r;crrious positio,t.s
in a /irnr <ind on'tong the oorious pe'o1.tit: <trcLrpt.iirt l thc positir.rn. "
118 Business Sfudies

(2) According to William H. Newman.

'Or,jr-nlsot;:tr ,;it t t.t1rt.' ;i1,,1.1.r ,;.1,,1r t.L.,. 111'r,,r,_,11
Span of ManagemOnt?
ut'gQt i:sdt utldi rit [ir ler, ]re I ll ii: Cr, Cr rir'tpt iSc.
:
It refers to the number of subordinates that
The above mentioned definitions make it clear that con be elfectiuely controlled by o monager.
organisational strucfure means establishing posts in an Generally, this number is 5-6.
enterprise and defining relations among them. In this
process, authority and responsibility are divided among different offices.

! Design/Fornrs/Types of Organisation Structure

All the people working in the enterprise are assigned certain jobs and for their successful
accomplishment some authority is also given to them. It depends upon the nafure of the job in every
enterprise to think as to how authority is to given to the employees.There can be some difference in the
nature of the work in different enterprises. It means because of the different nafure of the works, methods
of distributing authorities and responsibilities will also be different. In other words, different business
enterprises have separate organisational strucfure. Following are the prominent types of organisational
strucfure:
1. Functional Organisation, 2. Divisional Organisation.
3. Line Organisation, 4. Line and Staff Organisation.
Nof r-': 1. All these forms or designs of organisational strucfure fall under formal organisation.
2. The last two types of organisational strucfures are not given in the syllabus.

! l. Functional Organisation Structure

It refers to the division of the whole enterprise
according to the major functions iactivities fo be
performed by it. This is the simplest and the most
prevalent forrn of organisational structure. Under this all It refers to the diuision ol the whole i
enterpnse according to the mojor oc:tiuities I
the functions of similar nafure are divided in different units to be perJormed by it.
which are called departments. For example, the functions
of a manufacfuring concern can be divided into production department, marketing department, financial
department and personnel department. Again, sub-departments can be established in each department.
For example in the marketing department throe sub-departments of sales, advertbcrnent and mrrtet
research can be established. The managers of the sub-departments are answerablc b the head d the
department and the head of the department is answerable to the general manager.
(Note: Functional organisation is the developed form of F.tV. Taylor's Frtnctiorrarl
Foremanship.'Both, the Taylor's view and functional organisation are based on the principle of
specialisation. The only difference between these two is that the Taylor's view is related to the lower level
while the Functional organisation is restricted to the top level management).
Organisation Stucture: Meaning and Types 119

The organisational structure on the basis of functions is shown in the following diagram:

Production Dept. I Marketing Dept. I

Market Research Dept.

o Advantages of Functional Organisation

The following are the advantages of functional organisation stucture:
(1) Benefits of Specialisation: The whole company is divided into many departments on the
basis of major activities to be performed. Each deparbnent is headed by an expert manager. This results in
more and better work being accomplished in much lesser time. Hence, the benefits of specialisation
become available.
(2) Coordination is Established: All the persons working within a department are specialists of
their respective jobs. It makes the coordination easier at department level.
(3) Managerial Efficiency is Increased: It helps in increasing managerial efficiency becaus'e of
performing the same work once and again. Further, this results in increased profit.
(4) Minimal Duplication of Efforts: In this type of organisation unnecessary duplication of
efforts is elirfrinated. For example, the function of finance is only carried out by the finance departrnent.
There is no need to establish two or more departments. It makes possible to utilise the human and other
resources effectively.
(5) Training is Facilitated: It facilitates the training of personnel as the focus is only on a limited
range of skills. For example, the employees of finance departmentare given training of financial issues'
(6) Equat Weightage to all Functions: Itensuresthatallfunctions/activitiesgetequalweightage.
o Disadvantages of Functional Organisation
The following are the main disadvantages of functional organisation strucfure:
(1) Ignorance of Organisational Objectives: Each departmental head work according to his
sweet will. They always give more weight to their departmental objectives. Hence, overall organisational
objectives suffer. For example, to establish its image, the production department may produce quality
product ignoring the fact that market tend is of accepting medium quality product.
(2) Difficulty in Inter-departmental Coordination: All deparfrnental heads may work as per
their own wish. No doubt this facititates coordination within the department but it makes
inter-departmental coordination difficult.
 120 Business Studies

(3) Conflict of lnterest: Every departmental head wants to become

a functional empire. To satisfu
their ego each demands maximum resources for their department. This sifuation leads to conflicts
amonl
the various departmental heads.
(4) Hurdle in Complete Development: This system is a hurdle in the way of the complete
development of the employees. Each employee specialises only in a small part of the whole
iob.
. Suitability of Functionat Organisation
The functional organisation stucfure is suitable in the sifuations given below:
(i) where the size of the business unit is large; (ii) where specialisation is required; (iii) where
decentalisation of authority is needed and; (iv) where there is only one product that is sold.
I ll. Divisional Organisation Structure
Divisional organisation structure mear_-rs division of
the rvhole enterprise according tc the major.products to be
manufactured by it. If in a business enterprise many types Divisional Organisation Structure?
of goods are manufacfured, departmentation is done on the It refers to the diuision of the whole
basis of product instead of function. If it is not so, there is a enterpnse according to the major products to
constant fear that the production of some products and their
marketing will consume much time while some other products will get only a little attention.
Consequently, some products will be sold in greater numbei while the others will iind little market. To
avoid such a situation the whole enterprise is divided on the basis of products and various divisions are
established. The head of the division looks after all the functions connected with that product, that
is,
purchase, sale, advertisement, production, financial, etc. All these functions are performed
separately by
different divisions. This process has been made clear in the following diagram:

Production Oept. Dept. personnet Dept.

I Marketing Dept.
I Finance
I I

Production Dept.
I Marketing Dept. I Finance Oept. I pereonnel Dept.
I

o Advantages of Divisional Organisation

The following are the advantages of divisional organisation sh.rcfure:
(1) Development of Divisional Heads: The head of each division
looks after all the functions
connected with their product, that is, purchase, sale, advertisement, production, finance, etc. This thing
helps in the development of varied skill in a divisional head.
Organisation Structure: Meaning and Types t27

(2) Divisional results can be Assessed: All the activities of each division are carried out
independently. Hence, the dlvisional results (profiflloss) can be assessed easily. On this basis, an
unprofitable division can be closed.
(3) Quick Decision-making: Every division in independent in itself. The divisionalmanager can
take any decision regarding his division independently without consulting other divisional managers.
Hence, decisions are quick and effective.
(4t Easy Expansion: For every product a separate division is opened. If a company wants to
introduce a new product, it can be inhoduced easily without disfurbing the existing division. Hence, it is
easy to expand the concern.
o Disadvantages of Divisional Organisation
The following are the main disadvantages of divisional organisation structure:
( l) Conflicts between Divisional Heads: Every divisional head wants to become a divisional

empire. To satisfy their ego each demand maximum resources for their division. This sifuation leads to
conflicts among the various divisional heads.
(2) Duplicity of Functions: The entire set of functions (e.g. production, marketing, financial,
personnel, etc.) is required for all divisions. It gives rise to duplicity of efforts among divisions. Hence,
resources are mis-used and cost of operations is unnecessarily increased.
(3) Selfish Attitude: Every division tries to display better performance sometimes even at the cost
of other divisions. This shows theirselfish attifude. Consequently, it hits the interest of the concem as a whole.
o Suitability of Divisional Organisation
The divisional organisation structure is suitable in the following situations:
(i) where the number of main products is more than one;
(ii) where different manufacfuring technologies and marketing methods are required and;
(iii) where the size of the concern is large enough.

I Functional and Divisional Organisation Structure: A Comparative Study

Basis of Diffetence Func tiorral Structrrre Divisional Structure
I. Forrnat on C)n the basis of work On the basis of oroducts.
2. Snecialization Snecialization of ioh Snpcializafion of nroducl
3. Responsibility It is cubersome to ascertain departmental It is easier to ascertain divisional
responsibilities. (No department will take responsibilities. (Divisional Manager
accountability for adverse results.) cannot shirk responsibility for adverse
racr rhc I

4. Managerial Department Manager is specialized in Divisional manager is versatile as he lool<s

f)evelopment doing one kind of job only. So limited
dpvelonmpnt fakps nlace
5. (,lost Since there is no duplication of jobs, cost
inrr rrad ic loqc
6. Coordination All departmental heads work as per their
discretion so it becomes difficult to
establish coordination.
7. Suitability Where there is only one main product that
is sold.
after many varied jobs. So immense
derrelonmenf is nossihle
Since there is duplication of jobs, cost
inrrrrarl ic hiah
Whole Division is headed by one
Divisional Head, who control, all the
divisional activities. So coordination is
imnlinifh r aciahlichad
Where the number of main products is
more than one.
t22 Business Studies

U l. ivlearling of Organisation Structure: The organisational stmcture means to explain

the authority relationships among people working therein.
7-.- [)esi.qn or Forrns tir '[ 1pt,s of Organisation struciure: (i) Functional
organisation,
(ii) Divisional organisation, (iii) Line organisation, (iv) Line and staff organisation.
i4 3. [:urir-iiutral Orgorrisalir-rn Structure: It refers to the division of the whole enterprise
according to the major functions /activities to be performed by it.
Flvaluatiou: iA) Atlr,rrrttages: (i) Benefits of Specialisation, (ii) Coordination is
Established, (iii) Managerial Efficiency is Increased, (iv) Minimal Duplication of Efforts,
(v) Training is Facilitated, (vi) Equal Weightage to all Functions.
(B) Disadvantages: (i) Ignorance of Organisational Objectives, (ii) Difficulty in
Inter-departmental Coordination, (iii) Conflict of Interest, (iv) Hurdle in Complete
Development.
ul Suitabiiiry: It is useful for single product large-sized enterprises.
r1
lIl 4. [iivisioni:l Organisatiotr Structure: It refers to the division of the whole enterprise
according to the major products to be manufacfured by it.
Flvaltiatian: rA) Advantages: (i) Development of Divisional Heads, (ii) Divisional results
can be Assessed, (iii) Quick Decision-making, (iv) Easy Expansion.
(Rj DisarJvatrtagies: (i) Conflicts between Divisional Heads, (ii) Duplicity of Functions,
(iii) Selfish Attitude.
Srritahility: It is useful for multi-products large-sized enterprises.
i,.']r 5. t:trnctiorral and Ditrisional organisation structure: A Comparative siudy
(i) formation, (ii)specialization, (iii) Responsibility, (iv) Managerial development, (v) CosL
(vi) Coordination, (vii) Suitability.

f Meanirig of Organisation Structure

l Mark
1. Define the term 'Organisation Siructure'.
Ans' According to Hurley, "Orgonisation structures are patterns of relationship omong the uorious
posifions in a lirm and among the uorious people occupying the positions."
2 What do you mean by organisation slructure?
Ans. Organisation strucfure means establishing posts in an enterprise and defining relations among
them. In this process, authority and responsibility are divided among different offices.
3. What does the term 'Span of Management' reler to?
Ans. Span of management means that number of employees on whom a superior can successfully put
his control. Often, a superior can successfully conhol 5-6 subordinates. Thus, in an organisation no
officer should be such, who is either controlling very high or very low number of subordinates. In both the
sifuations work performance will be adversely affected.
4 Give the reason that why all organisations do not have similar type of organisation
structure?
Ans. Because of different nahrre of all the organisations.
Organisation Strucfure: Meaning and Types 723

5. What is meant by 'Span of Control'?

Ans. It refers to that number of employees on whorn a supervisor can successfully put his conhol.
m Functional Organisation Structure
' 6 Marks
6. What is meant by 'Functional Stucture' of an organisation? Explain any two advantages and two
limitationsof it. (c, B. s.E. 2006, 2008, 20091
7. What is meant by 'Functional organizational structure'? State any two advantages and two
disadvantages of such strucfures. (C.B.S.E. Somple Poper)
4/5 Marks
8. In an electrical goods manufacfuring company, there are four main activities- production, marketing,
finance and personnel. The general manager is planning to struchrre the organisation. Which type of
organisation stucfure should he adopt and why? Give two reasons.
9. Explain four disadvantages of functional organisation strucfure.
10. A Fashion Design House has the following main jobs:
(i) Manufachrring (ii) Finance (iii) Marketing (iv) Personnel (v) Research and Development
Which organisational skucfure will you prefer for this type of a company and why?
3 Marks
11. What is functional organisation strucfure? Give two advantages of this structr.rre.
72. Under what circumstances would functional strucfure prove to be an appropriate choice?
l Mark
13. What is meant by'Functional Organisation Structure'.
Ans. Itrefersto the division of whole organisation accordingtothe majorfunctionstobeperformedby it.
74. Give two advantages of functional organisation.?
Ans. (a) Benefits of specialisation. (b) Coordination is established.
15. 'Difficulty in inter-departmental coordination' is one of the limitations of which
organisation sfoucture?
Anc. It is the limitation of functional organisation strucfure.
ffi lJivisional Organisation Structure
6 Marks
16. What is meant by 'Divisional Skuchrre' of an organisation? Explain any two advantages and any two
limitationsof it. (c.B.s.E. 2006, 2008, 2009 )
17 . What is meant by Dlvisircnal Organisation Structure? How is it beneficial for multi-product companies?
4/5 Marks
18. Explain the divisional strucfure of organisation. (c.8.s.E.2001)
3 Marks
19. Discuss three disadvantages of divisional organisation structure.
l Mark
20. What is meant by Divisional Organisation Structure?
Ans. To divide the whole enterprise according to the major products (such as metal products, plastic
products etc.) manufacfured by it, is known as divisional organisation strucfure.
124 Business Studies

21. What is the main cause to adopt the divisional organisation structure?
Ans. To provide equal weightage to all products is the main case of adopting it.

ffi Functional and Divisional Crqanisation Structure: A Comparative Study

6 Marks
22. How is a functional strucfure disparate from a divisional skuchrre?
23. Explain the term Organisational Structure. Distinguish between Functional and Divisional shucture on
the following bases:
(i) Formation (ii) Managerial development
(iii)Responsibility (iv)Suitability (C.B. S.E. Sample Poper)

4/5 Marks
24. State the difference between Functional and Divisional Skucfure on the following basis:
(i) Formation, (ii) Specialization, (iii) Managerial Development, and (iv) cost.

3 Marks
25. State three differences between functional and divisionar strucfure.

l Mark
26. Distinguish between functional structure and divisional structure on the basis of 'formation'.

i Basis of Difference 1 Functional structure i Divisional Structure

_---f--- -
- _Igr--3jj"l On the basis of work. i On th" basis of products.

CASE STUDY/APPLICATION ORIENTED QUESTIONS

t1l Aman Ltd. is manufacfuring toys and has production, sales, purchase and finance departments. Which
type of organisational structure would you suggest to them? State any three advantages of this type of
organisational structure.
rc.8.5.E.2005)
Hint: Functional organisational strucfure is most suitable for such type of company. Also explain any
three advantages of functional organisation strucfures.
l2l Sahil Ltd. is manufacfuring shirts and has production, marketing, finance and personnel departments in
the organisation. Name the type of organisational strucfure Sahil Ltd. is following. State any three
advantages of this organisation structure. (c.8.s.E.2006)
Hint: Sahil Ltd. is following the functional organisation struchrre. Also explain any three advantages of
functional organisation structure.
t3] Surekha runs a shoe manufacfuring factory. She wants to expand her business. For expansion she
contemplates to enter into the manufacturing of leather bags and western formal wear apart from the
running business of shoes. By doing this her company will be able to provide many products to working
women under one roof. Which organisation structure will you suggest her and why?
Hint: In this sifuation, divisionaI organisation structure willbe suitable as it provides equal importance to
all products. Also describe the advantages of divisional organisation shucture.

Qrrry Session
For this query session, questions from readers' side are invited.
 GIIIPITB TI

IIEI.EGAIIII]I OT AUIHI|N ITY AII II

DtGtltrnAlrsATr0l{
"Delegation of authority is the cement that binds the formal organisation
together."

Learning Objectives
After studying this chapter, you will be acquainted with:
o Meaning and definitions of Delegation ot' Authority
. Elements of Delegation ot' Authority
. Dtference between Authority ond Responsibility
. Difference between Responsibility ond Accountability
. Con Accountobility be Delegoted?
. Diuision of Labour is the bosis ol Delegation of Authority
o Process of Delegation ot' Authority
o Importance ol Delegotion of Authority
a Meaning, definition ond charocteristics ol Decentrolisation
a Importonce of Decentrolisation
a Dillerence between Delegation ot' Authority ond Decentralisation
I Meaning of Delegation of Authority
Delegation of authority is an important part of the
organising process. Its need is felt when due to excessive
workload on a manager, he is unable to perform all jobs
Delegation of Authority?
independently. In this sifuation, he divides his work among It refers to the process of entrusting
the subordinates. But, just mere division of work does not responsibilitg ond outhoritg, and creoting
guarantee success. For the successful work performance, occountability of the person to whom
work or responsibility hos been handed
authority should be given to the subordinates to take work
ouer.
related decisions. Thus, division of work and assigning
authority for the successful work performance is called delegotion of outhority.
126 Business Sfudies

f Definitions of Delegation of Authority

The major definitions of delegation are the following:
(1) Accordingto F.G. Moore, "Delegatlon o.f authority meons ossigning Llork to others flrrri rl;r'in,r irt.r:r
outhorirg to do it.'
(2) According to Theo Haimann, "Delegotictn of artlL:ority' nterelt, nrecrns rltc qrcnting 1f attl-toritr lrt
subordinates to operate uithin prescribed lirnits

! Elements of Delegation of Authority

In order to sfudy delegation of authority in detail it is first Two Meanings of Responsibtlity
essential to understand the meaning of its three elements, i.e., The word responsibilifu con be used in
Responsibility, Authority and Accountobility, the detailed two ways:
description of which are as follows: (i) responsibility for, ond
(ii) responsibilitg to.
o (1) Responsibility 'Responsibility for' meons obligation ot' a
subordinote to compl ete the ossigned job.
Responsibility is the obligation of a subordinate to 'Responsibility to'
meons accountobility
properly perform the assigned duty. When a superior assigns a of a subordinate his work performonce
for
job to his subordinate it becomes the responsibility of the in relation to the authonty giuen to him.
subordinate to complete that job.
This means that the word responsibility comes into play only after the job has been assigned. Thus,
to assign job can be called to assign responsibility.
Features
(i) Responsibility can be assigned to some other person.
(ii) The essence of responsibilitgr is to be dutiful.
(iii) It gets originated because of superior-subordinate
relationship. Delegation of Responslbility:
. (2) Authority A Confusion
'Responsibility Jor' is colled Operutlng
Authority means the power to take decisions. Decision Responslblltty ond'responsibilitg to' is
can be related io the use of resources, and to do or not to do called Ultlmote Responsrbtrtty. A
something. superior can delegote only operating
responsibility to his subordinote(s) butnot
Features
(i) the ultimate responsibility. The ultimate
Authority can be assigned (delegated) to some other
responsibility is o/uroys ol the delegator,
person. i,e., superior.
(ii) It is related to the post (with the change of post, even
authorities change).
(iii) It makes implementation of decisions possible.
(iv) Authority isthe key to a managerial job, because a postwithout authority cannotbe a managerial post.
Difference between Authority and Responsibility
Basis of Difference Authority Resrronsibilitv
1. Meaning Power to take decision. The assi
2. Direction or Flow Authority moves from top to bottom. Responsibility moves from bottom to top.
Delegation of Authority and Decenhalisation t27

It originates because of senior-subord;;l

relationship.
The essence of responsibility is to obey the I

duties. -J I

o (3) Accountability
Accountability means the answerability of the
subordinate to his superior for his work performance. In Delegation of
other words, when a superior assigns job/work or the Responsibillty: Conclusion
responsibility to his subordinates, simultaneously he gives (l) Responslblltty can be delegated: This
authority to them which makes workers (subordinates) meons the delegotion of operationol
accountable to their superior for the work-performance. responsibility.
(tt) Responslblllty cannot be delegoted:
Featrrres
This refers to the ultimate responsibility which
(i) Accountability cannot be delegated to some other cannot be delegated.
person.
(ii) It is only towards the delegators.
(iii) Its base is senior-subordinate relationship.
(iv) It originates because of delegation of authority.
Difference between Responsibility and Accountabilit-u
Basis of Difference Responsibility Accorrntability
l. Meaning The assigned job Answerable to the superior for the work
performed.

2. Delegation Responsibility (Responsibility for) or Accountability (Responsibility to) cannot be

the work can be delegated to some delegated to some other person.
other person.

3. Origin Relationship between senior and Delegation of Authority.

subordinate.

E Can Accountability be Delegated?

An noteworthy question arises in the context of accountability that whether an officer by delegating
authority can eschew from ultimate responsibility? Thus, is he not accountable to his senior officers for the
work performance of his subordinates once he has delegated authority. In other words, a senior officer of
the officer in question can directly hold the latter's subordinate accountable? All these questions will be
answered in 'No' because only authority can be delegated and not the accountability.
For example, A Chief Manager assigns jobs to a Departmental Manager who inturn assign it to his
subordinate. Departmental manager alongwith the assigning of the job will delegate authority but this will
not terminate his accountability. He will always be answerable to his chief manager for the
work-performance of his subordinates. On the basis of this, there would be no anomoly to say that just
authority can be delegated but not accountability. Thus, accountability is always of the person who
delegates authority.
 t28 Business Sfudies

I Division of Labour is the basis of Detegation of Authority

. Delegation <>f Authority
Delegation of authority means to provide for needed authorities to the subordinates for the
successful completion of their job or responsibility. Authority means the power to take decisions.
Accountability originates when authority is given for fulfilling a responsibility. Accountability refers to
answerability of a subordinate towards his senior officer for work performance.
o Dioision of Labour
Often, no officer is capable to the extent that he himself will perform all the activities. For the
successful completion of a job an officer divides the whole work. Thus, work is divided into many small
jobs and each job is then assigned to a particular person. This whole process is known as division of
labour. Its basis is specialization.
o Conclusion
Authority comes into picfure after division of labour. Without assigning duties, authority is
non-existent. Thus, it can be said that delegation of authority is based on division of labour.

I Process of Delegation of Authority

The three elements, i.e., responsibility, authority and accountability of delegation process are
completed in the following serial order:

flf ., glr.11gl::pg1sr bil, tv_-l' i Granti n g A uth cxi ty -, E;nea::ggEulit-y-i

(1 ) Assigning Responsibility,: The first step in the delegation process is assigning responsibility.
Often, no officer is capable to the extent that he can perform all activities on his own. For his successful
work performance he divides the whole job. In this way, he keeps critical/cruciaVsignificant jobs for
himself and delegates the rest to his subordinates. While assigning job/responsibility to the subordinates,
their capability and skill are kept in mind. For example: A finance manager keeps the job of financing for
himself and delegates rest of the jobs like-Accounting, Data Collection, etc. to his subordinates.

(2) Granting Authority: The second Step in the delegation process is granting authority for
successful work performance. Assigning responsibility sans authority to the subordinates is meaningless.
Thus, all needed authorities should be delegated for the fulfillment of a responsibility. For example: When
a chief manager delegates responsibility of Purchase Department to the Purchase Manager, then he gives
authority to the purchase manager like purchasing raw-material, stocking inventory, division of work
among his subordinates, etc.
(3) Fixing Accountability: The last step in the delegation to hold subordinates
process is
accountable for their work performance. Every subordinate is just accountable to that officer who
delegates authority for the fulfillment of job/responsibility. Accountability means, justification demanded
by the superior for the work performance.
Delegation of Authority and Decentralisation r29

! lmportance of Delegation of Authority

Delegation of authority is an important instrument for effective management. If the workload of a
person is more than his capacity, he hies to sustain his capacity through delegation of authority. Thus, it is
clearly evident that the power of an officer is expanded through delegation of authority. The importance
of delegation of authority is clarified through the following facts:
(1) Effective Management: Effectiveness means successful accomplishment of an objective.
Delegation of authority reduces the workload of a manager. Managers who practice delegation of
authority are definitely better decision makers than those managers who do not delegate authority. The
former ones get the benefit of the skills of their subordinates. This sifuation eases the attainment of
objectives. As a result, the effectiveness of managers is improved.
(2) Employee Development: The mental groMh of a person takes place only when he has
authority to take decisions. The process of delegation of authority provides the authority to take decisions
to subordinates. With the given authorit5i, managers take decisions contingent to the sifuations. fu a
result, in future they become more able to take extra
responsibility.
(3) Motivation of Employees: In the process of E:rpansion, Modernisation and
delegation of authority, both authority and responsibility are Diverslffcation
delegated to the subordinates. This situation provides liberty (7) bcpanslon: Expansion means to
to work and take decisions on part of subordinates. Gaining increase the existing uolume ol the
through this, they exhibit their talent and skill. With better business. For example, to open branch*
at uorious ploces.
performance the subordinates create a niche for themselves in
(2) Ivlodernlsatlon: Modernisation
the organisation. Consequently, they get job satisfaction and means to odopt latest techniques in the
feel motivated to perform ever better. business.
(4) Facilitation of Growth: Delegation of authority (3) Dtoerstflcotlon: Diuersificotion
does not only develop only one person or division but means to deal in the business of many
products instead ol a single product.
facilitates-the development of organisation as a whole. fu
adequate number of able employees are available in an
organisation to take decisions Expansion, Modernisation and Diuersificotion of a business can be done
with full confidence.
(5) Basis of Management Hierarchy: Management hierarchy is inevitable to run a business
organisation successfully. Only because of this hierarchy, the superiors and subordinates they come in
contact with each other and get an opportunity to understand one another. This hierarchy is established
through the process of delegation of authority. Under this, authority flows from top level to the bottom
level. fu a result, senior and subordinate links are established from top to bottom.
(6) Better Coordination: Delegation of authority is a process to establish relation among
responsibility, authority and accountability. Through this, employees get clarification with regard to their
powers,dutiesandaccountabilityforworkperformance.Thus, aclearpictureisdelineatedforallthejobs
performed at various levels, which automatically establishes better coordination. The advantage of this is
that neither duplicacy nor overlapping of work takes place.
130 Business Studies

DECENTRALISATTON
! Meaning of Decentralisation
' Decentralisation is an expansion of delegation of
authority. Under decentralisation number of decision taking Decentralisation?
point increases because authority is delegated to middle level It refers to the situotion uhich exists os o
and lower level managers to take significanVmomentous/ result of the systematic delegation oJ
authority throughout the orgonisotion.
important decisions.
Both decentralisation and delegation of authorityr are
almost similar which leads to conftsion about their meaning. Some people take them to be synonymous,
but this is a misconception. The dilference can be understood with the help of an example. Let us assume
that a Chief Manager of a company assigns a job/responsibility to the Production Manager for appointing
employees needed for his Division on salary less than Rs. 10,000 then this willbe turned as delegation of
authority. On the contrary, if this authority for appointing employees is delegated to every departmental
head then it willbe termed as decenhalisation. If, departmental heads further delegate this authority to
their deputy managers, it will lead to the expansion of decenhalisation. In this context, it can be said that if
we delegate the authority, we multiply it by two; if we decentralise it, we muttiply it by many.

I Definitions of Decentralisation
(1) According to Henry Fayol, "Everything that goes to increase the importance of the subordinates' role is
decenhalisation and eve4rthing which goes to reduce it is centralisation".
l2l According to Keith Davis, "Decentrolisotion is wide distribution of outhority and responsibility to the
.
smo//est unit, thot is practicol throughout the orgonisotion".
(3) AccordingtoLouisA. Allen,"Decentrolisationrelerstothesystematiceflorttodelegatetothelowest
leuels all authoritg, except that, which can only be exercised at centrol points".
On the basis of aforesaid definitions it can be said that the importance of subordinates can be
increased by delegating authority to the lowest possible level in an organisation.

! Characteristics of Decentralisation
Following are the salient characteristics of decenralisation:
(1) It is an expanded version of delegation of authority.
(2) It increases the significance of the role of subordinates.
(3) It is a process which is applicable to the organisation as a whole.
(4) It reduces the workload of senior officers.
(5) In this decisions are taken by those employees who are going to implement them.
(6) In this along with the authority even accountability is delegated.

! lmportance of Decentralisation
In relation to the importance of decentralisation, it is said that, "The question is not whether there
should be decentralisation, but decentralisotion to what degree". Thus, regarding decentralisation their is
no need to contemplate whether it is to be implemented or not but to decide how many authorities are to
be delegated to the subordinates and how many are to be reserved for the higher officials. This is
absolutely true in the context of large organisations. The basis of its tmth is the importance of
decentralisation, which is highlighted through the following points:
 --l-
Delegation of Authority and Decentralisation 131

(1) Develops lnitiative among Subordinates: Under decentralisation, authorities are

delegated in large amount. Authority is a kind of power which compels a person to thinlVcontemplate or to
do something new. This inculcates in him the ability to take initiative. .
(2) Develops Managerial Talent for Future: Under decenhalisation, decision making authority
is given even to the lower level managers. In this way, by getting opportunities to take decisions,
knowledge and experience of all levels of managers increases. This develops talent in the managers to
bear extra responsibility in the future.
(3) Quick Decision Making: The burden of all managerial decisions is no more confined to some
limited people but is distributed among many people. This not only leads to quick decision making but
also results in better decision making. All the people are well awared of the problems faced by their unit or
division and for this reason they are capable of taking the best possible and quick decisions.
(4) Relief to Top Management: Under decentralisation authority related to take monotonous
decisions is delegated to the subordinates. As a result, top management relieves itself from trivial affairs
and consequently the workload is quite reduced. This save their valuable time which is then utilized to
brighten the future of the organisation and to establish coordination.
(5) Facilitates Growth: Under decentralisation full liberty is given to the subordinates to take
decisions. This situation inculcates a sense of responsibility among the subordinates. Thus, they make
effort to achieve/show better results. This thinking gives origin to departmental competitiveness. In such a
sifuation, everybody tries to perform better than the other. As a result, development of an organisation is
made possible.
(6) Better Control: Decentralisation helps to decisively evaluate the work performance at all levels
and even makes possible to fix accountability. Contribution oI every department for the attainment of an
objective can be ascertained. This sifuation is just like a challenge for every department. Management
adopts a good conholling policy to face this challenge.

! Delegation of Authority and Decentralisation: A Comparative View

Basis of Delegation of Authority Decentral isati on
Difference
1. Nature Delegation of authority is inevitable and work It is not necessary and work can proceed in its
cannot proceed in its absence. absence.

2. Freedom Less Freedom. More freedom.

in Action Under this even after delegating authority, has Under this most often, the delegator looses the
full control on his subordinate. control on his subordinate.

3. Status This is a process done as a result of division of This is a result of the policies framed by higher
work. officials.

4. Scope Delegation of Authority depicts limited This depicts broader distribution of authority
distribution of authority, that is why its scope is that is why its scope is broad.
limited.

5. Purpose The purpose is reduction of the workload of an The purpose is expansion of the authority in an
officer. organisation.
F

132 Business Studies

DELEGATION OF AUTHORITY
g 1. Meaning of Delegation of Authority: Delegation of authority is the process of
entrusting responsibility and authority and creating accountability of the person to whom
the work or responsibility has been handed over.
g 2. Elements of Delegation of Authority: There are three elements of delegation of
authority:
(i) Responsibility: It refers to assignment of job to a subordinate.
(ii) Authority: It refers to the power to take decision.
(iii) Accountability: It refers to the answerability of the subordinate to his superior for his
work performance.
g 3. Difference between Authority and Responsibility:
(i) Meaning, (ii) Direction or flow, (iii) Origin, (iv) Essence.
g 4. Difference between Responsibility and Accountability:
(i)Meaning, (ii) Delegation, (iii) Origin.
g 5. Can Accountability be Delegated? Only authority can be delegated but not the
accountability.
V 6. Division of Labour is the basis of Delegation of Authority: Authority comes into
picfure after Division of labour. Without assigning duties authority is non-existent. Thus, it
can be said that delegation of authority is based on division of labour.
g 7. Process of Delegation of Authority :
(i) fusigning responsibility, (ii) Granting authority, (iii) Fixing accountability
g 8. Importance of Delegation of Authority:
(i) Effective management, (ii) Employee development, (iii) Motivation of employees,
(iv) Facilitation of growth, (v) Basis of management hierarchy, (vi) Better coordination.
DECENTRALISATION
g 9. Meaning of Decentralisation: It refers to the sifuation which exists as a result of the
systematic delegation of authority throughout the organisation.
g lO. Characteristics of Decentralisation: (i) An expanded version of delegation of
authorit5r, (ii) More importance of subordinates, (iii) Applicable to the organisation as a
whole, (iv) Reduces the workload of senior officers, (v) Along with authority even
accountability is delegated.
g 11. Importance of Decentralisation:
(i) Develops initiative among subordinates, (ii) Develops managerial talent for future,
(iii) Quick decision making, (iv) Relief to top managment, (v) Facilitates growth, (vi) Better
conhol.
g 12. Difference between Delegation of Authority and Decentralisation:
(i) Nature, (ii) Freedom in action, (iii) Status, (iv) Scope, (v) purpose.
Delegation of Authority and Decentralisation 133

il Meaning, Elements and Process of Delegation of Authority

6 Marks
1. Explain the meaning and process of delegation of authority.
2. Explain the three important elements of 'Delegation of Authority'. (c.B.s.E. 2006,2009)
3. "Delegation of authority is based on the elementary principle of division of labour." Explain this
statement. (c.B.s.E.2005)
4. What is meant by 'delegation of authority'? Explain any three elements of delegation of authority'
(c.8.s.E.2007)
5. "Authority can be delegated but accountabiliiy cannot." Explain this statement' (c.8.s.E.2005)
4/5 Marks
6. "A manager is of the view that he is not responsible for the quality of work, that he has delegated to hls
subordinate." Do you agree with his view point? Justifu your answer by giving proper arguments.
7. "Authority can be delegated but responsibility cannot." Explain. (C.B'S.E, 2003,04)
8. "Can accountability be delegated?" Explain in brief.
9. Can an overburdened manager take help from his subordinates? How? Explain the three important
thlngs which he should keep in mind while taking such help. (C.B.S.E. 2006)
10. Discussthe elements of delegatron. N.C.E'R.T./
11. "Delegation of authority provides the mean whereby a manager multiplies himself." Comment.
3 Marks
12. Explain delegation of authority.
13. How is accountability related to authority? Explain.
14. Write any three differences between Responsibility and Accountability.
l Mrirk
15 What is delegation of authority?
Ans. Delegation of authority is the process of entrusting responsibility and authority, and creating
accountability of the person to whom work or responsibility has been handed over'
16 What is meant by 'Responsibility for'?
Ans. 'Responsibility for' means obligation of a subordinate to complete the assigned job.
t7 What is meant by 'Responsibility to'?
Ans. 'Responsibility to' means accountability of a subordinate for his work performance in relation to the
authority given to him.
18 What is meant by 'Authority'?
Ans. It refers to power to take decislon.
19 State the essence of authority.
Ans. Its essence is to get decisions implemented.
20 Which tgrpe of responsibility can be delegated?
Ans. 'Responsibility for' can be delegated.
2t Which type of responsibility cannot be delegated?
Ans. 'Responsibility to' cannot be delegated.
22 Can accountability be delegated?
Ans. No, it cannot be delegated.
23 What is the basis of delegation of authority?
Ans. Division of Labour.
------}

734 Business Studies

24. State any two steps of the process of delegation of authority.

Ans. (a) Assigning responsibility (b) Granting authority.

I lmportance of Delegation of Authority

6 Marks
25. Explain, in brief, any six points which highlight the importance of delegation of authority.
26. why is delegation considered essentialfor effective organising? N.c.E.R. T./
27 . What is meant by 'Delegation'? Explain any four points which highlight the importance
of delegation in
an organisation (c.8.s.E.2008)
28- 'Delegation of Authority is necessary in all types of organisations.' Explain any four reasons in support ol
your answer. (C.B.S. E, Somple Poper)

4/5 Marks
29 . Why is delegation of authority considered important? (c.B.s.E.2002)
3 Marks
30. Why is it necessary to delegate authority? Give three reasons

l Mark
31. Why 'effective management' is possible through delegation of authorityr?
Ans. Because it reduces the workload of a manager.
32. Why 'employee development' is possible through delegation of authority?
Ans. Because it provides the authority to take decision to subordinates.
33. How employees get motivated through deregation of authority?
Ans. By exhibiting their talent and skill.
34. What is meant by'Diversification'?
Ans. It refers to deal in the business of many products instead of a single product.

f Meaning, characteristics and rmportance of Decentralisation

6 Marks
35. Explain, in brief, any six points which highlight the importance of decenhalisation in an organisation.
(c.B.s.E.20u)
36. Explain any four points which highlight the importance of decentralisation in an organisation.
(Foreign 2009)
37. What is meant by 'decentralisation'? Explain any four points which highlight the importance of
decentralisation in an organisation.
38. Decentralisation is an optional policy. Explain why an organisation would choose to be decentralised?
(N.C.E.B.T.)
4/5 Marks
39. "The concept of decentralisation is related to the concept of delegation." Explain this statement,
in brief.
(c.8.s.E.2004)
40. "Decenhalisation is an extension of delegation of authority.,, Explain.
Or
Decentralisation is extending delegation to the lowest level. Comment. (N.C.E.R.T.)
3 Marks
47. Explain the term 'Decentralisation' (c.8,s.E.2001)
Delegation of Authority and Decentralisation 135

42. Write three characteristics of decentralisation

43. "lf we delegate the authority, we multiply it by two, if we decentralise it, we multiply it by many." How?
Give an example.
l Mark
44. 'If we delegate authority, we multiply it by two; if we decentralise it, we multiply it by many.'
Name the two concepts to which this statement is related?
Ans. (a) Delegation of authority (b) Decenkalisation.
45. Name the activity which increases the importance of the role of subordinates.
Ans. Decentralisation.
46. 'The question is not whether there should be decentralisation, but decentralisation to what
extent?' What this statement indicates about decentralisation?
Ans. It is about the importance of decentralisation.
47. State any two points of importance of decentralisation.
Ans. (a) Quick decision making (b) Better control.

I Difference between Delegation of Authority and Decentralisation

6 Marks
48. Explain the meaning of 'Delegation of Authority' and 'Decentralisation'. Differentiate between the two
on the basis of (i) Freedom in Action and (ii) Purpose.
4/5 Marks
49. Define 'delegation' and differentiate it with 'decentralisation'. Give any three points.
50. Distinguish between delegation and decentralization of authoriiy on the following bases:
(i) Nature (ii) Purpose
(iii) Freedom of action (iu) Level of authority (C.B.S.E. Sample Poper)
3 Marks
51. Differentiate between Delegation of Authority and Decentralisation on the basis of
(i) Freedom in Action and (ii) Purpose.
l Mark
52. Distinguish between delegation of authority and decentralisation on the basis of 'Purpose'.
Ans: The purpose of delegation of authority is reduction of workload of an officer, while the purpose of
decentralisation is expansion of authority in an organisation.

CASE STUDY/APPLICATION ORIENTED QUESTIONS

t1l The business of Alpha-Beta-Gama Ltd. is on a large scale. Smt. Rukmani is the CEO of the company. She
directs the Marketing Manager that he can take decisions to spend upto Rs. 1 lakh in order to improve the
performance of his division. For example, if the Marketing Manager wishes to run an advertising
tampaign within the limit of Rs. 1 lakh, then this decision can be taken without the consent of the CEO.
This authority is not delegated to the remaining Departmental Heads. After the umpteen times insistence
of otherdepartmental managers, they are provided with this authority. After some days, another decision
was taken with which authority was further delegated by Departmental Managers to their
supervisiors/subordinates.
(i) What woulcl you call the authority given to the Marketing Manager to take decisions upto Rs. 1 lakh?
(ii) What does the change introduced in the organisation with the delegation of authority to all the
Departmental Managers signify?
(iii) The filhation of authority to the level of Supervisors what does this situation indicate?
-
136 Business Studies

Ans. (i) This situation will be called delegation of authority.

(ii) This situation will be called decenhalisation.
(iii) This situation signifies expansion of decentalisation.
l2l The marketing manager of Aditi Limited, an organisation manufacfuring
generators has been asked to
rs working
marketing

le for it.
sponsibility we mean Responsibility
authority can be delegated but
who delegates authority remains
ordinate. In brief, it can be said that
t relieve the manager of his own accountability.

Orrry Session
Mr' Question: Sir, it is essential for decentralisation that authority
is delegated to every
departmental/divisional manager?
Mr. Answer: No, not at all.
Listen .....

If CEO delegates some authority to a divisional manager then this is called

delegation of
' authority' If divisional manager delegates his authorifu further to his subordinate
this will be
called decentralisation. If the same process is repeated for two divisions
then expansion of
decenhalisation takes place. If this process is implemented on the
organisation as a whole
then decentalisation will be at its peak.
Mr' Question: Sir, tf a CEO delegates the authoritgr to alt divisional
heads but the same is not
further delegated then ...........
Mr. Answer: This is also decentalisation. Because this may be the case that a
company is able to
decentalise at one level but not at the other level.
Mr' Question: Sir, the,following statements seem to be confusing. Which one
of them is correct?
(i) "Authority can be delegated, but responsibility cannot.,,
(ii) "Authority can be deregated, but accountability cannot.,,
Mr. Answer: Listen......
Both the statements are conect. But the second statement out of these
leaves no confusion
whereas first one demands some explanation.
In the first one, it is said that responsibilitgr cannot be delegated. Here
responsibility means
'Responsibility to' or the 'Ultimate Responsibilityr' and not the 'Responsibility
for' or
'Operating Responsibility,.
'Responsibility to' is another name for accountability. Thus,
to say it cannot be delegated is
not wrong. 'Responsibility for' or work can be delegated to some other person.
 GIIRPTTB 12

SIIIH llG: ME[]llllG ffilll IMP0RIAIIGI

Our assets walk out of the door each evening. We have to make sure that they
come back the next morning.- Narayana Murthy, CEO lnfosys

Learning Objectives
After studying this chapter, you will be acquainted with:
o Meoning of Staffing
. Definitions of Stalfing
o Characteristics ot' Stot'fing
o Importance of Sffiing
o Meaning ond Definition ot' Humon Resource Manogement
o Euolution of Human Resource Monagement
o Sffiing os a part ot' Human Resource Manogement
o SffiingProcess
. Elements of Stat'fing

After having sfudied the first and second functions of management, i.e., planning and organising, it
is now important to take care of the third important function, i.e, staffing. Under the organisational
strucfure various posts are created to achieve the objectives of the enterprise, while those posts conre aiiver
and get .rctir.ratec-l by staffing In other words, all the posts created in the organisation are meaningless
unless they are staffed by competent indivlduals. This function of management is more important than all
the other functions because any mistake committed in planning and organising may not be as harmful as
the mistake committed in staffing. A single wrong appointment can vitiate the whole atmosphere in the
enterprise.

I Meaning of Staffing
Staffing means appointing competent persons according to the importance of the post in the
organisation.It means that more capable persons are appointed on more important posts, and
comparatively less competent persons can be appointed on
less important posts. In other words, all the functions
undertaken to establish coordination between the post and the Staffing?
individual come under staffing. The chief among these are It refers to filling and keeping filled posts
(i) Recruitment, (ii) Selection, (iii) Training, with people.
(iv) Promotion, (v) Transfer, etc.
138 Business Studies

I Definitions of Staffing
(1) According to Theo Haimann, "The sLot't'ing function pertoirrs to the recruitntent. selcction.
deuelopment, troining and compensotion of subordinote monogers" .

(21 According to Wehrich and Koontz, "The monageriol t'unction of stoffing inuolues the fitling ond
keeping Jilled. pr-rsilions in the orgctnisationol structure'
The above definitions show that the appointment of employees (staffing) is the chief function of
management and under it appointnents are made for various posts in the organisations. Apart from
appointments, it is still more important to keep these post filled for a long time by persistent efforts.

! Characteristics of Staffing
The following facts clearly bring out the characteristics of staffing as a function of management:
(l) Related to Human Beings: The first important characteristic of staffing is its relationship with
human beings. It means that unlike planning and organising it is not mere paper work but involves the
appointment of competent persons on various posts. All the activities done to accomplish this work are
connected with human beings-they may be recmitment, selection, training, promotion, etc.
(2) Separate Managerial Function: The second important characteristic of staffing is that it is a
separate managerial function. Separate managerial function means that far from being a major part of
some function, it is in itself a major function.
(3) Essential at all Managerial Levels: Staffing is essential at all managerial levels. It must be
clarified here that the establishment of a separate personnel department does not free the concemed
managers from this all-important function. The aim of establishing this department is to assist the
managers at every level in the performance of their function of staffing.
(4) Related to Social Responsibility: Staffing deals with human beings and man is a social
animal. Since it is connected with human beings, the social responsibility of this function is bom. In order
to discharge this responsibility the managers should take care and be impartial while going through the
allied functions of recruitment, selection, promotion, etc.
(5) Effect of Internal and External Environment: The perforrnance of staffing is affected by the
internal and extemal environment of the enterprise. The ir.rternal environment of the enterprise includes
policies connected with the employees promotion policy. demotion policy. transfer policy. etc.
- like the
If as a matter of policy the vacant posts are to be filled up by promotion, the employees already working in
the enterprise will have the opporhrnity to reach higher posts, and the people from outside will be
appointed only on lower posts. In this way the intemal policy of the organisation does affect the function
of staffing. The external environment affecting the enterprise includes government policies and
cducational environment. Itcanbethepolicyofthegovernmentthatinaparticularenterpriseemployees
should be recruited only through employment exchange. Educational institutions can help in the
development of the employees by organising special haining camps. In this way, external environment
also affects the function of staffing.
Staffing: Meaning and Importance 139

! lmportance of Staffing
Following facts highlight the importance of staffing:
(l) Helpful in Discovering and Obtaining Competent Personnel: Under staffing latest
techniques are used for recruiting and selecting the employees. As a result, it becomes possible to search
for and to select able employees for different posts. Under the recruitment process, search for employees is
conducted and through selection they are got selected.
(2) Helpful in Better Performance: Through the medium of staffing, right people are posted at
right places. Thus, suitable people are selected, keeping into mind the importance of organisational posts.
As a result, it increases the efficiency and effectiveness of
(3) Helpful in Continuous Survival and Growth of
the Enterprise: Every enterprise aspires for its continuous
Human Asset?
survival and growth. This is possible only when it has human
A business has mang ossefs, like land,
asset of supreme quality. This, aspiration of an enterprise can -
furniture, building, etc. These ore shown
be fulfilled through staffing. Under this planning is done for the in the Balonce-sheet ond are long term
development of managers. They are made able to face income generating sources. Apai from
the olorementioned resources, business
contingent complexities. These managers do planning for the has one more impofiant asset, from which
development of an organisation and ensure its survival. income is generated for long term but is
(4) Helpful in Optimum utilization of the Human not shown in the balonce-sheet, this asset
Resource: Under staffing all the activities related to human is knonrn as Man Power.
resource are performed systematically. By doing this the
situation of overmanning never arises. As a result, optimum utilization of employees takes place and
subsequently, labour cost is reduced. Apart from this, by making employees available at the right time, the
probable hurdles which can arouse during the course of work, can easily be overcome.
(5) Helpful in Improving Job Satisfaction and Morale of Employees: Under staffirig, by
sfudying human behaviour, their preference for the type of environment, promotion policy, training and
remuneration policy known for. The effort is made to provide them with allthe desired facilities. Special
care is taken for, that in no way the pay package of employees is reduced. In this situation, they get total
job satisfaction and their morale is boosted.
Conclusion: Fromtheaforementionedreasonsitisquiteevidentthattodayhumanresourceisthe
base for the success of an organisation. This is more important then other physical resources. Thus,
staffing has a significant role to play among the management functions, so it becomes very important to
focus on this function of management.

! Human Resource Management

All means of production (men, materials, machines, money, etc) may be divided into two parts:
active and passive. Active means include men while machines, materials, money etc. belong to passive
means of production. An enterprise may have large quantity of passive means of production, such as,
machines, materials and money but the same are of no use if not properly utilized. These can be utilized
properly only with the help of active means, that is, human beings. What is needed is that such human
resource be made available as is perfectly efficient. It is the job of human resource management to make
efficient human resource available. In order to fglfil this task, hurman resource department (H R
140 Business Sfudies

Department) is established in large organisations. This department functions under the supervision of
Hurnan Resource Manager

I Meaning of Human Resource Management

I Human resource management is that branch of management which is concerned with the
recifiitment, selection, development and the optimum use of the employees. Human resource
management ensures that every employee makes his maximum contribution to the achievement of
business goak)

I Definition of Human Resource Management

Main definition of human resource management are as under:
According to French Wendell. "Hurnart resoLtrce manogetnent is the re.cruitn'te.nt. selection,
deueloprnertt. utilisotion. compensotion ond nrotiuotion of hirnron resources of the orgonisoliorr "

I Evolution of HRM
The kind of role today HRM is playing was not the same since inception. Various phases of its
development are as follows:
(1) Labour Welfare Stage: Earlier businesses used to be on small scales. That was the era of
establishment of Trade Unions. By its effect the need for a person is felt who can act as a mediator between
the employer and the employees. For this labour Welfare Officer was appointed. His role was limited to
provide least welfare facilities to the employees.
(2) Personnel Management Satge: With the expansion of business, factory system came into
existence. Many people start getting employment under one roof. As a result, the need for a person is felt,
whose job is to make employees available for a company. With this approach,earlier Personnel Officers
and later on Personnel Managers were appointed. Their role was limited to recruit, select and place the
employees.
(3) HRM Stage: The business further expanded end simultaneously the technology was
developing at a fast pace. In this sifuation, the need was felt for the haining and development of
employees. Human resource was now considered to be an important part of organisation and was felt that
it can be developed. With this cult, Personnel Manager was replaced by Human Resource Manager. His
job is to effectively manage the people so that they remain to be a part of the organisation for all.

I Staffing as a Part of Human Resource Management

Humon resource management is a wider term as compared to staffing. It includes staffing, record
keeping, personnel policies formulation, conducting personnel research, providing expert's services, etc.
Hence, staffing is a part of the human resource management and not all of it. The areas of human resource
management can be divided into following eight categories:
(1) Recruitment Etc.: The primary function of the human resource manager is to find out the
number of employees required by the organisation and make provision for their recruitment. To
discharge this function he indulges himself in activities like recrr-ritment, selection. placement. training.
promotion. transfer. etc.
Staffing: Meaning and Importance 147

(2) Providing Expert Services: Human resource manager renders certain services which require
special knowledge, e.g., iob evaluation. perfonrance appraisal and negotiating with trade unions
(3) Developing Compensation and Incentive Plans: Human resource manager conducts
research from time to time with the aim of improving upon the policies concerning personnel. On the basis
of his research, he brings to the notice of top-level management new techniques in different fields of
human resource management, such as, new compensation and incentive plans.
(4) Handling Grievances and Complaints: It is the responsibility of the human resource
manager to establish cordial relations between the employers and the employees. To do this, he informs
both the parties about the expectations of each other. In the event of disputes arising between them
occasionally, he serves as a pacifier.
(5) Providing for Social Security and Welfare of Employees: It is a responsibility of the
human resource management to formulate policies to provide social security and welfare of employees.
These policies cover different aspects of employeeS, €.g., recruitment policy. selection policy, promotion
polica. retirenrenl pr-,lica. etc. While formulating these policies, human resource manager keeps in mind
the interests of both of the organisation and the employees. Moreover, he also ensures proper
implementation of these policies.
(6) Defending the Company in Law Suits: In India, government has passed several legislative
measures relating to the employees, such as, Wcrkmen's Compensation Act. Employees State Insurance
Act. etc. It is the function of the human resource manager to enforce the provisions of such acts in his
organisation.
(7) Keeping Personnel Records: Human resource manager maintains records regarding
recruitment, selection, training, promotion, transfer, remuneration, etc. of all employees working in the
organisation. These records are used as reference in future.
(8) Developing the Organisational Stru,:ture: Human resource manager reviews the
organisational shrcfure and offers suggestions to make it more effective.

I Staffing as Line as well as Staff Activity

By seeing the importance of staffing, today it is not only considered to be a Function of Management
but also as a Fr-rnctional Area of Marragement
Functions of Management: Management has five functions - planning, organising, staffing,
directing and conholling. They all are of pervasive nature. Thus, all these functions are uniformly
performed in business and non-business organisations.
Functional Areas of Management: Functional areas of management means all those activities
which are performed for the fulfillment of a objective like production, marketing, finance, staffing, etc.
Note: Functions of Management are performed in all the organisations but functional areas can be
different for various organisations. Like in a manufacfuring organisation, production activity is performed
while the same is not needed in trading organisation.
Personnel Manager as Line Manager: When personnel manager, performs staffing as a function
of management then he plays the role of a Line Manager. In this role he completes the work of recruiting,
selecting, taining, etc. It is the characteristic of Line Manager that he is directly responsible for his work.
 r42 Business Studies

Personnel Manager as Staff Manager: When Personnel Manager does staffing as a functional
area of management he plays the role of Staff Manager. In this role, he gives advice to other departmental
managers so that they can resolve problems of the employees. It is the characteristic of Staff Manager that
he is not responsible for the results of the suggestions given by him.

f Staffing Process
The scope of the function of staffing or functions included in it or the various activities included in this
process can be divided under the following heads:

(1) Estimating the Manpower Requirements

(2) Recruitment
(3) Selection
(4) Placement and Orientation
(S)Training and Development

(1) Estimating the Marrpower Flequirements: At the first step of staffing the need for required
number of employees is estimated. Under this it is ensured that able employees are available in adequate
number in an organisation to be placed in right position at the right time. At the time of determining the
number of persons required, the possibilities regarding internal promotions, retirements, resignations and
dismissals etc. are also taken into consideration.
(2) Recruitment: The process of recruitment includes the search of the various sources of
employees, and encouraging them to send their applications to the enterprise. In other words, recruitment
means making available the employees in order to fill various posts. There are mosfly two sources for the
recruitment of employees: (a) lnternal Sources, and (b) External Sources. In the form of interna[
source, the employees already working in the enterprise are selected to fill other posts; while the chief
external sources are the following:
(a) Waiting List (b) Recommendation of the Present Employees
(c) Jobbers and Conhactors (d) EducationalInstitutions (e) Media Advertising
(3) Selection: Under the process of selection, competent applicants are selected out of a large
number of them. It is important to keep in mind that the ability of the applicant and the nature of work
must match. The closest matching will bring the best results. To complete the selection process many tests
are conducted. Finally, an applicant is selected if helshe declares pass in the interview.
(4) Placement and Orientation: Placement means to join the post for which helshe has been
selected. Appointment letter is offered to the employees after they are selected. After getting the
appointment letter, an employee gives Joining Report to the officer of the concerned department,
confirming that he/she is willing to work in the organisation. On doing this the candidate becomes an
employee of the organisation.
Orientation means to acquaint the employees with their job and the organisation. This is also known
as socialization. Under this new employees are introduced both to their superiors and subordinates so that
they can work with them as a team. Apart from this, helshe is informed about the objectives and policies of
the organisation. Helshe is also informed about their own authorities and responsibilities. In short, the
purpose of orientation is to accommodate new employees in the new environment expeditiously.
Staffing: Meaning and Importance 143

(S)Training and Development: The last step in the process of staffing is imparting training and
development facilities to the employees so that their efficiency and effectiveness is increased. Training
benefits both the enterprise and the employees. Through the medium of taining, employees' efficiency is
enhanced which brightens their fufure prospects. Training gives security to the employees which keeps
them satisfied. The enterprise gets the manifold advantages of training in the form of decrease in the
production cost; the best maintenance of machines and tools; less number of accidents; quality
improvement, etc. Therefore, this part of staffing has a special significance.

I Components of Staffing
In the modern form of staffing, following three elements are included:
(l) Recruitrnent: Recruitment means the process under which different sources for fufure
employees are searched for, and they are motivated to apply by sending application-forms for their
selection in the organisation. In this process, effort is made to receive maximum number of
application-forms. That is why it is known as a positiue process.
(2) Selection: Selection means to select pre-determined number of able applicants from the pool of
applicants with the help of various tests. Its nafure is negatiue because in this effort is made to reduce the
number of applications.
(3) Training: Training is a process through which effort is made to increase efficiency in the
employees for a particular job, so that their knowledge and skill both are increased.

g l. Meaning of Staffing: It refers to filling and keeping filled the posts with people.
g 2. Characteristics of Staffing: (i) Related to human beings, (ii) A separate Managerial
Function, (iii) Essentialat allmanageriallevels, (iv) Related to socialresponsibility,'
(v) Effect of Internal and external environment.
Z 3. Importance of Staffing: (i) Helpful in discovering and obtaining competent personnel,
(ii) Helpful in better performance, (iii) Helpful in continuous survival and growth of the
enterprise, (iv) Helpful in optimum utilisation of the human resource,(v) Helpful in
Improving Job Satisfaction and morale of employees.
g 4. Evolution of HRM: (i) l-abour welfare stage, (ii) Personnel management stage,
(iii) HRM stage.
Z 5. Staffing as a Part of Human Resource Management: (i) RecruitnentEtc, (ii) Providing
Expert Services, (iii) Developing Compensation and Incentive Plans, (iv) Handling
Grievances and Complaints, (v) Providing for Social Security and Welfare of Employees,
(vi) Defending the Company in Law Suib, (vir) Keeping Personnel Records, (viii) Developing
the Organisational Structure.
g 6. Staffing as Line as well as Staff Activity: When personnel manager performs
staffing as a function of management then he plays the role of a Line Manager. On the other
hand, when he does staffing as a functional area of management, he plays the role of Staff
Manager.
g 7. Staffing Process: (i) Estimating the Manpower Requirements, (ii) Recruitment:
(a) Internal Sources, (b) External Sources, (iii) Selection, (iv) Placement and Orientation,
(v) Training and Development.
Z 8. Components of Staffing: (i) Recruitment, (ii) Selection, (iii) Training.
144 Business Studies

! Meaning and lmportance of Staffing

6 Marks
;f" Whictr function of management helps in obtaining right people and putting them on the right jobs?
Explain any five points of importance of thisfunction. (c.8.s.E.2008)
2. 'Staffing is an important function of management in all organisations.' Why? Explain any four reasons.
(c.8.s.E.2009)
4/5 Marks
3. Explain briefly the meaning and importance of staffing. (c.8.s.E.2001)
(3 Marks
4. Explaintheterm'staffing'. (c.8.s.E.2002)
5. Explain 'Helpful in higher performance' in relation to importance of staffing.
6. Explain any three points of the importance of staffing.
l Mark
7 What is staffing?
Ans. It refers to filling and keeping filled posts with people.
'Staffing is a separate managerial function'. Explain.
Ans. It means that staffing activity is not a part of some function but it is in itself a major function of
management.

/Namethe department performing staffing function of management.

Ans. It is personnel department.
10. Name any two policies of an organisation related with the man-power.
Ans. These are Promotion policy and Transfer policy.
11. Give an example of Govt. policy related with man-power.
Ans. It can be the policy of the Govt. that in a particular enterprise employees should be recruited only
through employment exchange.
L2. Give th-e serial order of 'Staffing' as a function of management.
Ans. It is the third function of management.
13. 'Our assets walk out of the door each evening. We have to make sure tfiat they come back the
nat morning.'This statement is related to urhich function of management?
Ans. It is related to 'staffing' function of management.
74. Is 'human asset' mentioned in the balance sheet?
Ans. No, it is not mentioned in the Balance Sheet.
I Meaning and Evolution of Human Resource Management-HRM
6 Marks
15. Clarifu, how 'staffing' is termed as a part of 'human resource management'
4/5 Marks
16. How staffing is a line as well as staff function?
77. Define HRIvt. Explain the various stages of the evolution of HRM.
18. 'Human Resource Management includes many specialised activities and duties.' State any four such
activities. (c.B.s.E.20081
Staffing: Meaning and Importance 145

3 Marks
19. Explain staffing as a part of human resource management. (C.8.5.E.2003\
20. Explain HRM.
21. Explain the various stages of the evolution of HRM.
1 Mark
22. Name the first two stages of the evolution of HRM.
Ans. (a) Labour Welfare Stage (b) Personnel Management Stage.
23. Out of Human Resource Management and Staffing which one is wider?
Ans. Human Resource Management.
24. State the role of personnel manager as staff manager.
Ans. In this role he gives advice to other departmental managers so that they can resolve problems of the
employees.

il Prrlcess and Elements of Staffing

6 Marks
25. Define the staffing process and the various steps involved in it. (N. C.E.E. T. )

26. Explain the steps in the process of 'Staffing'. (Foreisn 2009)

4/5 Marks
.
27 procedure.
Explain, in brief, the various steps in the staffing (C.B.S.E. 2001,02,03)
28. What do you mean by staffing? Explain its elements.
3 Marks
29. What do you mean by 'Placement' and 'Orientation'?
1 Mark
30. state the first step of staffing process.
Ans. Estimating the manpower requirement.
31. What is the meaning of 'Orientation' as a step of staffing process?
Ans. It refers to acquaint the empioyees with their job and the organisation.
32. State any two elements of staffing.
Ans. (i) Recruitment (ii) Selection.
cAsE sruDy/ApPLrcATroN oRTENTED QUESTIONS
t1] "There is no need of human resource planning as so many people are available in the market these
days." Do you agree with this statement? Give reasons.
Hint: No, I do not agree with this statement. Mention the need of staffing.
t2) You are a personnel manager of Alfa Co. What is your opinion about the need of staffing function of
management?
Hint: Yes, the staffing function of management is essential. Mention the need of staffing.
t3l A newly appointed personnel manager is of the view that staffing is the least important function of
management in an established organisation. Do you agee with this statement? Give five reasons in
support of your answer.
Hint: No, I do not agree with the opinion of Personnel Manager. Mention the importance of staffing.

0rrry Session
For this query session, questions from readers' side are invited.
 REGRUIIMTilI: mEAilll{G A1{ll
SlIURGES
"The extent of success of an enterprise in getting and retaining suitable person-
ne! depends on how efficiently it is engaged in recruitment effotts."

Learning Objectives
After studying this chapter, you will be acquainted with:
o Meaning of Recruitment
a Definitions of Recruitment
o Process of Recruitment of Employees
o Sources ol Recruitment of Employees
o Types, Merits and Limitations ol Internol Sources
o Types, Merits and Limitations of External Sources

Having determined the requirement of manpower, the process of employees' recruitment begins.
We shall discuss in detail the process of recruitment in this chapter.

I Meaning of Recruitment
Recruitment means making available persons to fill
different vacant posts in the organisation. Efforts are made
in this process to ensure that more and more people submit Recruitment?
applications so that selection becomes easy. It is on account It refers to the process of seorching for
of the efforts to attract more and more people that the pr ospectiu e employees and stimuloting them
to applg for job in the
process of recruitment is called a positive process.

I Definitions of Recruitment
Main definitions of recruitment are as under:
(1) According to Flippo, "Recrttitntent is the process of searching t'or prospectiue emplogees and
'
stintulating them to opplg Jor jobs in an orgonisotion
(2) According to Dalton E. McFarland, 'lt is the process of atrrcrcting potential emplogees to the
cornpon\'"
Recruitment: Meaning and Sources 147

It is clear from the above definitions that in the process of recruitment, in the first instance, sources of
prospective employees are located. In other words, from where the employees would be available.
Thereafter, those sources are approached and efforts are made to attract the interested people to the
organisation.

! Process of Recruitment of Employees

Process of recruitment of employees involves the following stages:
(l ) Requisition of Employees: Recruitment process begins with the requisition of employees.
After determining the need of employees in their respective departments, the departmental managers
bring it to the notice of personnel manager.
(2) tdentification of the Sources of Recruitment: On receipt of requisition letters from all
departments, the personnel manager, by virfue of his knowledge and experience, decides about the
sources from where to make available personnel possessing different qualifications. (Different sources of
recruitment have been described in the subsequent paragraphs.)
(3) Invitation to Interested People: In the second stage, after finding the sources, interested
people are invited to apply for different jobs. To this effect, personnel manager prepares a comprehensive
information camying following details: (i) number of vacancies, (ii) nature of job, (iii) qualification
required, (iv) experience, (v) detail of salary, (vi) conditions of employment, (vii) last date of application,
and (viii) brief detail of selection procedure. Information must be prepared in a simple and attractive
language so that large number of applications are received.
(4) Preparing the list of Deserving Applicants: On receipt of the applications the same are
verified. During the course of verification, applications are divided into two parts. One part consists of
those applications which fulfil all qualifications required by the organisation and the other part consists of
those applications which do not fulfil all the requisite qualifications. A list of those applicants who possess
the requisite qualifications is prepared. Such eligible applicants alone are included in selection process.

I Sources of Recruitment of Employees

Second step in the process of recruitment of employees is "identificotion of the sources oJ
recruitment.' ' It is very important step as the success of the whole process of recruitment depends on it. If
the personnel manager fails to identifu correctly the sources of recruitment he will not be able to find
suitable employees. Consequently, it will be difficult to achieve the objectives of the organisation. To
attract employees to business organisations usually two kinds of sources are tapped:
(l) Internal Sources, and (ll) External Sources.
c l. lnterrral Sources or Recruitment from within the Enterprise
In case of internal sources, vacant posts are filled with employees available within the organisation.
Mostly the following are included in it:
i-l ( tr ) Transfer: This procedure involves the transfer of an employee from one department or branch

to the other department or branch on the same post. This procedure is usually followed when some
employees are surplus in one department and there is shortage of similar types of employees in another
department.
 148 Business Studies

(2) Pronrotion: Promotion is a process by which an employee working at a the lower rank
is
appointed to the upper rank where his responsiblity increases, his stafus and salary are also enhanced.
A post can be filled by sending an inefficient employee at some lower position. It is known as
recruitment by demotion
(3 ) Lay-off: It refers to the temporary separation of the emplo yeefromthe
employer on the initiative
of the later. In most cases, the lay-offtakes place due to lack of work. There is clear understanding between
the employer and the employee that the pref.erencewill be given to that employee as and when the work
will be available.l'hus, by recalling the laid-off employees, vacant position may be filled up.
o Merits and Limitations of lnternal Recruitment
Merits: Merits of internal sources of recruitment are as under:
(1) Increase in Motivation: Motivation of the employees of the organisation
is boosted when
recruitment is made by internal sources, particularly by promotion. If they know before hand that their
promotion is possible, they willfeel inspired. Ambition to occupy post of higher rank willadd to their
morale and they will perform their existing duty with utmost care and efficiency.
(2) Industrial Peace: Because of promotional avenues employees get satisfied and hence,
industrial peace is established. The promotion process continues from top to bottom in the
whole
organisation. This motivates the employees to enhance their performance through learning and practice.
(3) Easy Selection: Organisation has full information about the employees working there.
fu
such, their selection for the higher post involves no risk.
(4) No Need of Induction: Induction means to acquaint the employees with their job
and the
organisation. In this source of recruitment, this information is already available to the employees. Hence,
there is no need of induction in this case.
(5) Adjustrnent of Surplus Employees: Under this method, the employees from the
departments where they are in surplus transferred to those where there is shortage of staff. In this way, the
deficiency of staff is meet out. Hence, no hardle in the work is takes place.
(6) Economical Source: It is the most economical source because
the organisation does not have
to spend any amount on search for sources of recruitment. Nor does it have waste time on long selection
process. Moreover, such employees do not require much training. They are already
well informed about
all the activities of the organisation.
Limitations: Following are the limitations of internal sources of recruitment:
( I ) Stops the entry of Young Blood:
The greatest defect in the system of internal recruitment is
that the young and technically sound people do not get a chance to enter the company. Consequently,
old
people run the organisation with the help of their out-dated ideas and no new idea can develop.
(2) Employees become Lethargic: Internal source of recruitment creates a definite feeling
of
promotion among the employees. This feeling makes them lethargic and it affects their performance.
(3) Not Available in New Organisations: Recruitmentthrough this source is possible
only in the
previously established organisations. The new organisations have to make use of the external
source.
Moreover, it is not essential that the entire recruitment need of the old organisations may be fulfilled
through this source.
Recruitment: Meaning and Sources t49

(4) Sense of Competition among Employees Hampered: Sense of competition is aroused

when one is confronted with a better qualified employees. This recruitment system hinders the entry of
better qualified employees. Therefore, the employees do not get a chance for any competition.
(5) Frequent Transfers hit Productivity Negatively: In this source of recruitment, employees
are frequently transferred. This does not allow them an opportunity to become efficient in any single job.
Consequently, the productivity in the organisation gets lowered.
o ll. External Sources or Recruitment from Outside
External sources of recruitment of employees mean inviting applications for filling up the vacancies
from candidates outside the organisation. External sources are mostly used for filling vacancies in the
lower ranks. Sometimes, this source is also tapped to fill special category of posts, e.g., engineers,
chartered accountants, etc. External sources are more and varied as compared to internalsources. It is the
endeavour of every employer to select the best person from among the large number of candidates
interviewed. Main external sources of recruitment are as under:
(1) Direct Recnritment (2) Casual Callers
(3) Media Advertisement (4) Employment Exchanges
(5) Placement Agencies (6) Management Consultants or Head Hunters
(7) Campus Recruitment (8) Recommendations
(9) Labour Contactors (10)Telecasting
(11)Web Publishing
(1) Direct Recruitment: Sometimes information about the vacant posts is pasted on boards
placed at important places by the organisations. Such information is usually displayed at the Workshop,
Office or the Factory Gate. People who are interested in these jobs apply for them. This method of
recruitment is meant only for the recruitment of unskilled workers. They are called casual labour'ers.
They are paid wages on daily basis. This method does not require any advertisement and is, therefore,
cheap.
(2) Casual Callers: In many reputed organisations some really talented and brilliant people
continue sending their applications from time to time with the hope that whenever some need arises, they
may come across an opportunity for appointment. A waiting list of such people is prepared and as and
when some vacancy arises, these people can be called. This system does not require any advertisement
and is, therefore, cheap.
(3) Media Advertising: Media is an effective way of finding out employees from outside the
organisation. Through it people are atkacted towards the organisation for higher and medium level jobs
in large number. Advertisement is made with the help of newspapers, employment news, television,
magazines, etc. The advertisement gives information about the number of vacant posts, nature of the job,
required qualifications, remuneration, etc. This enlargesthe area of selection forthe organisation and as a
result of it the appointment of good employees becomes possible. However, under this system sometimes
a large number of unqualified applicants send their applications which results in a loss of time and money.
(4) Employment Exchanges: Employment exchanges are set up by the government in almost all
districts. Name and other particulars of a job-seeker are recorded in the employment register. Under this
system, personnel managers forward information regarding vacant jobs to the concerned employment
 150 Business Studies

exchange. Employment officer, in turn, forwards the names of applicants with requisite qualifications,
from among those entered in his register, to the organisation. Manager of the organisation, interviews
them and makes selection as per his requirement. This method of recruitment is mostly followed to select
tSrpists, clerks, peons, etc.
(5) Placement Agencies: These days placement agencies are coming up as a good source of
external recruitment. These agencies are established by private individuals. People can get their names
registered with them. Such a registration is done usually for high or medium leveljobs. On the request of
an organisation, these agencies do the whole job of recruitment on behalf of the organisation. They get
their fee for rendering this service from the organisation. They are helpful in establishing a balance
between the demand and supply of the employees on the national level.
(6) Management Consultants or Head Hunters: These days management consultants are
available in the market. These firms are experts in the recruitment of managerial staff. In case of a vacant
managerial post in an organisation their help can be sought. These firms are already in contact with
suitable candidates for the managerial posts. When ever, ademand is placed before them, they offer their
candidates for such posts. For rendering this services they get their fees or commission. These firms also
perform the job of advertisement for recruitment when the request is made to them.
(7) Campus Recruitment: It refers to recruitment from educational instifutions. Sorne big
organisations remain in touch with the educational institutions with the purpose of recruiting young
talented people. These persons come from colleges, universities, management instifutes, technical
institutes, etc. These instifutions have a placement cell each with the purpose of helping their young
students to find suitable jobs. The human resource managers of various companies get in touch with these
placement cells and obtain the suitable persons for appointment.
(8) Recommendations: With a view to establishing good employer-employee relations,
sometimes managers recruit people on the recommendation of their existing employees. In this way,
present employees feel encouraged and there is a complete control over new employees. This
source is
mostly used for appointing lower level employees.
(9) Labour Contractors: They are the link between labourers and managers. They remain
in
contact with both the labourers and the managers. As and when managers put up demand for labourers,
these contractors make available their supply in no time. This system of labour recruitment is very much
popular in road construction, building construction and plantation industry.
(10) Telecasting: These days some big organisations give precedence to telecasting their job
requirements. During the course of telecasting information about vacant posts, required qualifications
and experience, possible remuneration and the special characteristics of the company are displayed.
(11) Web Publishing: These days internet has become an important medium for recruitment.
Special websites have been created for the purpose of recruitment through internet. The applicants get
information through them about the vacant posts and required qualifications. People having the required
qualifications can get in touch with the company needing their services. Some of the very popular
websites are www.naukri.com, www.Jobsheet.com, and www.clickjobs.com. etc.
Recruitment: Meaning and Sources 151

o Merits and Limitations of External Recruitment Sources

Merits: External recruitment source has the following merits:

(1) Qualilied Personnel: The external source of recruitment gives an opportunity to the qualified
people from outside the organisation to enter it. This benefits both the organisation and the applicants
from outside.
(2) Wider Choice: By using the external source of recruitment, the number of applicants increase
manifold which in turn increase the area of choice. The managers can appoint the most talented persons
after examining the capabilities and talenh of all the applicants.

(3) Fresh Talent: The external source of recruitment helps the people with new and modern ideas
to enter an organisation which certainly helps the organisation.
(4) Competitive Spirit: When the existing employees in an organisation come in contactwith the
new employees recruited through the process of external recruitment, a spirit of competition is born.
Consequenfly, their work performance is improved

(5) Less Chances of Favourtism: External recruitment brings in new faces and all the applicants
happen to be new for the managers. This eliminates any possibility of favourtism.

Limitations: Even if there are many advantages of the external recruitment. It is not without
limitations. Following are its major limitations:
(1) Dissatisfaction among Existing Staff: When the external system of recruitment is adopted,
it puts an end to the chances of promotion of the existing staff . This naturally affects their morale and they
do not work with complete dedication.
(2) Lengthy Process: The external system of recruitment is a lengthy process involving
advertisement for the posts, wait for the applications' selection, etc. which consumes a lot of time. Since it
is a lengthy process, sometimes it is not considered appropriate.
(3) Costly Process: The external process of recruitment involves advertisement and a long
selection process and above all training the selected candidates involves a lot of expenditure. Therefore, it
is an expensive process.
(4) Chances of wrong Selection: Since there is no complete information available about the
external candidates, there is always a possibility of wrong selection. Even if there is a single wrong
selection, it can cost the organisation very heavily.
(5) Increase in Labour Turnover: When the employees are convinced that they will not be in a
position to get any promotion in future they leave the organisation at the first available opporhrnity.
Consequently, the rate of labour furnover increases. This seriously affects the reputation of the
organisation. This does not encourage good talented people to feel athacted to the organisation.
t52 Business Studies

V l. Meaning of Recruitment: It refers to the process of searching for prospective

employees and stimulating them to apply for job in the organisation.
g 2. Process of Recruitment of Employees: (i) Requisition of employees, (ii)
Identification of the sources of recruitment, (iii) Invitation of interested people, (iv) Freparing
the list of deserving applicants.
g 3. Sources of Recruitment of Employees:
L lnternal Sources: (i)Transfer, (ii) Promotion, (iii) Lay-off.
Il. External Sources: (i) Directrecruitment, (ii) Casual callers, (iii) Media advertisement,
(iv) Employment exchanges, (v) Placement agencies, (vi) Management consultants or
head hunters, (vii) Campus recruitment, (viii) Recommendations, (ix) Labour contractors,
(x) Telecasting, (xi) Web publishing
g 4. Merits and Limitations of Internal Sources:
Merits: (i) Increase in motivation, (ii) Industrialpeace, (iii) Easy selection, (iv) Economical
source, (iv) No need of induction, (v) Adjustment of surplus employees.
Limitations: (i) stops the enky of young blood. (ii) Emproyeer b".L-" lethargic, (iii) Not
available in new organisations, (iv) Sense of competition among employees himpered,
(v) Frequent hansfers hit productivity negatively.
V 5. Merits and Limitations of External Sources:
Merits: (i) Qualified personnel. (ii) Wider choice, (iii) Fresh talent, (iv) Competitive spirit,
(v) Less Chances of favourtism.
Limitations: (i) Dissatisfaction among existing staff, (ii) Lengthy process, (iii) cosfly
process, (iv) chances of wrong selection, (v) Increase in labour furnover.

f Meaning and Sources of Recruitment

6 Marks
1. workers.
Explain briefly any six external sources of recruitment of (C.B.S.E. 2004, 0S)
2. What is meantby 'Recruitment'? Explain any four external sources of recruitment. (C.8.5.E.2009)
3. Explain 'Management Consultants'. 'Employment Exchanges' and 'Media Advertising' as external
sources of recruitment.

4/5 Marks
4. Horv does recruitment take place through 'Placement Agencies' and 'Recommendation'?

3 Marks
5. What is the meaning of recruitment?
6. Make a list of the important sources of recruitment.
7. write short note on 'Direct Recruitment' as a source of recruitment.
8. State how recruitment takes place through employment exchanges?
Recruitment: Meaning and Sources 153

9. Name and explain the concepts which relate to the following:

(i) Searching for prospective candidates.
(ii) Temporary separation of employees from the employer.
10. What do you mean by 'Campus Recruitment'?
l Mark
11. What is meant by Recruitment?
Ans. It refers to the process of searching for prospective employees and stimulating them to apply for job
in an organisation.
72. State two internal sources of recruitment.
Ans. (a) Transfer (b) Promotion
13. What is meant by recruitment by demotion?
Ans. It refers to fill the post by sending an inefficient employee at some lower-position.
14. What is meant by Lay-ofP
Ans. It referstothe temporary separation of the employee from the employeron the initiative of the later.
15. What do you mean by External Sources of Recruitment?
Ans.
It refers to invite applications for filling up the vacancies from candidates outside the organisation.
16. Name the source of recruitment in which newspapers, employment news, television, etc.
are used.
Ans. Media Advertising.
17. Name the type of staff which is generally recruited through Management Consultants.
Ans. Managerial Staff.
18. What do you mean by Campus Recruitment?
Ans. lt refers to recruitment from educational instifutions.
19. Why is it said that recruitment is a positive step in the process of staffing.
(C.B.S.E. Sample Paper)
Ans. Recruitment is a positive process because it aims at athacting number of candidates to apply for the
given job and there is no rejection in this process.
20. A-company gets applications on and off even without declaring any vacancy. However as
and when the vacancy arises, the company makes use of such applications. Name the
sourceof recruimentusedbythecompany. (C.B.S.E. SamplePoper)
Ans. The source of recruitment is casual callers.

H Merits and Limitations of lnternal and External Sources of Recruitment

6 Marks
21. 'Filling vacancies from within the organisation has some advantages as well as limitations.' Explain any
three such advantages and any three limitations. \C.8.5.E.2008)
22. Which source of recruitment is needed io bring new blood in the organisation? Explain any three
advantages and any two limitations of this source. (C.B.S.E.2008)
23. What is the meant of Internal Source of Recruitment? Why do organisations prefer recruitment through
internalsources? Explain. (C.8.5.E.2009)
4/5 Marks
24. Explain any five merits of external sources of recruitment.
25. State any four limitations of using internal sources of recruitment. (C.8.5.E.2008)
154 Business Studies

26. Despite internal sources of recruitment being economical, why do the companies not always use this
source?Giveanyfourreasons. fc.B.s.E. sample paper)
3 Marks
27 . "External sources of recruitment are better than internal sources of recruitment." Do you agree
with this
statement? Give any three reasons in support of your answer.
28. How can internal sources of recruitment be better than external sources of recruitment? Give three
reasons in support of your answer.
29. In which source of recruitment employees become lethargic and why?
30. 'Competitive Spirit' is an advantage derived through external sources of recruitment. Explain the
statement.
31 . why are internal sources of recruitment considered to be more economical? (N.C.E.R.r.)
l Mark
32 List two advantages of internal sources of recruitment.
Ans. (i) Increase in Motivation (ii) lndustrial Peace.
33 why 'lnduction' is not required in the internal sources of recruitment?
Ans. Because the employees are already well familiar with the organisation.
34 Name the source of recruitment which stops the entry of young blood.
Ans. Internal source of Recruitment.
35 Which source of recruitment has the benefit of .wider choice'?
Ans. External Source.
36 Which source of recruitment has the disadvantage of increase in labour turnover'?
Ans. External Source.

cAsE sTUDy/AppLrcATroN oRTENTED QUESTTONS

t1l Mr. Bhim Rajanwala is working as a personnel manager in a company of Delhi. Although he is not well
educated he is an experienced person. Before this, he has worked on this post in two large companies.
His intention is always in promoting an efficient employee to a higher post and in demoiing inefficient
one to a lower vacant post: (i) State on what source of recruitment is Mr. Rajanwala concentrating?
(ii) what are the benefits of which company is depriving by using this source?
Hint: (i) Mr. Rajanwala is concentrating on internal source of recruitment. By using this method the
company is depriving of the benefits of external source of recruitment.
(ii) Mention the merits of external sources of recruitment.
tzl Your school has vacancies of teachers. The eligible staff had already been promoted to some posts. Still
some vacancies are left. Explain any four sources of recruitment you will use for filling-up these
vacanctes. (C.8.5.E., Sample Paper)
Hint: Explain any four sources of external recruitment, e.g., Campus Recruitment, Recommendations.
Telecasting and Web Publishing.
Recruitment: Meaning and Sources 155

(lrrrn Session
Mr. Question: Sir, why is recruitment called a positive process?
Mr. Answer: Because through the process of recruitment an effort is made to obtain the maximum
number of applications. This shows the human resource manager's thinking positive. It is on
this basis that it is called a positive process.
Mr. Question: O.K. Sir.
Please tell me, whether demotion along with promotion is also a source of
recruitment?

c
o
o
E
o
o.
Marketing Manager Finance Manager
c (Mr. A) (Mr. B)
.9
o
E
o Supervisor
ct Supervisor
(Vacant Post) (Mr. C)

Mr. Answer: Look at the following diagram carefully and try to understand:
The above diagram shows that Mr. B is a more efficient manager and, therefore, he has been
appointed the Chief Executive Officer. This is recruitnent through promotion. On the other
hand, Mr. A is an inefficient manager and, therefore, he is sent to the vacant post of
supervisor. This is recruitment through demotion.
It is important to note that the need for recruitment does not end with this process. It only
- changes the level of the post. The diagram makes it clear that although the posts of the Chief
Executive Officer and the Supervisor have been filled up yet the posts of Marketing Manager
and the Finance Manager have become vacant. These two posts will need recruitment.
Mr. Question: Thank U, Sir.
 GIIIPrERI4

$tLtGll0ll: M[[lllllG Allll PB0G$S

Selection is a deliberate effort of the organisation to select a fixed number of
personnel from a large number of appllcants.

Learning Objectives
After studying this chapter, you will be acquainted with:
o Meaning of Selection
. Definitions of Selection
o Steps inuolued in the Selection Process
a EmploymentTests

Process of selection begins once the need of the employees is determined and
the process of
recruitment has been completed. Under the process of recruitment different sources
of prospective
employees are searched and the condidates are stimulated to send in their applications
to the
organisation. By the time the process of recruitment is over, applications of all the willing persons
have
been received. Thereafter it is the selection process that is initiated. In this process, qualifications
of the
applicants are compared with the qualifications essential for the job. Those applicants who
fulfil the
essential qualifications required for the job are selected. In case of recruitment, efforts are
made to athact
more and more of the applicants towards the organisation and so it is called a positive process.
On the
other hand, the nafure of selection process is negative because under it efforts are made to reduce
the
number of applicants.

! Meaning of Selection
Selection refers to the process by which qualified applicants
are selected by means of various tests in pre-determined numbers,
out of large number of applicants. Selection?
It relers to the process of sueening
I Definitions of Selection job applicants to ensure that the most
candidotes ore hired.
Following are the main definitions of selection:
(1) AccordingtoDaleYoder, "selec.tiorti.stheprocess inwhichcandidotesforemploymentoredisidedin
luro c/osses th().s. ro L;re ro be oliered ernployment ond those who ore not,,
',i
Selection: Meaning and Process 757

(2) According to Weihrich and Koontz, "Seiecting manager is choosing/ro m omong the c<tndidotes the
one who best meeb the position requirements."
It is clear from the above definitions that under the process of selection, one or a few among several is
selected on the basis of pre-determined qualifications.

I Steps involved in the Selection Process

In different organisations different selection processes are adopted. In small organisations, it is brief
but in large organisations it is extensive. Main steps of selection process adopted by large organisations
are as under:
(1) Preliminary Screening: (a) Preliminary Interview (b) Filling up of BlankApplication Form
(2) Selecflon Tests, (3) Employment Interview, (4) Reference and Background Checks,
(5)Selection Decision, (6)MedicalExamination, (7)Job Offer, (8) Contractof Employment.

(1) Preliminary Screening: First of all, the applications received during recruitment process are
scrutinised. Scrutiny of application forms is made to verifu whether the candidates fulfil all the
qualifications essential for the job. On what conditions a person's services will be available to the
organisation, is the next point to be seen. The applicants may put forth their conditions regarding salary
acceptable, duration, promotion, etc. Those candidates whose conditions are not acceptable to the
organisation are not called for preliminary interview and a regret letter is issued to them citing reasons.
Thus, by not calling the candidate for preliminary interview, the organisation prevents the loss of time and
money both of the candidate and the organisation itself. Apart from this, here the process of preliminary
interview and filling in of the blank application form takes place. Following are their details:
(a) Preliminary Interview: The object of the
preliminary interview is to ensure whether the applicant is
physically and mentally fit for the job. During the course of Intenriew?
the interview, candidates are asked questions related to It to the testing on the basis ol face. to
reJers
face interaction between the interuiewer(s)
their education, experience, taste, age, etc. Those and the opplicont with o uiew to finding the
candidates who come out successful in the preliminary suitobility of condidate(s) as per the job
interview are asked to fill in the blank application form.
The importance of the interview in the selection process is given below:
(i) An interviewer draws out the relevant information since it provides a valid sample of the
applicant's behaviour.
(ii) By using the information mentioned in the application form, the interviewer can guide the
applicant into explaining why certain jobs appeal to him.
(b) Filling up the blank application form: Blank application forms are the printed forms of the
organisation. For different posts there are different forms because for each post persons of different
qualification are required. While preparing these forms, two things must be kept in view: first, these should
convey the maximum possible information, but the information asked for should be such as requiring
brief answer. Secondly, questions should be directly related to the post. Ordinarily, following information
is asked in these forms:
 158 Business Sfudies

(i) Qualification: Under this heading, information regarding academic qualification, technical
qualification , experience, knowledge of languages, haining , subject of specialization, etc. are obtained.
(ii) Personal Information: Name of the applicant, father's name, age, marital stafus, sex, family
position, taste, etc.
(iii)Minimum AcceptableSalalv:Minimumsalaryandotherperksacceptabletothecandidate.
(iv) References: Candidate is asked to write the name of two or three persons who may give
information about candidate's character, social relations, etc.
(v) Other Information: Any other information that may be helpful in the selection of the
candidate.
(2) Selection Tests: In the selection process, selection tests have an important place. Through
these tests, ability and skill of the candidate are measured. These tests are divided into the following three
categories:
A. Proficiency Tests
(i) Specialisation or Special Trade Efficiency Test, (ii) Dexterity Test.
B. Psychological Tests
(i) Interest Test, (ii) Intelligence Test, (iii) Aptitude Test, (iv) personality Test.
C. Other Tests
(i) Knowledge of Language Test, (ii) General Knowledge Test.
A. Proficiency Tests: In proficiency test candidate's ability and skill manifested in an examination
are verified. Here special attention is paid to see the correctness of the ability and skill as emphasised by
the applicant. Proficiency tests are of the following two kinds:
(i) Specialisation or Special Trade Efficiency Test: The objective of this test is to verif-v the
specialisation of the candidate in a special field. Trade here refers not to business/commerce but special
field. For example, while selecting a computer operator in a business organisation, it will be ensured
whether the applicant specializes in this trade or field? This test, in turn, may be of two types:
(a) Theoretical Knowledge Test. and (b) Practical Knowledge Test. Purpose of theoretical knowledge
test
is to enquire about the technical aspect of that field. For instance, asking the computer operator about
different parts of the computer and knowing whether he can put right the computer in case it breaks
down? Practical knowledge test is to get the work done in respect of the specialised field by the candidate.
For instance, asking a candidate for the job of computer operator to operate the computer.
(ii) Dexterity Test: Those jobs where physicallabour is called for, there the ability of the candidate
is known by putting him on dexterity test. Such a test throws light on how quickly and efficiently the
candidate moves his body and other limbs while on work. For instance, to test the speed of the rnovement
of fingers on the key board of a comprrter by the computer operator. There is a difference between
practical knowledge test and dexterity test. Practical knowledge test is concerned with knowing whether
the candidate has knowledge about operating the computer; while dexterity test measures the speed of
operating the computer.
B. Psychological Tests: Some selection tests are of psychological nafure. These tests inform
about the conduct and efficiency of the candidate. Although two or more persons may have equal
specialization in a given field, yet there may be difference in their personality, intelligence, conduct, taste,
Selection: Meaning and Process 759

etc. This difference is made clear with the help of psychological tests. Such tests are helpful in the
comparative appraisal of different persons. Objective of psychological tests is to examine the mental
ability, interest in work, maturityr, etc. of the candidate. Main psychological tests are as under:
(i) lnterest Test: The objective of this test is to examine the interest of the candidate in a special
work. On the basis of such a test it becomes easy to appoint the candidate on the job of his interest. As a
result, applicant gets maximum job satisfaction and he plays significant role in the success of the
organisation.
(ii) Intelligence Test: The assumption behind this test is that a more intelligent person can learn
work quickly and easily and the organisation does not spend much on his training. In order to test the
intelligence of the candidates, their reception power, memory power and reasoning power, etc. are
examined. For this test, a long list of questions is prepared and the candidates are asked to answer the
same in a given time period. On this basis their level of intelligence is known.
(iii) Aptitude Test: Through this test, efforts are made to know the hidden qualities of the
candidate, so that it is ensured if he can be taught by training or not. In other words, the test that measures
the learning capacity of a candidate is called aptitude test. Thus, aptitude test looks for the learning
capacity of a person to do a particular job.
(iv) Personality Test: By this test it is seen how much ability
a person has to interact with others,
how much he can influence and motivate them. It is also seen whether or not he has the power to remove
the obstacles that may arise in the job on which he is appointed. For instance, a person who does not
understand the sufferings of the others, cannot become a good doctor. Similarly, a person who does not
like to mix with others cannot become a good salesman.
C. Other Tests: Main objectives of these tests are to know the understanding of the candidate, his
communication ability, his mental maturity, writing ability, alertness, etc. These tests are of two typesl
(i) Knowledge of Language Test: In this test, thoughts of the candidates are seen. How he puts his
thoughts in black and white, what is his style of language, how is his handwriting and what is his speed of
writing?
(ii) General Knowledge Test: Candidate's wisdom, memory power, alertness, general taste, etc.
are known by way of this test. Written tests are usually conducted when the number of applicants is very
large for limited posts and their academic level is different.
(3) Employment Interview: Having successfully cleared all tests related to employment by the
candidate, he is called for final interview. Its objectives are to see the look of the candidate, his way of
talking, his conduct and temperament, his interest, presence of mind, and maturity, etc.
Maininformationsgatheredduringthecourseof intervieware: (i) physical qu.ility. (ii) verificationof
academic degrees as filled in the application forms. (iii) interest in work. (iv) quick wittedness. (v) generai
intelligence. (vi) memory power, etc.
Mosfly there are two types of interviews in a selection process. (i) Preliminary lnterview: In it
candidate is physically and mentally examined. Those found deficient are not included in subsequent
process. It is the first stage of selection process. Which has already been explained. (ii) Final Interview: It
is mostly conducted in two stages. In the first stage, personnel manager collects detailed information
regarding candidates. Those found suitable on the basis of appraisal are directed for interview with those
departmental managers who had put up demand for their services. Departmental manager converses
face to face with the candidate on the basis of nature of work and having satisfied himself, declares the
latter successful in the interview.
160 Business Sfudies

(4) Reference and Background Checks: After a candidate is declared successful in the interview
then some information about him is gathered from those persons whose name figures in the column of
'References'. These informations relate to the character. social relations. background. etc. of the
candidate. To obtain this information the employermay also contactfriends of the candidate, his pastand
present employers.
(5) Selection Decision: Applicants who clear Selection Tests, Employment Interview and
Reference checks are selected. Prior to take final selection decision, the opinion of concerned manager is
sought (Concerned manager here means the manager of the department where the selected employee
has to work.)
(6) Medical Examination: At this stage the candidate is put to medical examination. There are
three aims of medical examination: (i) physical fitness for the job concerned, (ii) to protect the business
organisation from infectious diseases, and (iii) to check excessive expenditure on the treatment of the
employees. Convinced of the significance of medical examination, now-a-days, no appointment can be
made in any organisation without first undergoing medical examination by the candidate.
(7) Job Offer: After successfully clearing the Medical Examination Test, job offer is given to the
selected candidate. For job offer, the Appointment Letter is handed over. A date is mentioned in the
Appointment [etter by when one has to report for the dup.
(8) Contract of Employment: After the acceptance of job offer by a selected candidate, he
becomes an employee of the organisation. In this phase the appointee signs various documents. Main
document among them is the Attestation Form. In this detailed description of the employee is provided
which he himself attests. This can be used at the time of need in future. Apart from this, a written contract
of employment is framed in which the following information is provided:
(i) Job Tifle (ii) Responsibilities
(lii) Date of Regular Service (iv) Rate of Remuneration
(v) Allowances (vi) Working Hours
(vii) Leave Rules (viii) Grievance Removal Procedure
(ix) DisLiplinaryProcedure (x) Termination Procedure.

g 1. Meaning of Selection: Selection refers to the process by which qualified applicants are
selected by means of various tests in pre-determined number, out of large number of
applicants.
g 2. Selection Process:
(i) Preliminary screening: (a) Preliminary interview, (b) Filling in of blank application forms,
(ii) Selection tests, (iii) Employment interview, (iv) Reference and background checks,
(v) Selection decision, (vi) Medical examination, (vii) Job offer, (viii) Contract of
employment,
Z 3. Selection Tests: (A) Proficiency Tests: (i) Specialisation test, (ii) Dexterity test.
(B) Psychological rests: (i) Interest test, (ii) Intelligence test, (iii) Aptitude test,
(iv) Personality test. (C) other Tests: (i) Knowledge of Language test, (ii) General
knowledge test.
Selection: Meaning and Process 161

! Meaning and Process of Selection and Ernployment Tests

6 Marks
1. Explainthestepsintheprocessof selectionof employees. rc.8.5'E'2009)
2. Explain, in brief. any six steps involved in the process of selection of employees. (C.B.S.E. 2004,05)
3. Explain, in brief, first six steps in the selection process' G.B.S'E' 2006)
4. What is meant by 'selection'? Explain any five steps involved in the process of selection of employees'
(c.8.s.E.2007)
5. You are the Personnel Manager of Anoop Ltd. You want to appoint staff for your company. Explain the
'selectionProcedure'youshouldfollowforthis. (C.B.S.E. SamplePoper)

4/5 Marks
6. How are candidates short-listed through preliminary and selection interviews?
7. Explain briefly any four tgpes of employment tests.
3 Marks
8. What is an aptitude test? G.8.5,E.2001)
9. What is meaniby 'recruitment' and 'selection' of employees in the process of staffing? (C.8.5.E.2006)
10. Define selection.
11. I-ist the steps in selection process.
12. Explain briefly how prelirninary screening is done in the selection process?
13. What is interview?
14. Explain the importance of interview in the selection process.
l Mark
15 What is meant by Selection?
Ans. Selection refers to the process by which qualified applicants are selected by means of various tests in
pre-determined numbers, out of large number of applicants.
16 Give first two stages of selection process.
Ans. (i) Preliminary Screening (ii) Selection Tests.
17 What is the obiective of selection tests?
Ans. To measure the ability and skill of the applicants.
18 What information we get through Aptitude Test?
Ans. Through this test, an effort is made to know wheiher an applicant can be taught through haining or
not.
19 What is the objective of 'emplogrment interview' as one of the steps of selection process?
Ans. To see the looks of the candidate, his way of talking, presence of mind, etc.
What is the objective of 'Medical Examination' as one of the steps of selection process?
Ans. To protect the business organisation from infectious diseases'
27 Determine the right sequence of setection and recruitment in the staffing process.
Ans. (i) Recruitment (ii) Selection.

Qrrry Session
For this query session, questions from readers' side are invited.
 GHIPIER 15

IRAI 1I I II G [1I D II tUTllI PM E]IT

Training develops the talent of personnel, which is the most important asset.
Although it does not appear on the company's barance sheet, yet it has
significant effect on the company,s progress.

Learning Objectives
After studying this chapter, you will be acquainted with:
o Troining and Deuelopment : An Introduction
o Meaning of Training
o Definitions of Training
o Chorocteristics o/ Troining
o Need ot'Troining
o Methods ot'Training: (i) On-the-Job and (ii) Off-the-Job
o Meaning ond choracteristics of Employee Deuelopment
o Need ot' Employee Deuelopment
o Difference between Troining ond Deuelopment
After recruitment and selection being done under the Staffing Process, the next phase is of Training.
Among the different factors of production, like-capital, material, machinery, people etc., Human
Resource is the most important. As the efficient utilization of all other resources depends upon the
efficiency of human resource, that is why, special attention need to be given to make human resource
efficient. In this chapter we will sfudy about Training and one other related term Development.

I Training and Development: An lntroduction

'Human Resource' points toward the human factor of
production, which in itself includes employees of all levels.
'Development' means to make employees expert in all Training ?
fields, i.e. to develop versatility among them. Now the It refers to a
process designed to maintain
and improue current job performance.
question arises - is it necessary to make employees of all
levels expert in every field? While answering this question, it can be said that, in comparison to others,
managerial level employees need to be more expert in every field because they need to develop ability to
handle new responsibilities in fufure. Thus, their all round development is essential and that is why, very
Training and Development 163

often the term development is used with managers. On the other

hand, it is more essential for supervisor and workmen category to
Development ?
make them expert in their respective fields, to which they are directly
If relers to o process designed to
related to, instead of all fields. When effort is made to make an deuelop skills necessory for future
employee expert at doing a particular job, then it is called Training. work octiuities.

I Meaning of Training
Training is a process, by which effort is made to
increase the knowledge and skill of employees for the
successful accomplishment of a specific job.
I Definitions of Training
Different scholars have given different definitions
relating to training. Main among them are as under:
(1) According to Flippo, "Troining is the oct of
increosing the knowledge ond skill of on emplogee t'or
doing o particular job "
12) According to Jucius, "The term training is used fo
indicote only a process by u;hich the ctptitudes skills
ond abilities ol the employees tct per.form specific jobs
ore increosed."
(3)
According to Dale S. Beach, 'Troining is the
orgonised procedure by tuhich people leorn
knowledge ond skill t'or a definite purpose
All the above definitions lay specialemphasis on two
things: one specific job and two, increase in knowledge and skill. To conclude it can be said that training is
that process b-y which efforts are made to increase the knowledge and skill of the employees so as to
perform a specific job efficiently.
Compulsion of Training
This must be understood ouer here thot
training is on unouoidable expense. For
example, il on organisotion neglects the
training need of the employees this does not
meonthatthe organisation is obleto saoethe
troining. cost but in turn this increoses the
troining cosf. As employees will, in the lirst
place, do something wrong with a specific
tosk, then try to find outthe cause of mistake
and only then after work towards redifying
themistoke. Although, this is also troiningbut
it is costlier in comporison to training
prouided by scientific methods. During the
former type of troining employees woste
time, resources ond money. So, troining
must be prouided to the employees, os it will
beneJit both organisation and emplogee$. .

I Characteristics of Training
Following facts are presented with regard to characteristics or nature of training on the basis of
definitions given by different scholars:
( I ) Expense on Training is Investment and not the Wastage: Most important characteristic of
training is that expenses incurred on it constifute investment and not wastage. In other words, expenses
incurred on tralning today will provide benefit to the organisation for a long time in the form of increased
efficiency of the employees.
(2) Relates to a Special Job: Training does not mean increase in the general knowledge of the
employees, rather it is meant to increase the skills of the employees to perform specific job.
(3) Beneficial to both the Organisation and the Employees: Training is a process that is as
much beneficial to the employees as to the organisation. On the one hand, the organisation can realize its
dream of more production at low cost and on the other, increased efficiency of employees enables them to
produce more and qualitatively better goods in less time and thus earn more wages. Besides, there will be
few accidents and their lives will remain safe and secure.
lt-

764 Business Sfudies

(4) Continuous Process: Training is not a process that will impart full knowledge about the job in
one go. Whenever a new method, or a new technology, etc. is adopted in an organisation, training
becomes imperative. Thus, whenever there is any change in business, there is need for training and in
business changes do occur continuously. Training is, therefore, a continuous process.
(5) Training and Development are Different: Training aims at making employees skilful in a
specific job while development aims at imparting knowledge in respect of all fields. Training is essential for
all levels of employees while need for development is relatively more for managerial class.
(6) Training and Education are Different: Knowledge and skill of an employee are increased, to
perform a specific job, by imparting relevant training while his general knowledge and understanding are
increased by imparting education. For instance, when a worker is taught to make a machine by
assembling some parts, it is called training. On the contrary, when a person joins an engineering course, it
is called education.
(7) Essential for both the New and the Old Employees: So far as new employees are
concerned training is a must but even the old hands need be taught new techniques and their knowledge
is to be brushed up regularly.
(8) Necessary for all the Managerial Levels: (i) Superuisory Staff need training for
preparing budget, daily production record, purchases, maintenance of records etc. (ii) Middle Level
Managers need theoretical training instead of practical training. They are given latest informations
regarding planning, organising, staffing, directing, controlling, etc. and (iii) Top Level Managers need
training in respect of labour relations, financial management, production management, public and
government relations, etc. Besides, even ordinary workersare given training to perform their job in a
better way.

! Need of Training
Now-a-days, when business environment is continuously facing changes, the need for training is
increasing. Day by day, new techniques are developed for doing different jobs. New techniques, enable
us to be more productive and qualitative, but to use them training is required. Training, on the one hand,
benefits the organisation by improving the quality and increasing the volume of the production, with the
right use of machinery. On the other hand, it provides opportunity to the employees for promotion and
better job security. Hence, training is important for both employees and organisation.
o A. Benefits to the Organisation
Main advantages of training to the organisation are as follows:
(l) Most economical and the best use of Material and Equipments: Each employee
working at any level makes use of machine and material. For instance, at lower level machine and
material are used, at middle and higher level, computers, type machines and writing material are used.
Trained employees use these machines and material properly and minimise wastage.
(2) Improvement in Quality and Quantity of Output:Training makes it possible to improve
the quality and quantity of output. Consequently, cost of production per unit falls. It is important to note
here that output does not mean goods rnanufacfured by machines alone but it refers to all jobs performed
at all managerial levels. It is therefore evident that training improves knowledge and skill of all levels of
employees and their performance furns excellent.
 r-!

Training and Development 165

(3) Less requirement of Supervision: Trained employees are skilled in their jobs, so their work
does not require much supervision. They can utilise the time thus saved in some other creative works.
(4) Reduced Labour Turnover and Absenteeism: Trained employees remain satisfied with
their jobs and the working conditions of the organisation. They have therefore no inclination to leave the
enterprise or indulge in absenteeism.
(5) lmprovement in Adaptability : Continuous training stimulates mental development of the
employees and they adapt themselves quickly to the new technologies. Besides, they become keen to
learn new things.
o B. Benefits to the EmPloYees
Along with organisation, the employees are also benefitted by training. The advantages to them are
cited below:
(l) Increase in Capacity and Efficiency: Through training one learns the art of doing a special
job methodically. It increases the skill and efficiency of the employee.
(2) Increase their Market Value: Trained employees have a better market value. Increased
market value means that other organisations are always willing to employ trained personnel at higher
remuneration. Consequently, if any employee is feeling uneasy in an organisation because of low
remuneration, he can very easily join another organisation at higher remuneration.
(3) Fewer Accidents: Reduction of accidents is not only beneficial to the organisation it also
protects the life of the worker. By learning the art of operating the machine the rate of accidents can be
minimised. This art can be learnt by training aione.
(4) Job Satisfaction: In the life of an employee, job satisfaction is most important' It means that
job
whatever job he is performing he should be fully satisfied with it. One gets full satisfaction from one's
when one is proficient in that job. Training is essential to acquire proficiency in the job. Training,
therefore, gives job satisfaction to the employee and he gains self-confidence.
Above facts make it clear that training has advantages both for the enterprise and the employees. In
other words, it has importance for both.

! Methods of Training
As is obvious, training is essential at all levels of organisation. Different methods are used to hain
employees of different levels. It is so because the nature of job of different levels of employees is different.
For instance, a worker needs training to learn how to operate a machine, a supervisor needs training to
know how to get work from the subordinates, how to give commands and directions to them. Similarly,
managers (top-level and middle-level) need training to familiarise themselves with functions like
planning, organising, staffing, directing and controlling; financial management; labour relations; etc.
Following are the main methods of training:

I (A) On-the-iob Training and (B) Off-the-Job Training

o A. On-the-Job Training
Under this method, the trainees are asked to do a particular job on a machine or in a workhop or
laboratory. They are taught the technique of operating a machine or using tools and equipments by an
 766
Business Sfudies

experienced employee or a special supervisor. In this way, the trainees learn job
a and also produce
goods' Supervisor examines the work done by them from time
to time and in case of any defect suggests
the way to mend it. Success of this method depends on the experience
and ability of the supervisor and
the interest he takes in imparting haining. In this context J.Betty writes, "On-the-job
training, for its
success needs a properly trained instructor, otherwise an inefficient
instructor con produce a number of
in effici e nt off sprin gs. "

Main methods of on-the-job training are as under:

(1) ApprenticeshipProgrammes
(2) Coaching
(3) InternshipTraining
(4) Job Rotation
. B. Off-the-Job Training
Under this method, training is imparted to the hainees at a place other than the place
of work. This
training is given in special seminars, classes, etc. During the course of this
training both theoretical and
practical information is conveyed to the trainees. Its main methods
are as under:
(1) Class Room Lecturel Conferences
(21 Films
(3) Case Study Method
(4) Computer Modelling
(5) Vestibule Training
(6) Programmedlnstruction
J A. On-the-Job Training
1) Apprenticeship Programmes: This method is used in those
(
cases where higher level of skill is
required to attain complete proficiency to perform a particular job. The
trainee is required to work with an
expert for a specific period of time. Generally, Electrician, Plumbers
and lron-workers are required to
undergo this training. During the course of haining, the expert imparts
complete knowledge of both
theoretical and practical aspects of the job.
(2) Coaching: In this method, a newly appointed person is
made an assistant of an experienced
manager (who is known as coach). For sometime he observes the functioning
of the senior manager and
tries to understand it. Thereafter, the senior manager assigns him
simple jobs and problems and guides
him' When the senior manager feels that he has acquired desired proficiency, then
he is called upon to
find solutions to complex problems and sometimes he has to do the work
of the entire department all by
himself in the absence of the senior manager. In this way, he gradually
acquires full managerial ability.
(3) Internship Training: Under internship training, technical institutions
and business
organisations joinfly impart haining to their members. The objective
of this training is to strike a balance
between theoretical and practical knowledge. Educational institutions impart
theoretical knowledge to
their students but for practical knowledge they are sent to business organisations.
Likewise, employees
already working in business organisations are sent to educational institutions
from time to time to get latest
theoretical knowledge' In this way, both kind of institutions render mutual
help to each other.
(4) Job Rotation: The objective of this method is provide
to full knowledge of all the departments
to an officer' Initially, he is appointed in one department, say, production
department. When he comes to
Training and Development 1,67

know each and everything of that department, he is transferred to another department, say, marketing
department. Later on, he is sent to other departments. Main objective of this training method is to make
available such kinds of officers to the institution as are capable of taking charge of any department under
adverse circumstances.

I B. Off-the-Job Training
(1) Class Room Lectures/Conferences: Under this method, theoretical knowledge of the
managers is brushed up. They are informed of the latest techniques for tackling different problems. In
large organisation, permanent experts are appointed to pass on such informations to the managers. As
required they deliver lecturer on different subjects from time to time. Small organisations which cannot
afford to appoint permanent experts, invite experts from educational instifutions to deliver lectures.
(2)^Films: Films can be very efrective technique particularly where demonshation of skill is
requirid. It is widely used in conference discussions.
(3) Case Study Method: Under this method, trainee managers are called upon by senior
managers to solve a special problem. All trainees try to solve the problem on the basis of their individual
knowledge and experience and tally it with others. There are arguments and counter-arguments among
them when different solutions are presented for a problem. Each one presents evidence in support of his
solution. These arguments and counter-arguments are heard by the senior manager. On the basis of
arguments and counter-arguments and by using his own personal experience, the senior manager
presents a suitable solution and points out the shortcomings in the efforts made by them in suggesting
solution to the problem.
($pomputer Modelling: It is a computer-based training where the trainee uses computer to
increase his or her skills. This method is used where training is imparted for a high risk or high cost
involved situations, such as, imparting training for defusing a time-bomb
(5) Vestibule Training: Under this method, with a view to imparting training to new employees, a
separate training centre is set up. An experienced and trained trainer is appointed as an incharge of the
cenhe. Machines, tools and other equipments are so arranged in this cenhe as to present a look of a
workshop. When the employees are trained they are put on the real job.
(6) Programmed Instruction:Thismethodisevolvedby Paul and Pigorswhoweredissatisfied
with case study method. Under case sfudy, all aspects of a big problem are considered simultaneously, as
against it under programmed Instruction, a brief incident is taken into consideration. Trainer and students
seek appropriate solution to the problem on the basis of arguments and counter-arguments among them.
Main advantage of this method is that students get important informations by putting questions to the
trainer.

I Meaning of Employee DeveloPment

Employee development means to improve overall effectiveness of the employees at their current
posts and to prepare them for handling more responsibility in future. In other words, the objective of
Human Resource Development - HRD in an organisation is to prepare those types of managers who not
only perform well in the present but also are able to handle more responsibility at higher posts in the
future. In HRD more emphasis is laid on future than on the present. That is why it is called Future Oriented
168
Business Studies

Process. Through HRD, reasoning ability is developed among the managers,

so that they can easily
understand the relation between cause and effect, and take effective decisions.
o Features of Employee Development
Main feanrres of Employee Development are as follows:
(i) Related to managers, (ii) More focused on future.
(iii) Emphasis on all round development., (iv) More emphasis on education than on training.
(v) Used to develop hidden talent, (vi) To hain employees for accepting challenging jobs.
(vii) Off-the-Job training methods are used.
(viii) More emphasis on reasoning ability/critical evaluation.
. Need for Employee Development
The need for employee Development is mainly for the following reasons:
(i) To rnake the managers able to handle more responsibilities.
(ii) To prepare ways of promotion for the managers.
(iii) To generate ability in the managers for establishing relation between cause and effect.
(iv) To create ability in the managers fbr taking effective decisions.
(v) To improve the work performance of the organisation.
(vi) To increase the market value of the managers.
I Difference between Training and Devetopment
Basis of Dillerencc Traininq Development
. Meanin3 It is a process to increase both knowtedge It is a learning process.
and skill.
2. Purpose Its purpose is to develop special skilt related Its purpose is to develop total
the job. personalifu of a Derson.
3. Job or Career It is a job oriented process. It is a carrer oriented process.
4. Scope The scope of training is limited. It is just a The scope of development is broad.
subset of development. Scope of learning is Training is just a subset of it.
less in traininq.
5. Nature It is related to work. Scope of learning is wider. It is related
to person.

g I' Meaning of Training: A process designed to maintain and

improve cunent job
performance is called training.
g 2' Characteristics of Training: (i) Expense on training is investment and not the
wastage, (ii) It relates to a specialjob, (iii) It is beneficial to both the organisation and the
employees, (iv) Training is a continuous process, (v) There is a differenc-e between haining
and development, (vi) There is a difference between training and education, (vii) It is
essential for both the new and the old employees, (viii) Training is necessary for
all the
managerial levels.
Training and Development 169

g 3. Need of Tranning: The need or benefits of the training are the following:
A. Benefits to the Organisation: (i) Most economical and the best use of Material and
Equipments, (ii) Improvement in Quality and Quantity of Output, (iii) Less requirement of
Supervision, (iv) Reduced Labour Turnover and Absenteeism, (v) Improvement in
Adaptability.
B. Benefits to the Employees: (i) Increase in Capacity and Efficiency, (ii) Increase their
Market Value, (iii) Fewer Accidents, (iv) Job Satisfaction.
g 4. Methods of Training: (A) On the job training: (i) Apprenticeship programmes,
(ii) Coaching, (iii) Internship training, (iv) Job rotation.
(B): Off the Job Training: (i) Class room lectures/conferences, (ii) Films, (iii) Case study
Method, (iv) Computer modelling, (vi) Programmed Inshuction.
g 5. Meaning of Employee Development: Aprocess designed to develop skills necessary
for future work activities is called development.
g 6. Features of Employee Development: (i) Related to managers, (ii) More focused on
future, (iii) Emphasis on all round development, etc.
g 7. Need of Employee Development: (i) To make the managers able to handle more
responsibilities. (ii) To prepare ways of promotion for the managers, etc.
g 8. Difference between Training and Development: (i) Meaning, (ii) Purpose,
(iii) Job or caieer, (iv) Scope, (v) Nature.

I Meaning and Need of Training

6 Marks
1. Why is employees' training necessary in an organisation? Explain in brief any six reasons.
(c.8.s.E.2005)
2. What is the meaning of 'training'? Explain any four needs of training. (C.8.5.E.2007)
3. "Training is beneficial both for the organisation, as well as for the employee." Explain any three benefits
of training towards the organisation and any three towards the employees. (c.8.s.E.2008)

4/5 Marks
4. State any four reasons why training is needed in any organisation? (C.B.S.E. 2008)
5. State any four reasons why training is needed for employees. (C.B.S.E. 2008)
6. State any four reasons how training is beneficialfor employees of an organisation. (C.8.5.E.2008)

3 Marks
7. "Training is imparted even when it is not intended." Comment.
8. "Expense on training is investment and not the wastage." Clarify this feature of training.

l Mark
9. What is meant by training?
Ans. A process designed to maintain and improve current job performance is called training
10 ls expense on training a wastage?
Ans. No, it constifutes investment and not wastage.
170 Business Studies

! Methods of Training
6 Marks
11. Explain any four methods of 'On-the-Job Training'.
12. Explain 'Off-the-Job Training' methods.
13. Explain the following methods of training the workers:
(i) Apprenticeship Programme
(ii) Vestibule Training
(iii) Internship Foreign 2009)
74. Describe the following methods of training:
(i) Apprenticeship training (ii) Job Rotation (iii) Vestibule Training. (C.B.S.E. SomplePaper)

3 Marks
15. Explain the Job rotation training.
76. In which situations Vestibule Training is suitable? Give three points.

l Mark
17. What is meant by On-the-iob training?
Ans. It refers to the process of learning by doing.
18. Name any turo methods of training.
Ans. (o) Job Rotation Training
(b) Apprenticeship Programme.
19. What is the objective of Job Rotation Training?
Ans. Its objective is to provide full knowledge of all the departments to a manager.
20. Give one advantage ofJob Rotation Training.
Ans. Employees gain multidimensional talent.
21. Name the training method in which the knowledge of many departments is imparted.
Ans. It is Job Rotation.

! Meaningof Employee Development and Difference between

Training and Development
6 Marks
22. What is meantby 'Training' and 'Development'? Explain any fourpoints of distinction between them.

4/5 Marks
23. "Some learning opporhrnities are designed and delivered to improve skills and abilities of employees
whereas some others are designed to help in the growth of the individuals in all respects."
IdentifiT and explain the two concepts explained above. (c.B.s.E.2009)
24. What do you mean by employee development? Why it is needed?

3 Marks
25. What is meant by Employee Development?

l Mark
26. Out of Training and Development which one is knoum as future oriented process?
Ans. Development.
 r-t

Training and Development 77L

27. Give any two points of t{re need of development of employees.

Ans. (i) To make the managers able to handle more responsibilities.
(ii) To prepare ways of promotion for the managers.
28. Out of trainlng and development whose scope is wider?
Ans. The scope of development is wider.

tU A newly appointed personnel manager is of the view that there is no need for taining the workers. Do
you agree with this view? Give reasohs in support of your answer.
Hint: No, I do not agree with the view of personnel manager. Also mention the need of taining.

For this query session, questions from readers' side are invited.
 GHIPTER IO

IIIREGIIilG:
ffi PllRTIlIGE AlI II PRI lIG I PltS
"Directing provides movement to the organisation."

Learning Objectives
After studying this chapter, you will be acquainted with:
o Meoning of Directing
. Definitions ol Directing
o Features of Directing
o Importance of Directing
. Principles of Directing
. Elemenb of Directing

Under management after having done planning, organising, and staffing directing begins. So far
competent persons have been appointed on the posts created in the organisation. - Now the important
question that arises is as to how the entire human machinery of the enterprise will ntove The answer to all
these questions is inherent in the fourth function of management, that is, directing. Under directing the
people posted at different posts are so influenced that they start moving towards their work automatically
and finally contribute to the accomplishment of the objectives of the enterprise.
It is important to distinguish between two almost similar words - 'Managing' and 'directing'.
'Managing' is a wide concept and under it, apart from 'directing' the functions like planning, organising,
staffing, and controlling are included. On the other hand, 'directing' is a limited concept and is only a part
of the managing.

I Meaning of Directing
Directing refers to inshucting, guiding, communicating
and inspiring people so that the objectives can be achieved. It
is that part of management process which ensures the Directing ?

efficiency and effectiveness of the employees. It is also and inspiring people in the organisation.
called management-in-action.
Directing: Importance and Principles 173

I Definitions of Directing
(1) According to Koontz and O'Donnell, "Direction is the executiue t'unction ol guiding ond obseruing
subordinotes"
(2\ According to Earnest Dale, "Direction is telling people what to do ond seeing thot they do it to the best
oftheirobility. ltincludesmokingossignment exploiningprocedures,seeingthotmistokesorecorrected.
prouiding on-the-job instructions ond ot' course, issuing orders"

I Features of Directing
Based on the above discussion, the following points stand out regarding the nafure or features of
directing:
(1) Directing lnitiates Action: After completing the 'staffing' function of management the
important question that arises is as to how the entire human machinery will move. The answer of this
question is inherent in the Directing function of management. While other functions prepare ground for
action, it initiates action.
(2) Directing takes place at Every Level of Management: Directing is required aleverylevel
of management. The top-level managers direct their subordinates who are the middle-level managers. In
the same manner, the middle-level managers direct their subordinates who are the supervisory-level
managers, and the supervisory-level managers further direct and guide their subordinates, i.e., the
people who actually do the work.
(3) Directing is a Continuous Process: Directing is a continuous process. The work of a
manager is not merely accomplished by issuing directions and instruciions. He has to constantly review
the work of his subordinates, guide them correcfly and also motivate them from time to time. He has to
constantly ensure that work is progressing as per the plans, and in case of any negative deviation, he has
to take corrective action immediately.
(4) Directing Flows from Top to Bottom: Direction flows from top to bottom. It starts from the
top-level management and ends at the supervisory-level of management.
I lmportance of Directing
The importance of direction is highlighted through the following facts:
(1) lt lnitiates Action: The employees are appointed up to the first three functions of
management (planning, organising and staffing). But they cannot commence their job until they are not
informed about what to do? and how to do? This job manager performs through direction. Thus, it is
evident that it is direction which initiates action in an organisation.
(2) It Integrates Employees Efforts: Many employees work in an organisation. The activities of
all are co-related. Success of an organisation is possible only when everybody does his job efficienfly. If
any one of employees in the employees-chain does not perform up to the mark, it adversely affects the
performance of remaining employees. Thus, it is essential to establish coordination among all the
activities. Manager establishes this coordination by supervising, providing good leadership, motivating
and exchanging ideas with his subordinates.
For example; an employee welcomes customers at a ready made garments showroom. Second
employee shows products to them, third is engaged in packing, fourth takes the payment and fifth says
 174
Business Studies

goodbye to them. Customer willbe satisfied when all the five employees perform
their duties efficiently. If
the employee whose job is to show the products does not behave properly
with the customers, this will
furn the effort of all other employees to be a mere waste.
(3) It is the Means of Motivation: The objectives of an organisation
can only be achieved by
motivated employees. Motivated employees work with full dedication and with a feel
of belongingness.
Now the question is how can the employees be motivated? The work of motivating employees
can be
accomplished through the Directing function of Management.
For example, under Directing function of Management the problems of employees
are curbed by the
manager there and then. Also he guides them in the right direction. In this manner,
they deliver work
performance of superior quality. They get both appreciation and salary
hike for their better work
performance. As a result, they get motivated.
(4) It Facilitates to Implement Changes: Oftenly, employees
show resistance to change in their
organisational shucture. But with the changing demand of time, it needs to be implemented/enforced.
Managers through the medium of Direction shapes the mind set of the employees
in a manner that they
willfully accept changes.
For example, if in an office typewriters are replaced with computers, then a typist
who does not have
the knowledge of computer will definitely show resistance to this change. The
reason of this resistance is
the fear to lose the job. Manager through effective direction makes them a part
of change process and
acquaints them with the benefits of this change. He motivates them to learn modern
technology. He also
takes them into confidence that they wil be shifted to some other departmenvjob
and this relaxes them
from the fear of losing the job. As a result, the employees do notshow resistance to
any kind of change.
(5) It Creates Balance in the Organisation: Sometimes
there is a clash between individual and
organisational objective. Directing helps to settle down these clashes and creates
a balance in the
organisation. On the one hand, a person works in an organisation for the fulfillment
of his objectives
like-higher salary, promotion, etc. On the other hand, the objectives of a company
can be to earn higher
profits, more market share etc. Managers through direction tell employees,
how they can fulfil their
objectives while achieving organisational objectives
For example, Libra Cosmetics Company Ltd. offers commission to his Sales Manager
in addition to
the fixed salary' To earn more commission he wants to make more and more
sales. In his this effort, he
recommends for introducing the scheme of "Buy Two Get One Free". But higher
officials considering it to
be a costly affair declined the same. This is a situation of clash between individual and
organisational
objective. Here rightful direction is needed. Sales Manager by playing the role of director
suggests ways to
sales representative how he can increase sales and thus settles down the clash
which subsequently,
establishes balance in the organisation. Sales manager can suggest for more
advertising, better
services-after-sales, sales on credit, etc.

! Principles of Directing
Following are the main principles of Directing:
(1) Principle of Maximum Individual Contribution:
According to this principle, management
should adopt that directing policy through which employees get motivated and give
their maximum
individual contribution for the achievement of organisational objective.
Directing: Importance and Principles 175

(2) Principle of Harmony of Objectives: According to this principle, there must be full
coordination between organisational and individual objectives. Employees work in an organisation with
an objective to get better remuneration, promotion, etc. On the other hand, organisational goal can be to
earn more profits and to increase market share. Sometimes it is seen that there is a conflict between the
objectives of both the parties. Like-organisation wants that it should get a major share of profit whereas
employees perceives that as they work directly on the job, so more profit must be shared among them in
the form of bonus. Management here must establish coordination between the objectives of both the
parties/factors by adopting suitable method of direction.
(3) Principle of Unity of Command: According to this principle, a subordinate should get
directions from one officer at a time. If the subordinate gets directions from more than one officer, the
subordinate will be unable to prioritise his work. As a result, situation of confusion, conflict and
disarrangement is emerged. By following this principle, eff.ective direction takes place.
(4) Principle of Appropriateness of Direction Technique: According to this principle,
appropriate direction techniques should be used, like to supervise effectively, to provide able leadership,
to adopt free communication and to motivate through right medium.
(5) Principle of Managerial Communication: According to this principle, it should be
monitored by the management that the subordinates get the same meaning for what has been said. This
simplifies the job of the subordinates and they need not go to the managers, repeatedly for enquiring.
(6) Principle of use of Informal Organisafion: According to this principle, there must be a free
flow of information between seniors and subordinates. The success of direction depends upon effective
exchange of information to a great extent. Information should be disbursed both through formal and
informal mediums. Special attention should be given to the informal organisation. This strengthens
formal organisation.
(7) Principle of Leadership: According to this principle, while giving directions to the
subordinates a good leadership must be provided by the managers. By this, subordinates get influenced
by the managers. In this situation, subordinates act according to the wish of managers.
(8) Principle of Follow Through: According to this principle, it must be monitored by
management that to what extent the policies framed and issued directions has been enforced. Thus, it
must be seen whether the employees are following the management or not. If yes, then to what extent. As
per this principle, the job of managers is not to sit idle after framing policies or issuing directions but to
continuously take feedback. The advantage of this will be that if there is any problem in implementing a
policy or a direction it can be removed then and there.

! Elements of Directing
It has been made clear in the nafure of leading that it is not a single activity but a group of functions.
On the same basis, the following functions are included in its scope:
(1 ) Supervision. (2) Communication. (3) Leadership. and (4) Motivation.
(1) Supervision: It refers to monitor the progress of routine work of one's subordinates and guiding
themproperly Supervisionisanimportantelementofthedirectingfunctionofmanagement.Supervision
has an important feature that face to face contact between supervisor and his subordinate is a must.
(2) Communication: It refers to an art of transferring facts. ideas, feeling, etc. from one person to
another and making him understand them A manager has to continuously tell his subordinates about
t76 Business Studies

what to do, how to do, and when to do various things. Also, it is very essential to know their reactions. To
do all this it becomes essential to develop effective telecommunication facilities. Communication by
developing mufual understanding inculcates a sense of cooperation which builds an environment of
coordination in the organisation.
(3) Leadership: It refers to influence others in such a manner to do work what the leader wants
them to do. Leadership plays an important role in directing. Only through this quality, a manager can
inculcate trust and zeal among his subordinates.
(4) Motivation: It refers to that process which excites people to work for attainment of desired
objective. Among the various factors of production, it is only the human factor which is dynamic and
provides mobility to other physical resources. If hrrman resource goes static then other resources
automatically furn immobile. Thus, it becomes essential to motivate human resource to keep them
dynamic, aware and eager to perform their duty. Both monetary and non-monetary incentives are given
to employees for motivation.

g 1. Meaning of Directing: It refers to instructing, guiding, communicating and inspiring

people in the organisation.
g 2. Features of Directing: (i) Directing Initiates Action, (ii) Directing takes place at Every
Level of Management, (iii) Directing is a Continuous Process: (iv) Directing Flows from Top
to Bottom.
g 3. Importance of Directing: (i) It initiates action, (ii) It integrates employees efforts, (iii) It
is the means of motivation, (iv) It facilitates to implement changes, (v) It creates balance in
the organisation.
Z 4. Principles of Directing: (i) Principle of maximum individual conhibution,
(ii) Principle of harmony of objectives, (iii) Principle of unity of direction, (iv) Principle of
appropriateness of direction technique, (v) Principle of managerial communication, (vi)
Principle of use of informal organisation, (vii) Principle of leadership, (viii) Principle of
follow through.
@ 5. Elements of Directing: (i)supervision, (ii) communication, (iii) l-eadership, and
(iv)Motivation.

f Meaning and lmportance of Directing

6 Marks
1. What is directing? Discuss its importance.
2. "Directing is the heart of the management process." Do you agree? Give any four reasons in support of
youranswer. (C.8.5.E.2005,2009l,
3. Explain any four reasons why directing is an important function of management. (Foreign2\}9l

4. 'Directing is not required at all in management of an organisation.' Do you agree. #:":11:

support ofyour answer. ",""(c.8.s.E.2008\
3 Marks
Directing: Importance and Principles 777

5. "Direction is the least important function of management." Do you agree with this statement? Give any
two reasons in support of your answer.
6. Enumerate any two features of directing. (c.8.s.E.2005)
7. Enumerate any two importance of directing as a function of management. (c.8.s.E.2005)
8. How does the directing function bring about balance in the organisation?
9. Clarifu the difference between Managing and Directing.
l Mark
10. Which function of management is knoum as 'Management-in-action'?
Ans. Directing.
11. Out of managing and directing which term has the wider scope?
Ans. The scope of managing is wider as directing is a component of it.
72. Directing is related to which factor of production?
Ans. Human factor.
13. What is meant by directing? (c.8.s.E.2009)
Ans. It refers to instructing, guiding, communicating and inspiring people to achieve common objectives.

I Principles and Elements of Directing

6 Marks
14. Explain the principles of directing. N'C.E.R'T.)
15. Explain the elements of directing function of management.
16. 'Good and effective directing should be based upon certain principles.' Explain any three principles of
Directing. (C.B.S.E. Sample Paper)
3 Marks
. Explain, in brief, the term 'supervision' as an element of directing.
17 (c.8.s.E.2004)
18. Explain, in brief, the term 'motivation' as an element of direction' (c.B.s.E. 2004,06)
19. Explain, in brief, the term 'leadership' as an element of directing. (c.8.s.E.2006)
20. Briefly state any three elements of 'directing'. (c.8.s.E.2007)
l Mark
21. List two principles of directing.
Ans. (i) Principle of individual maximum contribution.
(ii) Principle of harmony of objectives.
22 What is the meaning of 'Principle of Follow Through' of directing?
Ans. To see to what extent the employees are following the management.
23. Give any two elements of directing. (c.8.s.E.2009)
Ans. (i) Supervision (ii) Leadership
24. What is the total number of elements of directing?
Ans. Four.

OrrryS,*ion
For this query session, questions from readers' side are invited.
 suPrRUl$t0il:
MTA]II]IG A]ID IMPIIRIA]IGE
Supervlsion translates plans into action

Learning Objectives
After studying this chapter, you will be acquainted with:
o Meaning of Superuision
. Delinitions o/ Superuision
a Charocteristics o/Superuision
o Role of Superuisor
o Impoftance of Superuision
a Diflerence between Direction and Superuision

I Meaning of Supervision
The word'supervision' is formed by joiningtwo words
'super'and 'vision' The fornrer means bestand the latter
means view Hence, the literal meaning of supervision is
best view. i.e., maintaining the best view possible on the Supenrision ?
work of one's subordinates. Supervision includes both It refers to monitor the progress of routine
looking into the work of subordinates as well as guiding work of one's subordinates ond guiding
them properly.
them properly.

I Definitions of Supervision
Various management experts have defined supervision as follows:
(1) According to Davis. "strperui.sior,- is the
t'unction ol
os.suring that tl-te u,ork is being dorrc as per plan and
insfructiorr-s
(2) According to Viteles, "superrri.siorr re.fers Supervisor ?
to the
direct ond intntediote guidonce ortd control oi It relers to a person who ouersees whot is
subordinote.s in the performonce ol fhei;. tosk " being done by subordinotes ond giue
instructions to ensure optimum utilisation of
res,ources.
Supervision: Meaning and Importance 179

I Characteristics of Supervision
The following are the main characteristics or features of supervision:
(1) It is a universal activity performed at all levels of management.
(2) It is an important part of the directing function of management.
(3) It is a continuous process since supervision is required at all times.
(4) It is very necessary to have face to face contact between the supervisor and his
subordinates. In other words, supervision cannot take place in abshact form.
(5) It ensures that work is proceeding as per the required level of performance.
(6) It aims at ensuring optimum utilisation of human and other resources.
(7) As we move down the various levels of management, supervision keeps growing in
importance. It has special importance for lower level managers, i.e., the managers on
the firing line.

! Position or Role of Supervisor

atthe lower managerial level. Thus, the question
As is clear, supervision has special importance only
which now requires to be answered is what role does the person working at the lower managerial level i.e.,
the supervisor play in the organisation?
(f ) As a Key Man: In every organisation, the work of
puttihg the plans into action is done by
non-managerial members who work under the guidance of supervisor. However, at this level even a little
carelessness may ultimately become the cause of the closure of the organisation. That is why the
supervisor is refened to as the 'key man in the management.'
(2) As a Mediator: In the organisation, the supervisorplays the role of a mediator. He acts as a
link between the higher level managers (both top and middle level) and the workers, and his main job is
to prepare a cooperative atmosphere among the two parties in order to facilitate the achievement of the
goals of the organisation.
(3) As a Human Relations Specialist: A supervisor is faced with a number of problems related
to human behaviour every day, for which he has to try and find solutions. He can do so only if he is a
Human Relations Specialists.
The above discussion makes it clear that a supervisor has to play three different roles at the same
time as a key man, as a mediator and as a human relation specialist.
-
! lmportance of Supervision
The importance of supervision is highlighted through the following points.
(1) Ensures Issuing Instructions: Directing function is also called Management-in-Action.
Action is initiated in direction through supervision. Under this, it is ensured that needed information is
disbursed to the right person. Information is in the form of order or direction. On the basis of these, needful
changes are made in the activities of subordinates.
(2) Facilitates Control: Under supervision, supervisor keeps a close eye on his subordinates.
Wherever he finds any flaws in the work-in-progress, he rectifies them then and there itself. From time to
time deviations are noted by comparing acfual work performance and the desired work performance.
Corrective measures are taken if the need is felt. In this manner, supervision assures control.
 180
Business Studies

(3) Optimum Utilisation of Resources: Under supervision, all the activities are closely
monitored. In this situation, better utilisation of all the r".or..", like human, material, machinery,
etc.
takes place. The problem is at once solved because the employees are always
under a close watch. As a
result, they start doing effective work in minimum possible time.
(4) Maintenance of Disciptine: close eye and timely guidance of th
them a
lesson of discipline. when special attention is given to the ernployees durin
r every
problem is solved at the first instance, this builds pressure o., ih"i, mind to
(5) Feedback: During supervision, a supervisor is always in direct contactwith his subordinates. As
a result, ideas, suggestions, complaints, etc. of employees with regard to managerial decisions are
continuously received by the supervisor. This facilitates the process of receiving feedback and helps to
take better managerial decisions.
(6) lmproves Communication: Whenever a sifuation of dispute arises between any two parties,
the main reason for it is lack of communication. Under supervision, supervisor gives orders
and directions
to his subordinates. Also he in turn receives feedback from them. On the Lther hand, subordinates
communicate their ideas, suggestions, complaints, etc. to the supervisor. In this manner, a friendly
atmosphere is created between both the parties. This strengthens fiee communication.
(7) Improves Motivation: Every employee aspires to see himself as an important part of the
organisation. During supervision, a supervisor divides the work in a manner that every person
feels the
responsibility for an important job in the organisation. By getting this kind of importancl,
an employee
feels motivated and renders his responsibility with more diligeni'e.
(Note: All the 7 points of importance can be seen in form of job of a supervisor
as well.)
! Difference between Direction and Supervision
Basis of Difference Direction Supervision
(1)Meaning It refers to instructing, guiding, It refers to monitoring the progress of
communicating and inspiring people routine work of one's subordinates
so that the objective can be achieved. and quidinq them orooerlv.
(2)Scope Its scope is wider as supervision is one Its scope is nanower as it is one of the
of the elements of it. elements of direction.

Z l.Meaning of Supervision: Supervision refers to monitoring the progress of work of

one's subordinates and guiding them properly.
g 2. Characteristics of Supervision: (i) Universal activit5r, (ii) An important part of the
directing function, (iii) Continuous process, (iv) Face to face contact,
1vl Ensures required
level of performance, (vi) Optimum utilisation of resources, (vii) Special importance for
lower level managers.
g 3. Position or Role of supervisor: (i) fu a key man, (ii) As a mediator, (ii) fu a human
relations specialist.
V 4. Importance of Superuision: (i) Ensures issuing instructions, (ii) Facilitates control,
(iii) optimum utilization of resources, (iv) Maintenance of discipline, (v) Feedback,
(vi) Improves communication, (vii) Improves motivation.
g 5. Difference between Direction and supervision: (i) Meaning, (ii) scope.
Supervision: Meaning and Importance 181

I Meaning and lmportance of Supervision

6 Marks
1. A supervisor is not at all required in an organisation. Do you agree? Give reasons in support of your
answer.
2. "Thepostof supervisorshouldbeabolishedinthehierarchyof managers." React. (C,8.5.E,2001)
3. "Supervision is an important element of directing function." Explain any four reasons in support of the
above statement. (C.8. S.E. Sompl e Paper)

4/5 Marks
4. How supervision is helpful in the improvement of communication and motivation?
5. 'Supervision is not at all required in an organisation.' Do you agree? Give two reasons in support of your
answer. (c.8.s.E.2008)
3 Marks
6. Define the term supervision. (c.8,s.E.2001)
7. "The post of supervisor should be abolished in the hierarchy of managers. " Do you agree? Give any
three reasons in support ofyour answer. (c.8.s.E.2004)
8. What is meant by 'supervision'? (c.8.s.E.2004,06)
9. State three characteristics of supervision.
10. Enumerate any two functions of a supervisor. (c.8.s.E..2005)
1 1. Explain how supervision facilitates control. (c.8.8.E.2006)
12. Explain how supervision helps in optimal utilization of resources. (c.8.s.E.2006)
13. Distinguish between 'Direction' and 'Supervision'. (c.8.s.E.2007)
l Mark
14. What is meantby'supemision'? (Foreign2009)
Ans. Supervision means to monitoring the progress of work of one's subordinates and guiding them
properly.
15. Who is a supervisor? (N.C.E.R.T./
Ans. A supervisor is a person who oversees what is being done by subordinates and gives instructions to
ensure optimum utilisation of resources.
16. Supewision is related to which leveVs of management?
Ans. To all the three levels.
17. State two points of importance of supenrision.
Ans. (i) Ensures issuing instructions. (ii) Facilitates control.
18. How supervision is helpful in maintaining discipline?
Ans. Through close eye and timely guidance of the employees.
79. How does a supervisor act as a linking pin between management and the operatives?
(c.B.s.E.2009)
Ans. The supervisor is a link between management and the operatives as he conveys management ideas
to the operatives (workers) on one hand and operatives problems to the management on the other.

Qrr,, Session
For this query session, questions from readers' side are invited.
 MIlTIUAIIllil:
MTIII I lIG A1{ D I M PII NTAil G T
'rPoorly motivated people can nultify the soundest organisation.,,- Allen

Learning Objectives
After studying this chapter, you will be acquainted with:
. Meoning ol Motiuation
a Definitions of Motiuation
a Characteristics of Motiuation
a Motiuation Process
o Importonce of Motiuation
o Maslow's Need-Hierachy Theory
o Monetary and Non-Monetary Incentiues
a Dtlerence between Monetary and Non-Monetary Incentiues

The chief function of a manager is to achieve the preldetermined objectives

of the organisation by
organising the activities of various persons working in the organisation. By various p".ron,
we mean
humon factor in production on whose efficiency the utility of nin,hun-ian
lctctorslike machine, material,
etc. depends. It is clear that human factor in production has an important place
in the organisation. Now
the important question is how to utilise the available ability of the human factor
efficiently. The efficiency
of a person depends on two factors - firstlv. the level of abilit- to clo a certain work and secondlv.
the
willingness to do the work. So far a*s the first factor is concerned it can be
acquired bv edurcatiop and
haining. but the second factor can be created by motivation.
The above information is shown in the following diagram given on the next page.

! Meaning of Motivation
Whenever a person does some work there is always a
need behind it which motivates him in doing so. This
impelling need is called motive Under motivation, the will
to do a work is aroused among the people by making them
feel the motive behind their work. Motivation is derived
from the word 'motive' which means that latent power in a
Fire-Butter-Flame Relationship
In order to utilize completely the copacitg of
the workers the late.nt (hidden) lire of their
capacity or ability has to be fed with the
butter of motiuation. This resufts in a brilliant
flome ol work efficiency and the manager
succeeds in his objectiue.
Motivation: Meaning and Importance 183

vyDepends

q9 Created

Motivation

1. Moneytary lncentives 1. Non-Monetary lncentives I

I

, Examoles
\-7 ,

e9
1. Pay and Allowances
2. Productivity Linked 2. Organisational Climate
Wage lncentives 3. Career Advancement Opportunity
3. Bonus 4. Job Enrichment
4 Profit Sharing 5. Employee Recognition Programmes
5. Co-partnership 6. Job Security
6. Retirement Benefits 7. Employee Participation
T.Perquisites 8. Employee Empowerrnent

person which impels him to do a work. In brief, motivation is that

process wherein the persons are made to recognise their needs, in
the realisation of which, they do hard work for the interest of the Motive?
enterprise. It refers to the hidden will power in
an indiuiduol which impels or
I Definitions of Motivation encourages himlher to urork. This is
an intemol etcpefience.
Many scholars have given different definitions on the basis of
their experience from time to time. Some of the prominent definitions are the following.
(1) AccordingtoKoontzandO'Donnell,'Tomotiuate
is to induce people to ocr ilt o desire:ci rllorlner
(2) According to W.G. Scott, 'Nlotilotiort nreorr.s .r
Motivation?
process ol stintttlating people to octiot-t to ttccomplish
desirecJ -qon/s " It refersto thot process which ucitespeople
to work for the attainment of o desired
 784
Business Studies

! Characteristics of Motivation
On the basis of opinions expressed by various Motivators?
scholars, the chief characteristics of motivation are the It refers to that technique which is employed
following: to motiuote people, such os, bonus, job
(1) Motivation is an Internal Feeling: Motivation security, etc.

is a psychological concept which lies within a person. First of all

some needs appear in the mind of an
individual which affect his behaviour. He wants to do some work in order to
satisfrT those needs.
(2) Motivation produces Goal-directed Behaviour: Motivation
is a power which leads the
employees to the achievement of their goal. The behaviour of the motivated
employees clearly shows that
they are inclined towards the achievement of their goal. For examples, promotion
is a technique of
motivation. The employees who desire to be promoted definitely improve
their work performance.
(3) Motivation can be either Positive or Negative: There are
two types of employees from
point of view of motivation-laborious as well as shirkers. Those
employees who are laborious in the true
sense of the word are encouraged with some awards. This is called positiue
motiuotion.On the other hand,
those workers who are by nafure shrikers are encouraged to work
with the threat of demotion, suspension
ortermination. Such people startworking because of the fear factor. This is
called, negatiue motiuation.
(4) Motivation is a Complex Process: All the people
working in an organisation have different
nafure' All have different needs. Therefore, everybody cannot be motivated
with only one motivator.
Keeping in mind the needs of the person concerned, monetary and
non-monetary techniques are used.
Theref.ore, it is a complex process.

! Motivation Process
The objective of motivation process is to know as to where from does it
start and where does it end.
This is a work that cannot be finished at one go. It is a combination of
various steps. Robbins and
Coulter have presented the following ,Need-Satisfuing process,:

( 1) Unsatisfied Need:
At the first step of motivation a person feels the need of something or there
is
a feeling that he lack something.
(2) Tension: The person concerned gets tensed at the very
idea of his need not being satisfied.
(3) Drives: Drive signifies some sort of fumult in the mind
of the person concerned. At this step the
person concerned endeavours to fulfil his need. The fulfilment
of need depends on the direction and
intensity of the drive.
(4) Search Behaviour: At this step, a person tries to
discover different options to fulfil his need. He
puts the best option into operation.
(5) Need Satisfied: If the option really happens to be
a correct one, satisfaction is obtained.
Motivation: Meaning and Importance 185

(6) Reduction of Tension: The person concerned gets his tension relieved when his need is
satisfied.
Conclusion: The above motivation process shows that when a person gives a good work
performance, there is some need lurking in the background which is continuously exerting pressure on
him. Therefore, needs continuously motive a person.

f Importance of Motivation
Rensis Likert, while pointing out the importance of motivation, has called it the 'core of
management'. Similarly, Allen while stressing the need and importance of motivation has observed
that 'poorly motiuated people can nullify the soundest organisation.' The importance of motivation is
brought out by the following facts:
(1) Improves Performance Level: The ability to do work and willingness to do work both affect
the efficiency of a person. The ability to do work is obtained with the help of education and training and
willingness to do work is obtained with the help of motivation. Willingness is more important in
comparison to ability. For example, a person is highly educated and he is recruited on this very basis. But
it is not essentialthat he willdo outstanding work. He shall have to be motivated to do good work. This is
possible only through motivation. Therefore, motivation improves efficiency. The efficiency of a person is
reflected through increase in productivity and decrease in costs.
(2) Helps to change Negative or Indifferent Attitudes of Employees: Some employees of an
organisation have a negative attitude. They always think that doing more work will not bring any credit. A
manager uses various techniques to change this attifude. For example, if the financial situation of such an
employee is weak, he gives him a raise in his remuneration and if his financial condition is satisfactory he
motivates him by praising his work.
(3) Reduction in Employee Turnover: The reputation of an organisation is affected by the
employee turnover. This creates a lot of problems for the managers. A lot of time and money go waste in
repeatedly recruiting employees and giving them education and training. Only motivation can save an
organisation from such a wastage. Motivated people work for a longer time in the organisation and there is
a decline in the rate of furnover.
(4) Helps to Reduce Absenteeism in the Organisation: In some of the organisations, the rate
of absenteeism is high. There are many causes for this - poor work conditions, poor relations with
colleagues and superiors, no recognition in the organisation, insufficient reward, etc. A manager removes
all such deficiencies and motivates the employees. Motivated employees do not remain absent from work
as the work place becomes a source of joy for them
(5) Reduction in Resistance to Change: New change continue taking place in the organisation.
Normally workers are not prepared to accept any changes in their normal routine. Whereas it becomes
essential to bring in some changes because of the demands of time. Employees can be made to accept
such changes easily with the help of motivation. Motivated people accept these changes enthusiastically
and improve their work performance.
 186 Business Studies

I Maslow's Need Hierarchy Theory

The advocate of this theory is Abraham Maslow who first of all presented
the Need Hierarchy Theory of Motivation in 1943. Maslow developed the theory
of motivation on the basis of a chain or sequence of needs. According to him, a
man has countless needs and they can be categorised on the basis of priority. For
example, the needs which are more sharply felt should be satisfied first and the
less sharply felt needs should be satisfied aftenwards. similarly, the least felt
needs should be thought of last of all. Maslow has divided different human needs
on the basis of priority into five parts which are shown in the following diagram:

Abraham Maslow
/s\
Self-Actualisation (1908-1970)
Needs

/ esteerlueeds \

/ nffliation ortociar Needs

z\
Safety or Security Needs \
t.\
Physiological Needs \

(Pyramid Representing Maslow's Hierarchy of Needs)

(i) Physiological Needs: In this category, those needs are included which need to be satisfied to
keep a man-alive. These needs include food, shelter, clothing and sleep, etc.
(ii) Safety or Security Needs: After physiological needs are satisfied, a man thinks about his
safety. Safety needs include physical and economic needs. Physicol Safety refers to def.ence against
accidents, attacks, diseases and other unexpected problems. Economic Sofety means safety of
livelihood and arrangement for old age.
(iii) Affiliation or Social Needs: Man is a socialanimal and wanh to live in society honourably. It
is, therefore, necessary that he should have friends and relatives with whom he can share his joys and
sorrows. Maslow has placed social needs at number three in order of priority.
(iv) Esteem Needs: These needs are called ego needs of man. This means every human being
wants to attain a higher stafus so that his power increases and he gets authority.
(v) Self Actualisation Needs: Self-actualisation needs refer to the disire to maximize whatever
potential an individual possesses. For example, a musician wants to be proficient in music. Similarly, a
poet wants to be a specialist in his field.
Motivation: Meaning and Importance 787

o Assumptions of Maslow's Theory

Following are the assumptions of Maslow's theory:
(i) People's behaviour, being affected by their needs.
(ii) There are many needs of people and their order or priority can be made.
(iii) Motivation ends with the satisfaction of needs. After that the next higher need serves as a motivator.
(iv) People move to next higher need only when the lower level needs are satisfied.
o Hierarchy of lndividual and Organisation Related Needs
According to theory, the order of an individual and organisational needs can be understood in the
following example:
Individual Need Hierarchy Organisation Related Need Hierarchy
5. Self Fulfillment 5. Achievement of Goals
4. Status 4. Job Title
3. Friendship 3. Cordial Relations with Colleagues
2. Stability of Income 2. Pension Plan
1. Hunger 1. Basic Salary

(Table - 1) (Table - 2)
(1) Individual Need Hierarchy: An individual's needs outside the organisation which motivate
him have been shown in Table 1.
(2) Organisation Related Need Hierarchy: The order of needs motivating an individual in the
organisation have been shown in Table 2.
. Conclusion
The above analysis shows that an individual has many needs and that their order can be determined.
The moment an individual's one need is satisfied, he gets worried about his next need. After the
satisfaction of the second need comes the third and this order continues till all his needs are satisfied. It is,
therfore, clear that needs can be motivators. In order to satisfy needs an individual himself wants to work
with vigour and full capacity.
o Criticisms
If the special study is not undertaken, Maslow's theory of hierarchy of needs will appear to be right.
However, many researchers have opposed this theory and given their own criticisms which are as under:
(i) Maslow's hierarchy of needs is not permanent. This changes according to the sifuation.
(ii) It is not necessary that the needs of only one category be strong at a time and the remaining remain
unimportant.

! Financial/Monetary and Non-Financial/Non-Monetary lncentives

Incentive is that power which motivates an employee towards a set target. These incentive are
classified as Financial and Non-financial. In the context of financial and non-financial motivators it is said
that, "Finoncialondnon-financiolincentiuesarerequiredtomotiuatetheworkersfor horder work justas
right ond left t'oot both are essential for walking. " In other words, both have the same importance and it is
essential to implement the both simultaneously.
188 Business Studies

o (A) Financial Or Monetary lncentives

Financial incentives are those incentives which are evaluated in terms of money. Evaluation in terms
of money does not mean that all types of incentives should be in the form of money but some such
facilities can be provided as can be evaluated in terms of money. For example , renl free house, car,
facility of a servant, etc. Generally. financial incentives are helpful to satisfy Physiological and safety
needs. Following can be included among the chief financial incentives:

(1) Pay and Allowances (2) Productivity Linked Wage Incentives

(3) Bonus (4) Profit Sharing
(5) Co-partnership (6) Retirement Benefits
(7) Perquisites
(1) Pay and Allowances: Pay and allowances are the chief monetary incentives for every
employee. Salary includes basic pay and deamess allowance alongwith other allowances. The employees
remain motivated with the annual increment in pay and allowances.
(2) Productivity Linked Wage Incentive: The employees can be motivated by linking
productivity with their salary. In other words, the increment in salary will be in direct proportion of
increase in productivity.
(3) Bonus: Bonus refers to that payment to employees in addition to their regular remuneration
which is paid as a reward of their good services. The bonus plan helps in establishing cordial relations
between owners and employees. These days the payment of bonus to employees is prevalent in almost all
industries. The payment of bonus may be in cash or kind. For example, an employee can be given cash
reward or sent abroad in recognition of hisiher services.
(4) Profit Sharing: The earned profit of a business organisation is the outcome of the efforts of two
parties, namely- owners and employees. The owners invest money and employees provide services to
fulfil the objectives. Consequently, the owners get profit in lieu of their investment whereas the employees
get salary/wages for providing services. Although the employees naturally get their remuneration as a
reward of their services yet sometimes they are made part of the profit earned by the company with the
hope that they will provide services with fullpotential, labour and honesty. The plan of profit thus given is
known as prot'it sharing.
(5) Co-partnership: Co-partnership, in fact, is a
developed form of profit sharing. Co-partnership is based Provident Fund?
on the establishment of industrial democracy and workers' A fixed percentage of amount is deducted
participation in management. Under this plan, the Jrom the pay of euery employee and is
deposited in this fund. The employer olso
employees provide their services to the company and they
At the time of
makes his contribution.
are also the partners in the equity capital. Consequently, the retirement the employee gets the
employees get dividend as well as participation in accumulated amount olongwith interest.

management besides their regular remuneration. The

Gratuity?
ln ol the seruices rendered by the
token
equity shares of the company may be issued to the employee, the emploger makes some
employees in two ways: poyment to employ r.uhich is called gratuity.
Motivation: Meaning and Importance 189

(i) On cash payment basis, (ii) In lieu of any incentive otherwise payable in cash. For example, issue of
shares under profit sharing plan or payment of bonus in the form of shares.
(6) Retirement Benefits: Every employee remains concerned about his fuhrre after retirement. If
he is offered financial securityr for his post-retirement period, his future will be secured. This situation will
certainlymotivatehim. ProoidentFundandGratuitgarethebestexamplesofpostretirementbenefit.
(7) Perquisites: Perquisities are those facilities which an employee gets free from the employer e.g.
tentfree accommodation, car, facility of a servant, etc. These facilities play an important role in motivating
the employees.

. (B) Non-Financial or Non-Monetary lncentives

Non-financial incentives are not directly related with money. These incentives help in the
satisfaction of top hierarchy needs like Social. Esteem and Self-Actualisation. According to Dubin.
"Non-financiql motiuotorsareinthet'ormo.f mental reward."Intheopinionof ChesterBernard. "If iso
comnlon leeling that material reward (like ntoney) becomes ineffectiue ofter a certoin extent." It means
that non-financial rewards are more eff.ective than the financial rewards in order to motivate materially
prosperous persons. The following factors are primarily helpful in motivating the employees with
non-financial rewards:
(1) Status (2) Organisational Climate
Opportunity (4) Job Enrichment
(3) Career Advancement
Programmes (6) Job Security
(5) Employee Recognition
(7) Employee Participation (8) Employee Empowerment

( I ) Status: Stafus means the position or rank of a person in the organisation. It can be high or low.

The rank of an employee is directly linked with his authorip, responsibility and other facilities (e.g. a
separate cabin, costly furnifure, car, peon, P.A. etc. ) . Everybody has a wish for a higher stafus. Therefore,
the employees can be motivated by raising their rank or position. The attainment of a higher status fulfils
the psychological, social and esteem related needs.

(2) Organisational Climate: Organisational climate means the working system within the
organisation. This includes individual freedom, receipt of awards, the importance of employees, etc.
Every person likes to work in a better organisational climate. The manager can motivate the employees by
providing a better organisational environment.
(3) Career Advancement Opportunity: Every employee of the organisation wants to advance
in his life. Promotion is an important example of advancement. Training and development facilities have
got to be provided for the promotion of the employees. Therefore, the managers can clear their way to
promotion by providing these facilities. When the avenues for promotion are available, the employees
certainly get motivated.
(4) Job Enrichment: Job enrichment means increasingthe importance of work. Such a job should
have (i) authority, responsibility, and a wide scope for challenges, (ii) there should be a need of higher
knowledge and experience, (iii) the opportunities for personal development should be available, and (iv)
there should be absolute freedom to take decisions. The employees feelproud of getting such a job. Thus,
job enrichment enhances people's interest in their work and they start getting motivated automatically.
190 Business Studies

(5) Employee Recognition Programmes: Every employee wishes to be considered as an

important part of the organisation. It means that he should have his own identity and he should appear to
be distinctive. Some of the examples are given below which help in the employee's recognition:
(i) Congrafulating the employee for good work performance.
(ii) Displaying employee's achievements on the information board and publishing them in the news
magazine of the organisation.
(iii) Awarding certificates of merit at the ceremonial functions of the organisation for better work
performance.
(iv) Presentingmementos.
(v) Honouring for offering valuable suggestions.
(6) Job Security: Job security is an important non-monetary motivator. Security of job means a
feeling of permanence and stability. For example, if an employee has a sense of fear or insecurity in his
mind, that he can be removed from his job any time, he will never work whole-heartedly and this womT
continues troubling him. On the other hand, if he has a feeling that his job is secure and permanent and he
cannot be removed from his job easily, he will work without any womT and with an easy mind.
Consequently, his efficiency increases. This is the reason why people prefer a permanent job with less
salary to a temporary job with more salary.
(7) Employee Participation: Employee get encouraged to notice their participation in
managerial work. Therefore, they offer their full cooperation in making successful the policies prepared
with their help.
(8) Employee Empowerment: Employee empowerrnent means giving the employees more
freedom to take decisions. When the decision-making power of the employees increases, they consider
that they are doing some important work in the organisation. This feeling motivates them.
Difference between Monetary and Non-monetary Incentives
Basis of Difference Monetary lncentives Non-monetary Incentives
1. Measurement These can be measured in terms of These cannot be measured in terms of
moneu. moneu.
2. Suitability These are highly effective in case of These are eff.eclive in case of
workers. manaqers.
3. Level of These help in satisfuing lower level needs These help in satisfuing higher level needs
Satisfaction (food. clothinq and shelter). (esteem, status and self-actualisation)
4. Visibility Monetary incentives are visible as they Non-monetary incentives may not be
are measurable in terms of money. visible as they are not measurable in
terms of monev.

1. Meaning of Motivation: It refers to that process which excites people to work for the
attainment of a desired object.
g 2. Characteristics of Motivation: (i) Motivation is an internal feeling, (ii) Motivation
produces goal{irected behaviour, (iii) Motivation can be either positive or negative,
(iv) Motivation is a complex process.
g 3. Motivation Process: (i) unsatisfied need, (ii) Tension, (ii) Drives, (iv) Search
behaviour, (v) Need satisfied, (vi) Reduction of tension.
Motivation: Meaning and Importance 191

V 4. Importance of Motivation: (i) Improvesperformancelevel, (ii) Helpstochangenegative

or indifferent attitudes of employees, (iii) Reduction in employee tumover, (iv) Helps to reduce
absenteeism in the organisation, (v) Reduction in resistance to change.
g 5. Maslow's Need Hierarchy Theory: According to Maslow, man does every work to
satisfy his need. A man has various needs and their order can be determined. The needs of a
human being serve as a motivation for him. On the basis of priority human needs can be
divided into five parts: (i) Psychological needs, (ii) Safety needs, (iii) Affiliation or social
needs, (iv) Esteem needs, and (v) Self actualisation needs.
g 6. Financial or Monetary Incentives: Financial incentives are those incentives which
are evaluated in terms of money. These are helpfirl to satisfu Physiological and Safety Needs. It
includes the following: (i) Pay and allowances, (ii) Productivity Linked Wage Incentives,
(iii) Bonus, (iv) Profit sharing, (v) Co-partnership, (iv) Suggestions, (vi) Retirement benefib,
(vii) Perquisites.
g 7. Non-Financial or Non-Monetary Incentives: Non-financial incentives are not
direcfly related with money. These incentives help in the satisfaction of top hierarchy needs
like Social, Esteem and Self Actualisation. It includes the following: (i) Status,
(ii) Organisationalclimate, (iii) Career advancement opportunity, (iv)Job enrichment,
(v) Employee recognition programmes, (vi)Job security, (vii) Employee participation,
(viii) Employee empowerment.
g 8. Difference betureen Monetary and Non-monetary Incentives: (i) Measurement,
(ii) Suitability, (iii) Level of satisfaction, (iv) Visibility.

I Meaning, Process and Importance of Motivation

6 Marks
1. Define 'Motivation'. Explain how motivation conhibutes to the success of an organisation.
(c.8.s.E.2001)
2. Explain the term 'Motivation'. Why is it important to motivate employees in an organisation?
(c.8.s.E.2002)
3. "lt is through motivation the managers can inspire their subordinates to give their best to the
organisation."Inthelightofthisstatement,giveinbrief,theimportanceofmotivation. (C.8.5.E.2003)
4. To create a desire among employees to perform at the highest level of their abilities is an important aspect
of directing. Explain how this work in the success of an organisation.
5. Explain the process of motivation (N.C.E.R.T.)
4/5 Marks
6. State any four characteristics of motivation.
7. 'lt is only motivation through which the managers can inspire their subordinates to give their best to the
organisation.' In the light of this statement explain any four points of importance of motivation.
(c.8.s.E.2008)
3 Marks
8 Define Motivation. (N,C.E,R,T,)
9 State the meaning of motive, motivation and motivators.
10 Motivation helps to reduce absenteeism in the organisation. Clarifiy.
r92 Business Sfudies

l Mark
11. The level of ability to do certain work of a person depends on what?
Ans. On education and training.
12. The willingness to do the certain work of a person depends on what?
Ans. On motivation.
13. What do you mean by 'motive'?
Ans. Motive refers to the latent power of a person which impels him to do a work.
14. What is meant by'motivation' as an element of directing? (Foreign2009)
Ans. It means a process which excites people to work for the attainment of a desired objective.
15. Name the first step of motivation process.
Ans. Unsatisfied need.
76. Give any two points of the importance of motivation.
Ans. (a) Improves performance level (b) Reduction in employees furnover.

! Maslow's Need - Hierarchy Theory

6 Marks
77 . Discuss Maslow's Need-Hierarchy theory of motivation. (N.C.E.R.T.)
4/5 Marks
18. Maslow's need-hierarchy is considered fundamental to understanding of motivation. Explain the role of
need-hierachy in motivation. (C.8.5.E.200g)
3 Marks
19. Explain 'Esteem Needs' of an employee.
20. On which two bases Maslow's Hierarchy of Needs can be criticised?
27. Give an example of Individual Need Hierarchy.
22. What is meant by Need Hierarchy?
l Mark
23. Narhe the need which is satisfied first of all.
Ans. Physiological needs.
24. Food, clothing and Shelter are the examples of which type of needs?
Ans. Physiological needs.
25. What is meant by Physical Safety?
Ans. It refers to defence against accidents, attack, diseases and other unexpected problems.
26. What is Economic Safety?
Ans. It refers to safety of livelihood and arrangement for old age.
27. What is Physical Safety?
Ans. It refers to defence against accidents, attacks, diseases and other emergencies.
28. Give one assumption of Maslow's Theory.
Ans. There are many needs of people and their order can be made.
29. Give one criticism of Maslow's Theory.
Ans. Maslow's hierarchy of needs is not permanent.
Motivation: Meaning and Importance 193

! Monetary and Non-monetary lncentives

6 Marks
30. What is meant by 'Monetary Incentives'? State any five types of monetary incentives which contribute to
the performance of employees. (C.8.5.E.2004)
31. What is meant by 'Non-monetary lncentives'? State any five of non-monetary incentives which
contribute to the performance of employees. (C.B.S.E. 2004)
32. Explain 'Bonus', 'Profit Sharing' and 'Co-partnership' as monetary incentives.
33. "Human beings cannot be motivated only through monetary incentives; non-monetary incentives are
also necessary to motivate them." Explain any four such non-monetary incentives. (C.8.5.E.2009)

34. To satisfu the socialand psychologicalneeds which type of incentives are needed? Expla,..1iffi:.
of such incentives. rc.8.5.E.2008)
3 Marks
35. Enumerate any six non-monetary incentives. (C.8.5.E.2002)
36. Give three examples to establish employee recognition.
37 . Distinguish between'monetary'and 'non-monetary' incentives. (C.8.5.E.20071
l Mark
38. Give the types of Incentives.
Ans. (a) Monetary lncentives (b) Non-monetary Incentives.
39. What is meant by'Financial Incentives'?
Ans. It refers to those incentives which are evaluated in terms of money.
40. What is meant by'Bonus' as a type of monetary incentive?
Ans. It refers to that payment to employees in addition to their regular remuneration which is paid as a
reward of their good services.
41. What is meant by'Profit Sharing'?
Ans. It refers to providing share in profit of the organisation io the employees besides their regular
remuneration.
42. Give two examples of Retirement Benefits.
Ans. (o) Provident Fund (b) Gratuity.
43. What is meant by 'Job Enrichment' as a type of non-monetary incentive?
Ans. It refers to increasing the importance of work.

Case Study/Apptication Oriented Questions

t1l 'Motivation is the core of management.' Explain the importance of motivation in the light of
this statement.
Hint: Motivation plays an important role in the success of management. That is why it is said that
'motivation is the core of management'. Mention the importance of motivation.
121 Human beings can be motivated only through the satisfaction of their needs. Is this
statement true? Explain.
Hint: This statement is absolutely correct. Mention the theory of Maslow's Need Hierarchy.
t3l "Poorly motivated people can nullifu the soundest organisation." Comment.
Hint: The statement given in the question is regarding the importance of motivation. Mention the
importance of motivation.
L94 Business Studies

t4] Rajat a sales manager, achieved his sales targeb one month in advance. This
achievement was displayed
on the notice board and a certificate for the best performance was awarded to him by the CEOof
the
company.
1. Name the incentive provided to Rajat. 2.ldennfu the type of incentive.
3. List two other incentives of the type identified in part (2).
Ans: (i) Non-financial incentive (ii) Employee-recognition programme
(iii) (o) Career advancement opportunity (b) Employee participation

For this query session, questions from readers, side are invited.
 rs
ltADtRSlllP:
M EA]I I 1I G A1I II IM Pll RIA]I GT

"Leadership transforms ffe potential into reality."' Keith Davis

Learning Obiectives
After studying this chapter, you will be acquainted with:
o Meaning ol Leadership
o Definitions ol Leadership
. Chorocter'stia ol Leadership
a Woys to lnfluence Subordinotes
o Monogership ond Leodership
. lmportonce of Leadership
o Qualities ol a Good Leader

! Meaning of Leadership
According to one estimate, employees use only 60% of their
capacity. However, it is essential to utilise the remaining40% ot
their capacity for the easy attainment of the pre-determined Leadership?
objectives of the enterprise. This is possible only when they are It relers to influence others in such a
inspired to work with greater dedication and fuller enthusiasm. manner to do work what the leoder
Such inspiration or guidance can be given by an executive who is wants them to do.
not only an efficient manager but a good leader also. A leader is
an individual who exercises his influence on all the persons in a group in such a manner as to make them
work with complete enthusiasm and confidence and to their fullest capacity for the attainment of the
objectives of the enterprise. Such qualities of a leader are called leadership.

I Definitions of Leadership
Following are the opinions of various scholars in respect of
leadership:
(1) According to Koontz and O'Donnell, ''Leadership may' Leader?
be det'ined os the obility' to exert interpersonol influence b'''
meons ot' commtrnicotion tou,ard the ochieuement of a It referc to that Wrson who hos the
ability to influence others.
gool "
196 Business Studies

(21According to George R. Terry,

"Leadership is rhe crbiiirl: o.f int'lttencing people to striue uillingly
t'or ntutual objectiues "
In conclusion, leadership is that process through which the people in a group are influenced in such a
manner that they automatically start using their full capacity for the attainment of collective objectives.

I Characteristics of Leadership
After analysing the definitions of leadership, the
following major characteristics become quite apparent:
(1) lnfluencing Process: Leadership is in the Some Companies and their
form of an influencingprocess. Here influencingmeans
Leaders
bringing others under one's own influence. A leader
* Microsoft Bill Gates
* Reliance Industries Dhirubhai Ambani
behaves with his followers in such a way that they
* Infosl,s Narayana Murlhy
automatically come under his influence, They start
working as they are told by their leader. It is said that * Tata J.R.D. Tata
the excrcise of irtfiuencre is the essence of leadership. * Wipro Azim P
(2) Behaviour Changing Process: Leadership
has the power to change the behaviour of their followers. A manager who has this ability gets a better
work performance from his subordinates.
(3) Interpersonal Relations between Leader and Fotlowers: The chief requirement of
leadership is the presence of followers. One cannot think of leadership without followers. Without
followers a leader has no existence. In order to make leadership meaningful, it is imperative to have
followers (or employees) to work with him. Therefore, leadership indicates interpersonal relations
between the leader and the followers.
(4) Common Goals Achieving: A prominent f.eature of leadership is the achievement of common
goals. It means it achieves not only the objectives of the organisation but also individual goals.
(5) Continuous Process: A manager has to use his leadership ability continuously. It means that it
is needed not on any particular occasion but is needed all the time.

! Managership and Leadership

Generally managership (or management) and leadership are considered synonymous. But such a
thinking is quite wrong.
A manager is a person who performs managerial activities. On the other hand, a leader is a person
who fulfils the expectations and aspirations of his followers. It is because of fulfilling the aspirations and
expectations of his followers that a leader is expected to have more influence on his followers. (ln other
words, whatever the leader wants, the followers do.)
It is also important for the manager in order to be successful to have the subordinates under his
influence. A manager can do so only when alongwith being a manager, he can perform the role of a
leader. This is possible only when he transforms his subordinates into his followers. The subordinates will
be followers only when their expectations and aspirations are given importance. Therefore, if a manager
has the ability of leadership, his subordinates will come under his influence and do as he wishes them to
do. This can be explained like this:
Manager + leadership ability (leader) : Success
Leadership: Meaning and Importance 797

Therefore, it can be said that it is important for a manager to be a leader.

On the other hand, it is not important for a leader to play the role of a manager. Nobody becomes a
leader of his own but he becomes a leader because some people want to follow him. A leader satisfies the
people in this very role. It is not important for him to perform any managerial functions. In conclusion, it
can be said that all managers are leaders but all leaders are not managers.
The difference between managership and leadership has been shown in the following table:
Difference between Managership and Leadership
Basis of Difference Ma ershi I-eadershi
l. Basis of Existence Organised group (or formal Unorganised group or informal

2. Focus Attainment of the objectives of the i To satisfu the expectations and aspirations
the followers.
Formal authority lnformal authority. The followers
themselves allow leader the authority to

4. Scope Widespread (lt includes all the Limited (lt is only a partof management)
rial activities)

f lmportance of Leadership
Leadership plays an important part in the success of any organisation. In the absence of effective
leadership no organisation can work efficiently. An organisation is created with the purpose of achieving
certain objectives through a human group, it becomes essential to control this human group.
Koontz and O'Donnell have clarified the importance of leadership in the following diagram:

lnduced by 40%
Leadership

Social Pressure
Need for a Job
Authority of Superior

The above mentioned facts clearly show that the employees utilise 607o of their capability without
any additional effort as has been shown in the lower part of the diagram. The upper part of the diagram
shows that if the manager uses his leadership abilip and motivates his subordinates the remaining 40% of
their capability can also be utilised. According to this view, leadership is the key to the success of any
business enterprise.
The importance of leadership is highlighted by the following facts:
(1) Helps in Influencing the Behaviour of People: A manager influences his subordinates with
his leadership ability. He brings them under his control in such a way that they put in their best effort to
achieve the goals of the organisation. Good leaders always get good results through their followers.
 198 Business Studies

(2) Helps Followers in Fulfilling their Needs: A leader establishes personal

relationship with
his followers and tries to fulfil their needs. Why does a human group follow a particular person? It can be
said in reply to this question - because that particular person provides them security, provides them the
opportunities to earn wealth, gives them the right to work and tries to understand their feelings. That is
why people follow him. A person who takes care of the above mentioned needs of the employees, they
willingly accept him. Consequently, they work with complete dedication and enthusiasm.
(3) Helps in I ntroducing Required Changes: These days the business environment
is changing
rapidly. In order to face the changing environment, many changes have got to be inhoduced in the
organisation. Since the people already happen to be under the influence of the leader, he readily makes
them agree to implement these changes. In this way, the possible opposition to the change is eliminated
with the strength of leadership ability.
(4) Helps in Solving Conflicts Effectively: A leader can solve every tyrpe of conflict (employees
vs employees and employees vs employer) eff.ectively under the weight of his influence. A leader always
allows his followers the freedom to express their views. That is the reason that he easily understands the
reality of the conflict. In this way, by understanding the nature of the conflict he tries to provide timely
solution and minimises the possibility of adverse results.
(5) Helps in Training and Development of Subordinates: A leader proves helpful in the
training and development of his subordinates. He provides them the information about the modern
techniques of work. Not only this, he makes it possible for them to be good leaders in future.
Conclusion: It is , therefore, clear that it is not only difficult but impossible to achieve the goals of
the organisation in the absence of the leadership ability in spite of the good organisational strucfure and
trained officers.

I Qualities of a Good Leader

A person should have the following qualities for being a successful leader:
(1) Physical Features: The first need of leadership ability is the physical and mental health
of a
leader. It is clear that only a healthy body possesses a healthy mind. On this basis, it can be said that a
leader should be physically healthy so that he can influence his followers effectively. Mental health
signifies that he should be a person of sound and clear thoughts. In other words, he should quickly
understand others and make others understand him easily.
(2) Knowledge:Aleaderhastofacevarious problems. Itrequiresalotof knowledgeand
wisdom
to handle problems successfully. A leader can face the problems successfully and with the help of his
wisdom and knowledge can solve them quickly and impartially.
(3) Integrity: It is of vital importance that a leader has integrity. Integrity signifies the fact that
a
leader's working method should reflect goodwill, huth, unmalice and morality. A leader is a link between
the employer and the employees. He should, therefore, work with total dedication. For example, the
employer should be made aware of any possible loss before hand and simultaneously, he should not hold
any false promises to the employees.
(4) Initiative: It is important for a leader to have initiative. A leader possessed
of this quality does
not wait for opportunities but creates them.
Leadership: Meaning and Importance 799

(5) Communication Skill: A leader has to communicate various sorts of information,'orders,

ideas, etc. to the employees and other people. That is his major activity. It has to be done keeping in view
the ability of the people receiving such a communication. It has, therefore, to be in simple language to
convey its real meaning so that it is properly understood by the people receiving the communication. The
more the communication skill of a person, the more quick and eff.ective it will be.
(6) Motivation Skill: Leadership means encouraging the followers to follow the leader. It clearly
shows that to make leadership meaningful a leader must possess the ability to motivate people- A leader
should know about the various techniques of motivation so that the employees can be motivated
according to their nature.
(7) Self-Confidence: Self-confidence is important to win absolute confidence of the followers. In
its absence, decisions cannot be implemented successfully. For example, aleader takes some decision
regarding some work but he himself is not satisfied with this decision. It means that he lacks
self-confidence. In such a case, the decision cannot be implemented successfully. 'Self-confidence
creates courage in a person. Hence, a manager can provide successful leadership only if he possesses the
virtue of self-confidence.
(8) Decisiveness: A leader should have the ability to take decisions and implement them. he
should have the fearlessness to stick to his decision. A courageous leader never wavers on the path of
truth. He does not fall a victim to his opponents' ill-will. The people working with a fearless ieader also get
affected or influenced by this virhre and they quicken their work performance.
(9) Social Skill: A leader is a social being. Human behaviour is expected of him. It means that he
give
should not do anything that can injure the feelings of his followers. In addition to this, he should not
lecture to others but should behave in a manner that he expects from others.

g 1. Meaning of Leadership: It refers to influence others in such a manner to do work what

the leader wants them to do.
g 2. Characteristics of Leadership: (i) Influencing process, (ii) Behaviour changing
process, (iii) Interpersonal relations between leader and followers, (iv) Common goals
achieving, (v) Continuous process.
g 3. Difference between managership and Leadership: (i) Basis of existence,
(ii) Focus, (iii) Authority, (iv) Scope'
a 4. Importance of Leadership: (i) Helps in influencing the behaviour of people, (ii) Helps
followers in fulfilling their needs, (iii) Helps in introducing required changes, (iv) Helps in
solving conflicts eflectively, (v) Helps in haining and development of subordinates'
g 5. Qualities of a good Leader: (i) Physical features (ii) Knowledge, (iii) Integrity,
(iv) Initiative, (v) Communication skill, (vi) Motivation skill, (vii) self-confidence;
(viii) Decisiveness, (ix) Social skill.
200 Business Studies

I Meaning and lmportance of Leadership

6 Marks
1. What do you mean by 'Leadership'? Explain four characteristics of it.
2. "Leadership is considered as the most important element of the directing function of management." In
the light of this statement, explain the importance of leadership. (c.B.s.E.2003)
4/5 Marks
3. "Leadership is considered as the most important element of directing." In the tight of this statement
explain any four points of importance of [eadership. (Foreign2009)
4. "Leadership is required only for less efficient subordinates." Do you agree? Explain any four reasons in
support ofyour answer. (c.8.s.E.2009)
5. "All managers are leaders, but all leaders are not managers." Do you agree with this statement? Give any
three reasons in support of your answer. G.B.S.E.200S)
6. "All managers are leaders but all leaders are not managers." In the light of this statement differentiate
between leadership and management. (c.8.s.E.2009)
3 Marks
7. 'Leadership is an essential element of directing ' State any three reasons why it is essential.
(c.8.s.E.2008)
8. Distinguish between L-eaders and managers. (N.C.E.R.T.)
Or
Differentiate between'Leadership' and'Management (c.8.s.E.2007)
l Mark
What is meant by 'Leadership'?
Ans. Leadership means that quatity which influences people for the attainment of a goal.
10 Define the term Leadership.
Ans. According to George R. Terry, "Leadership is the obility of int'luencing people to striue willingly
for mutuol objectiues."
11 What is meant by'Leader'?
Ans. Person who has the ability to influence others.
72 Bill Gates is a leader of which company?
Ans. Microsoft.
13 'Leadership is a part of management but not all of it.' Clarify.
Ans. Leadership is an element of directing function of management.
t4 'Leadership transforms potential into reality.' How?
Ans. Through influencing subordinates.
15 Distinguish between Managership and Leadership on the basis of 'scope'.
Ans. The scope of managership is wider than leadership.
16 State one point of the importance of leadership.
Ans. It helps in influencing the behaviour of subordinates.
Leadership: Meaning and Importance 207

I Qualities of a Good Leader

6 Marks
. Which qualities willyou, as a manager, like to have of a good leader?
17 (C.8.5.E.2001)
18. "Effectiveness of a manager depends on his ability to communicate effectively." Explain how?
(c.8.s.E.2009)
19. In an organisation there are many leaders. But a good leader must be a distinguished one. Suggest any
four qualities that a good leader must possess. (C.B.S.E. Sample Paper)

3 Marks
20. State any three qualities of a good leader. (c.8,s,E,2006)
27. List any six qualities of good leader. (c.8.s.E.2006)
22. To be a successful leader, one must possess some qualities. State any three such qualities of a
leader. (c.8.s.E.2008)
l Mark
'A healthy body possesses a healthy mind.' This statement is related to which quality of a
good leader?
Ans. Physical features.
Why should a leader has the quality of 'knowledge'?
Ans. To face various problems.
25 What is meant by'Integrity'.
Ans. Integrity refers to the fact that a leader's working method should reflect tuth, unmalice and morality.
26 'A leader does not wait for opportunities but creates them.' This statement is related to
which quality of a good leader? (C, B. S.E. Somple Paper)
Ans. Initiative.

(lrrry Session
For this query session, questions from readers' side are invited.