MG2351 PRINCIPLES OF MANAGEMENT

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1 Unit I Overview of Management Organisation A deliberate arrangement of people to accomplish some specific purpose. Common Characteristics of Organization Have a distinct purpose (goal) Composed of people Have a deliberate structure Manager Someone who coordinates and oversees the work of other people so that organizational goals can be accomplished. Robbins & Coulter Nonmanagerial employees Organizational members who worked directly on a job or a task and had no one reporting to them. First-line Managers Managers at the lowest level of the organization who manage the work of non managerial employees who are involved with the production or creation of the organization s products. Often called as Supervisors but may also be called Line Managers, Office Managers or even Foremen. Middle Managers 1

2 Managers between the first-line level and the top level of the organization who manage the work of first-line managers. Often called as Department Head, Project Leader, Plant Manager or Division Manager. Top Managers Management Managers at or near the top level of the organization who are responsible for making organization-wide decisions and establishing the goals and plans that affect the entire organization. Have titles such as Executive Vice President, President, Managing Director, Chief Operating Officer, Chief Executive Officer or Chairman of the Board. Management involves coordinating and overseeing the work activities of others so that their activities are completed efficiently and effectively. - Robbins & Coulter Effectiveness and Efficiency in Management Efficiency Getting the most output from the least amount of inputs Referred to as doing things right. Effectiveness Completing activities so that organizational goals are attained. Referred to as doing the right things. Management Process The set of ongoing decisions and work activities in which managers engage as they plan, organize, lead and control. Management Functions Management The process of designing and maintaining an environment in which individuals, working together in groups, efficiently accomplish selected aims. Functions 2

3 Planning Organizing Leading Controlling Planning Management function that involves the process of defining goals, establishing strategies for achieving those goals and developing plans to integrate and coordinate activities. Selecting missions and objectives as well as the actions to achieve them, which requires decision-making. Eg., Ordering a special stainless steel bolt for an instrument or hiring and training workers for an assembly line. Organising Management function that involves the process of determining What tasks are to be done Who is to do them How the tasks are to be grouped Who reports to whom Where decisions are to be made Staffing Filling and keeping filled, the positions in the organization structure. Eg., Work-force requirements Leading Management function influencing people so that they will contribute to organizational and group goals. Involves motivating subordinates, influencing individuals or teams as they work, selecting the most effective communication channels or dealing in any way with employee behavior issues. Controlling Management function measuring and correcting individual and organizational performance to ensure that events conform to plans. 3

4 Involves monitoring actual performance, comparing actual to standard and taking action if necessary. Eg., Inspection records. Role of Managers Management Roles: Refers to specific categories of managerial behavior. Henry Mintzberg s Ten Managerial Roles Interpersonal Roles Managerial roles that involve people (subordinates and persons outside the organization) and other duties that are ceremonial and symbolic in nature. Figurehead symbolic head; obliged to perform a number of routine duties of a legal or social nature. Eg., Greeting visitors, signing legal documents. Leader Responsible for the motivation of subordinates; responsible for staffing, training and associated duties. Eg., Performing virtually all activities that involve subordinates. Liaison Maintains self-developed network of outside contacts and informers who provide favours and information. Eg., Acknowledging mail; doing external board work, performing other activities that involve outsiders. Informational Roles Managerial roles that involve receiving, collecting and disseminating information. Monitor Seeks and receives wide variety of internal and external information to develop thorough understanding of organization and environment. Eg., Reading periodicals and reports; maintaining personal contacts. Disseminator Transmits information received from outsiders or from subordinates to members of the organization. Eg., Holding informational meetings, making phone calls to relay information. Spokesperson Transmits information to outsiders on organisation s plans, policies, actions, results, etc. Eg., Holding board meetings, giving information to the media. Decisional Roles 4

5 Managerial roles that revolve around making choices. Entrepreneur Searches organization and its environment for opportunities and initiates improvement projects to bring about changes. Eg., Organising strategy and review sessions to develop new programs. Disturbance Handler Responsible for the allocation of organizational resources of all kinds making or approving all significant organizational decisions. Eg., Scheduling, requesting authorization, performing any activity that involves budgeting and the programming of subordinates work. Negotiator Responsible for representing the organization at major negotiations. Eg., Participating in union contract negotiations. Management Skills Managers need certain skills to perform the duties and activities with being a manager. Three essential skills Robert L.Katz Technical Skills Knowledge of and proficiency in a specialized field. Eg., Engineering, Comuters, Accounting or Manufacturing. Human Skills The ability to work well with other people individually and in a group. Eg., Managers with good human skills know how to communicate, motivate, lead and inspire enthusiasm and trust. Conceptual Skills The ability to think and to conceptualise about abstract and complex situations. Managers must be able to see the organization as a whole, understand the relationships among various subunits and visualize how the organization fits into its broader environment. Distinction between Administration and Management S.No Administration Management 1 Administration lays down corporate Management executes the objectives and objectives and policies policies set by the administration 2 Administration resembles legislative Management resembles executive 3 Administration is associated with Management is associated with middle and top level management lower-level activities. 4 The term administration is used in The term management is used in profit governmental, military and making business organizations. educational organizations. 5 Administration is needed in long- Management is needed in short-term 5

6 term finance to make decisions on finance decisions. how to collect capital needed to start or expand business. 6 Administration determines the size Management makes use of organizational of the organization structure resources to achieve organizational objectives. 7 Administration exercises control Management is accountable to over management administration. Management Science or Art? Management as a Science Science is a systematized body of knowledge based on general principles, truths or laws. Mere knowledge cannot become science. Knowledge should be verifiable. The development of science depends on the following factors: o Constant thinking o Discovery of facts or principle o Verification o Prediction o Measurement o Expression Management fulfills all the above characteristics of science. So, management may be called as a science. Management as an applied science Sociology Engineering Anthropology Mathematics Psychology Economics Management Others Management is a body of knowledge that has been gathered over years, borrowing scientific inquiries in the fields of economics, mathematics, sociology, engineering, anthropology and other scientific disciplines. Therefore, management is an applied science. Management as an exact science 6

7 Taylor contributes more to the development of management as a science. Management researchers have accepted management as a science on the following grounds: Laws of management holds good under accepted conditions. Like scientists, managers make decisions using scientific technology. Management is a systematic body of knowledge and it is based on theories and principles. Management as an inexact science Management phenomena cannot be measured with accuracy. The laboratory for testing the management phenomena is the human beings whose behaviour cannot be easily predicted. The testing will not provide uniform and accurate results at all times. Therefore management is considered as an inexact science. Management as a social science Management can be regarded as a social or behavioural science because it deals with human behaviour at work. Scientific Management F.Taylor used the term scientific management. Taylor insisted that management itself would have to change and the manner of change could be determined only by scientific study. Management as an Art Art is the technique of applying the principles into actual practice so as to achieve the desired results. Management has many qualities of an art. The management is essentially an art because of the following: o Use of know-how and skill Art requires the use of knowledge. Management uses knowledge and know how to make decisions. o Application of principles Art applies the principles in actual practices. Likewise, principles and techniques of management are applied in the organizations to achieve results such as increasing production, reducing cost and improving quality. Therefore, management is an art. o Personlisation The art is a highly personalized skill. Management is also personalized in the sense that every manager has his own approach to solve the problems of the enterprise. o Creative in nature Managementis creative like any other art. Management combines human and material resources in an effective way so as to achieve results. o Constant practice Managers learn from mistakes and develop their skills through constant practice like artists. Hence management is regarded as an art. Management is a Science and an Art 7

8 Management is both science and art. It is a science as it is a systematized body of knowledge and it is an art as it is applied into actual practice. Evolution of Management Thought 1. Scientific Management 2. Modern Operational Management Theory 3. Behavioural Sciences 4. Systems Theory 5. Modern Management Thought 1. Scientific Management Frederick W.Taylor o Shop Management (1903) o Principles of Scientific Management (1911) o Testimony before the special house committee (1912) o Acknowledged as the father of scientific management o To raise productivity through greater efficiency in production and increased pay for workers, by applying the scientific method. o His principles emphasize using science, creating goup harmony and cooperation, achieving maximum output and developing workers. Henry L.Gantt (1901) o Called for scientific selection of workers and harmonious cooperation between labour and management. o Developed the Gantt Chart, stressed the need for training. o Frank and Lillian Gilbreth (1900) o Frank is known primarily for his time and motion studies. o Lillian, an industrial psychologist focused on the human aspects of work and the understanding of workers personalities and needs. 2. Modern Operational Management Theory Henry Fayol o Administration Industrielle et Generale (1916) o Referred to as the father of modern management theory o Divided industrial activities into six groups o Technical, Commercial, Financial, Security, Accounting and Managerial o Recognized the need for teaching management o Formulated fourteen principles of management 3. Behavioural Sciences Hugo Munsterberg (1912) o Application of psychology to industry and management 8

9 Walter Dill Scott (1910, 1911) o Application of psychology to advertising, marketing and personnel. Max Weber o Theory of bureaucracy Vilfredo Pareto ( ) o Referred to as the father of the social systems approach to organization and management. Elton Mayo and F.J Roethlisberger (1933) o Famous studies at the Hawthorne plant of the Western Electric Company on the influence of social attitudes and relationships of wok groups on performance. 4. Systems Theory Chester Bernard o The functions of the Executive (1938) o The task of managers is to maintain a system of cooperative effort in a formal organization. o Suggested a comprehensive social systems approach to managing. 5. Modern Management Thought o Peter F.Drucker Very prolific writer on many general management topics o W.Edwards Deming (after World War II) Introduced quality control in Japan. o Lawrence Peter (1969) Observed that eventually people get promoted to a level where they are incompetent. o William Ouchi (1981) Discussed selected Japanese managerial practices adopted in the U.S environment. o Thomas Peters and Robert Waterman (1982) Identified characteristics of companies they considered excellent. Contribution of Taylor Taylor's Scientific Management Frederick Winslow Taylor well-known as the father of scientific management was the first to recognize and emphasis the need for adopting a scientific approach to the task of managing an enterprise. He tried to diagnose the causes of low efficiency in industry and came to the conclusion that much of waste and inefficiency is due to the lack of order and system in the methods of management. He therefore, suggested that those responsible for management should adopt a scientific approach in their work, and make use of "scientific method" for achieving higher efficiency. The scientific method consists essentially of 9

10 (a) Observation (b) Measurement (c) Experimentation and (d) Inference. He advocated a thorough planning of the job by the management and emphasized the necessity of perfect understanding and co-operation between the management and the workers both for the enlargement of profits and the use of scientific investigation and knowledge in industrial work. He summed up his approach in these words: Principles of Scientific Management Replacing Rule of Thumb with science Harmony, not discord Co-operation, not individualism Maximum output, in place of restricted output The development of each man to his greatest efficiency and prosperity. Elements of Scientific Management: The techniques which Taylor regarded as its essential elements or features may be classified as under: 1. Scientific Task and Rate-setting, work improvement, etc. 2. Planning the Task. 3. Vocational Selection and Training 4. Standardization (of working conditions, material equipment etc.) 5. Specialization 6. Mental Revolution. 1. Scientific Task and Rate-Setting (work study): Work study may be defined as the systematic, objective and critical examination of all the factors governing the operational efficiency of any specified activity in order to effect improvement. Work study includes. Methods Study: The management should try to ensure that the plant is laid out in the best manner and is equipped with the best tools and machinery. The possibilities of eliminating or combining certain operations may be studied. Motion Study: It is a study of the movement, of an operator (or even of a machine) in performing an operation with the purpose of eliminating useless motions. 10

11 Time Study (work measurement): The basic purpose of time study is to determine the proper time for performing the operation. Such study may be conducted after the motion study. Both time study and motion study help in determining the best method of doing a job and the standard time allowed for it. Fatigue Study: If, a standard task is set without providing for measures to eliminate fatigue, it may either be beyond the workers or the workers may over strain themselves to attain it. It is necessary, therefore, to regulate the working hours and provide for rest pauses at scientifically determined intervals. Rate-setting: Taylor recommended the differential piece wage system, under which workers performing the standard task within prescribed time are paid a much higher rate per unit than inefficient workers who are not able to come up to the standard set. 2. Planning the Task: Having set the task which an average worker must strive to perform to get wages at the higher piece-rate, necessary steps have to be taken to plan the production thoroughly so that there is no bottlenecks and the work goes on systematically. 3. Selection and Training: Scientific Management requires a radical change in the methods and procedures of selecting workers. It is therefore necessary to entrust the task of selection to a central personnel department. The procedure of selection will also have to be systematised. Proper attention has also to be devoted to the training of the workers in the correct methods of work. 4. Standardization: Standardization may be introduced in respect of the following. Tools and equipment: By standardization is meant the process of bringing about uniformity. The management must select and store standard tools and implements which will be nearly the best or the best of their kind. Speed: There is usually an optimum speed for every machine. If it is exceeded, it is likely to result in damage to machinery. Conditions of Work: To attain standard performance, the maintenance of standard conditions of ventilation, heating, cooling, humidity, floor space, safety etc., is very essential. Materials: The efficiency of a worker depends on the quality of materials and the method of handling materials. 5. Specialization: Scientific management will not be complete without the introduction of specialization. Under this plan, the two functions of 'planning' and 'doing' are separated in the organization of the plant. The `functional foremen' are specialists who join their heads to give thought to the planning of the performance of operations in the workshop. Taylor 11

12 suggested eight functional foremen under his scheme of functional foremanship. The Route Clerk: To lay down the sequence of operations and instruct the workers concerned about it. The Instruction Card Clerk: To prepare detailed instructions regarding different aspects of work. The Time and Cost Clerk: To send all information relating to their pay to the workers and to secure proper returns of work from them. The Shop Disciplinarian: To deal with cases of breach of discipline and absenteeism. The Gang Boss: To assemble and set up tools and machines and to teach the workers to make all their personal motions in the quickest and best way. The Speed Boss: To ensure that machines are run at their best speeds and proper tools are used by the workers. The Repair Boss: To ensure that each worker keeps his machine in good order and maintains cleanliness around him and his machines. The Inspector: To show to the worker how to do the work. 6. Mental Revolution: At present, industry is divided into two groups management and labour. The major problem between these two groups is the division of surplus. The management wants the maximum possible share of the surplus as profit; the workers want, as large share in the form of wages. Taylor has in mind the enormous gain that arises from higher productivity. Such gains can be shared both by the management and workers in the form of increased profits and increased wages. Contribution by Henri Fayol Henri Fayol Father of Modern Management Theory Fourteen Principles of Management 1. Division of Work Work should be divided into small parts and assigned to a number of workers. Division of work represents the reduction in number of tasks for any person or a group. Division of work take the advantage of specialization. Specialization leads to better efficiency and maximum output bacouse it permits a person to work in a limited area. Objective: To produce more and better work with the same effort. Can be applied at all levels of the organization. 2. Authority and Responsibility Authority is the right to give orders and responsibility is its essential counterpart. Authority should not be considered without responsibility. i.e., whenever authority is exercised, responsibility arises. 12

13 Fayol suggested that authority and responsibility should be related. He said that authority is a combination of many factors deriving from manager s position, intelligence, experience, moral worth, past service etc. 3. Discipline Discipline implies obedience and respect for the formal or informal agreements between the firm and its employees. These agreements are established by superiors and should be clearly defined and understood. Fayol considered discipline as the chief strength of organization. Discipline may be of two types: Self-imposed discipline and Command discipline. 4. Unity of Command Reporting relationships Employees should receive orders from one superior only 5. Unity of Direction Functioning of organization There is one head and one plan for a group of activities with the same objective Eg., The marketing department should have only one manager with a specified plan for sales policies, advertising and promotion. 6. Subordination of individual interests to general interests The interest of one individual or one group should not prevail over the general interest. Individual interests should be integrated with organizational interests. 7. Remuneration Remuneration of employees should be fair and provide maximum possible satisfaction to employees and employers. He was also in favour of non-financial incentives. 8. Centralization Everything which goes to increase the importance of subordinate s role is decentralization; everything which goes to reduce it is centralization. Centralization is present in an organization depending on the size of the company and quality of its managers. 9. Scalar Chain 13

14 This refers to a Chain of Superiors ranging from the highest to the lowest ranks. The line of authority must flow from top of the organization to bottom. The line of authority should be very clear and this must be clearly indicated in the organization chart. Fayol suggested the use of gang planks between two people at the same level working in different departments instead of communicating from top to bottom. 10. Order An organization should have a place for everything and everything in its place; the right man in the right place. The order demands precise knowledge of the human requirements and resources of the organization and a constant balance between these requirements and resources. 11. Equity Equity is the combination of justice and kindness. Equity in treatment and behaviour is liked by everyone and it brings loyalty in the organization. The application of equity requires good sense, experience and good nature for soliciting loyalty and devotion from subordinates. 12. Stability of Tenure No employee should be removed within short time There should be reasonable security of jobs. High turnover increases inefficiency Stability of tenure is essential to get an employee accustomed to new work and succeeding in doing it well. 13. Initiative Employees sould be encouraged and they should be given freedom to function in the organization with creativity and innovation. 14. Espirit de Corps This is the principle of union is Strength and extension of unity of command for establishing team work. The manager should encourage spirit de corps among his employees. Types of Business Organizations 14

15 When organizing a new business, one of the most important decisions to be made is choosing the structure of a business. a) Sole Proprietorships The vast majority of small business starts out as sole proprietorships. These firms are owned by one person, usually the individual who has day-to-day responsibility for running the business. Sole proprietors own all the assets of the business and the profits generated by it. They also assume "complete personal" responsibility for all of its liabilities or debts. Merits Easiest and least expensive form of ownership to organize. Sole proprietors are in complete control, within the law, to make all decisions. Sole proprietors receive all income generated by the business to keep or reinvest. Profits from the business flow-through directly to the owner's personal tax return. The business is easy to dissolve, if desired. Demerits Unlimited liability and are legally responsible for all debts against the business. Their business and personal assets are 100% at risk. Has almost been ability to raise investment funds. Are limited to using funds from personal savings or consumer loans. Have a hard time attracting high-caliber employees, or those that are motivated by the opportunity to own a part of the business. Employee benefits such as owner's medical insurance premiums are not directly deductible from business income (partially deductible as an adjustment to income). b) Partnerships In a Partnership, two or more people share ownership of a single business. Like proprietorships, the law does not distinguish between the business and its owners. The Partners should have a legal agreement that sets forth how decisions will be made, profits will be shared, disputes will be resolved, how future partners will be admitted to the partnership, how partners can be bought out, or what steps will be taken to dissolve the partnership when needed. They also must decide up front how much time and capital each will contribute, etc. Merits Partnerships are relatively easy to establish; however time should be invested in developing the partnership agreement. With more than one owner, the ability to raise funds may be increased. The profits from the business flow directly to the partners' personal taxes. Prospective employees may be attracted to the business if given the incentive to become a partner. 15

16 Demerits Partners are jointly and individually liable for the actions of the other partners. Profits must be shared with others. Since decisions are shared, disagreements can occur. Some employee benefits are not deductible from business income on tax returns. The partnerships have a limited life; it may end upon a partner withdrawal or death. c) Corporations A corporation, chartered by the state in which it is headquartered, is considered by law to be a unique "entity", separate and apart from those who own it. A corporation can be taxed; it can be sued; it can enter into contractual agreements. The owners of a corporation are its shareholders. The shareholders elect a board of directors to oversee the major policies and decisions. The corporation has a life of its own and does not dissolve when ownership changes. Merits Shareholders have limited liability for the corporation's debts or judgments against the corporations. Generally, shareholders can only be held accountable for their investment in stock of the company. Corporations can raise additional funds through the sale of stock. A corporation may deduct the cost of benefits it provides to officers and employees. Demerits The process of incorporation requires more time and money than other forms of organization. Corporations are monitored by federal, state and some local agencies, and as a result may have more paperwork to comply with regulations. Incorporating may result in higher overall taxes. Dividends paid to shareholders are not deductible from business income, thus this income can be taxed twice. d) Joint Stock Company Limited financial resources & heavy burden of risk involved in both of the previous forms of organization has led to the formation of joint stock companies these have limited dilutives. The capital is raised by selling shares of different values. Persons who purchase the shares are called shareholder. The managing body known as Board of Directors is responsible for policy making and important financial & technical decisions. There are two main types of joint stock Companies. (i) Private limited company. (ii) Public limited company 16

17 (i) Private limited company: This type company can be formed by two or more persons. The maximum number of membership is limited to 50. In this transfer of shares is limited to members only. The government also does not interfere in the working of the company. (ii) Public Limited Company: It is one whose membership is open to general public. The minimum number required to form such company is seven, but there is no upper limit. Such company s can advertise to offer its share to general public through a prospectus. These public limited companies are subjected to greater control & supervision of control. Merits The liability being limited the shareholder bear no risk and therefore more persons are encouraged to invest. Because of large numbers of investors, the risk of loss is divided. Joint stock companies are not affected by the death or the retirement of the shareholders. Disadvantages It is difficult to preserve secrecy in these companies. It requires a large number of legal formalities to be observed. Lack of personal interest. e) Public Corporations A public corporation is wholly owned by the Government centre to state. It is established usually by a Special Act of the parliament. Though the total capital is provided by the Government, they have separate entity & enjoy independence in matters related to appointments, promotions etc. Merits These are expected to provide better working conditions to the employees & supported to be better managed. Quick decisions can be possible, because of absence of bureaucratic control. More flexibility as compared to departmental organization. Since the management is in the hands of experienced & capable directors & managers, these are managed more efficiently than that of government departments. Demerits Any alteration in the power & Constitution of Corporation requires an amendment in the particular Act, which is difficult & time consuming. Public Corporations possess monopoly & in the absence of competition, these are not interested in adopting new techniques & in making improvement in their working. f) Government Companies A state enterprise can also be organized in the form of a Joint stock company; A government company is any company in which of the share capital is held by the central government or partly by central government & partly by one to more state governments. 17

18 It is managed by the elected board of directors which may include private individuals. These are accountable for its working to the concerned ministry or department & its annual report is required to be placed every year on the table of the parliament or state legislatures along with the comments of the government to concerned department. Merits It is easy to form. The directors of a government company are free to take decisions & are not bound by certain rigid rules & regulations. Demerits Misuse of excessive freedom cannot be ruled out. The directors are appointed by the government so they spend more time in pleasing their political masters & top government officials, which results in inefficient management. Organization and the environmental factors Organization is an open system that interacts with its environment as it takes in inputs and distributes outputs. There are forces in the environment that play a major role in shaping manager s actions. Environment Internal Environment External Environment Specific Environment General Environment Internal Environment The internal environment is the environment that has a direct impact on the business. The internal factors are generally controllable because the company has control over these factors. It can alter or modify these factors. The internal environmental factors are resources, capabilities and culture. i) Resources: A good starting point to identify company resources is to look at tangible, intangible and human resources. Tangible resources are the easiest to identify and evaluate: financial resources and physical assets are identifies and valued in the firm s financial statements. Intangible resources are largely invisible, but over time become more important to the 18

19 firm than tangible assets because they can be a main source for a competitive advantage. Such intangible recourses include reputational assets (brands, image, etc.) and technological assets (proprietary technology and know-how). Human resources or human capital are the productive services human beings offer the firm in terms of their skills, knowledge, reasoning, and decision-making abilities. ii) Capabilities: The term organizational capabilities are used to refer to a firm s capacity for undertaking a particular productive activity. A functional classification identifies organizational capabilities in relation to each of the principal functional areas. iii) Culture: It is the specific collection of values and norms that are shared by people and groups in an organization and that helps in achieving the organizational goals. External Environment Outside institutions or forces that potentially affect an organization s performance. The specific environment o The part of the environment that is directly relevant to the achievement of an organization s goals. o Customers Organizations exist to meet the needs of customers. It s the customer or client who absorbs the organization s output. Customers obviously represent potential uncertainty to an organization. Their tastes can change; they can become dissatisfied with the organization s product or service. o Suppliers 19

20 Managers seek to ensure a steady flow of needed inouts at the lowest price available. These inputs represent uncertainities i.e., their unavailability or delay can significantly reduce the organization s effectiveness managers typically go to great efforts to ensure a steady, reliable flow. o Competitors All organizations have one or more competitors. Managers cannot ignore the competition. Competitors in terms of pricing, new products developed, services offered and the like represent an environmental force that managers must monitor and to which they must be prepared to respond. o Pressure Groups Managers must recognize the special-interest groups that attempt to influence the actions of organizations. As social and political attitudes change, so too does the power of pressure groups. The General Environment Broad external conditions that may affect the organization. o Economic conditions Interest rates, inflation, changes in disposable income, stock market fluctuations and the stage of the general business cycle are some of the economic factors in the general environment that can affect management practices in an organization. o Political/Legal Conditions Organizations spend a great deal of time and money to meet governmental regulations, but the effects of these regulations go beyond time and money. They also reduce managerial discretion by limiting the choices available to managers Other aspects of the political/legal sector are political conditions and the general stability of a country in which an organization operates and the attitudes that elected governmental officials hold toward business. o Socio-cultural Conditions Managers must adapt their practices to the changing expectations of the society in which they operate. As societal values, customs and tastes change managers must also change. If an organization does business in other countries, managers need to be familiar with those countries values and cultures and manage in ways that recognize and embrace those specific socio cultural aspects. 20

21 o Demographic Conditions The demographic conditions encompass trends in the physical characteristics of a population such as gender, age, level of education, geographic location, income, family composition and so forth. The members of the present generation are thinking, learning, creating, shopping and playing in fundamentally different ways that are likely to greatly impact organizations and managers. o Technological Conditions The whole area of technology is radically changing the fundamental ways that organizations are structured and the way that managers manage. o Global conditions Globalization is one of the major factors affecting managers and organizations Managers of both large and small organizations are challenged by an increasing number of global competitors and consumer markets as part of the external environment. Managing globally Any manager who finds himself or herself in a foreign country faces new challenges The legal-political environment The economic environment The cultural environment The legal-political environment Managers in a global organization must stay informed of the specific laws in countries where they do business. The legal-political environment doesn t have to be unstable or revolutionary to be a concern to managers. Managers must recognize the differences among countries if they hope to understand the constraints under which they operate and the opportunities that exist. The Economic Environment Three of the most obvious economic concerns that the global manager should have one Exchange rates o The strength of a foreign nation s currency can also affect manager s decisions o A global firm s profits can vary widely in different regions of the world. o The inflation rate influences prices paid for raw materials, labour and other supplies. o In addition, it affects the price that a company can change for its goods and services. Diverse tax policies o Tax rules differ from country to country. 21

22 o Managers need exact information on the various tax rules in countries in which they operate to minimize their business s overall tax obligation. The Cultural Environment o The final global area of concern to managers is the cultural differences between nations. o National culture is the values and attitudes shared by individuals from specific country that shape their behavior and their beliefs about what is important. o Hofstede s four dimensions of national culture Individualism A cultural dimension that describes when people are supposed to look after their own interests and those of their immediate family. Collectivism A cultural dimension that describes when people expect others in their group to look after them and to protect them when they are in trouble. Power Distance A cultural measure of the extent to which a society accepts the unequal distribution of power in institutions and organizations. Uncertainty Avoidance A cultural measure of the degree to which people tolerate risk and unconventional behavior. Culture Shock The feeling of confusion, disorientation and emotional upheaval caused by being immersed in a new culture. Strategies for International Business International Management Focuses on the operations of international firms in host countries. International businesses engage in transactional across national boundaries. Multinational Corporation (MNC) Multinational Corporations have their headquarters in one country but operate in many countries. Orientations Ethnocentric Orientation The style of the foreign operations is based on that of the parent company. Polycentric Orientation The foreign subsidiaries are given a great deal of managerial freedom. Regiocentric Orientation The foreign operations are staffed on a regional basis. Geocentric Orientation The entire organization is viewed as an interdependent system operating in many countries. Strategies Multinational corporations must give weightage to two important factors The need to make optimum economic decisions on a global basis Responsive to host country differences 22

23 In order to fulfill the above two criteria the MNCs may opt for any of the four strategy Worldwide integration / Globalisation Strategy National responsiveness strategy Regional responsiveness strategy Multifocal strategy Forms of International Business Exportation Exportation of goods and services from parent country to host country. Licensing agreement Licensing agreement for producing goods in another country. Management contracts The company can engage in management contracts for operating in foreign companies. Joint Venture and Strategic Alliances o One form of interaction is a joint venture with the firm in the host country. o One form of Joint Venture is the strategic alliance that is often formed in order to expand geographically or to expand the market for products or services. Wholly Owned Subsidiaries o A wholly owned subsidiary is an operation on foreign soil that is totally owned and controlled by a company with headquarters outside the host country. o In wholly owned subsidiary, the production facilities are totally owned by one company. Challenges of Management in Global Scenario Language barriers Selling and Marketing in foreign markets Attitudes of host governments Communication and coordination between subsidiaries 23

24 Unit II Planning A process that involves defining the organization s goals, establishing an overall strategy for achieving those goals and developing a comprehensive set of plans to integrate and coordinate organizational work. Stephen P.Robbins & Mary Coulter. Nature of Planning Planning is goal-oriented: Every plan must contribute in some positive way towards the accomplishment of group objectives. Planning has no meaning without being related to goals. Primacy of Planning: Planning is the first of the managerial functions. It precedes all other management functions. Pervasiveness of Planning: Planning is found at all levels of management. Top management looks after strategic planning. Middle management is in charge of administrative planning. Lower management has to concentrate on operational planning. Efficiency, Economy and Accuracy: Efficiency of plan is measured by its contribution to the objectives as economically as possible. Planning also focuses on accurate forecasts. Co-ordination: Planning co-ordinates the what, who, how, where and why of planning.without co-ordination of all activities, we cannot have united efforts. Limiting Factors: A planner must recognize the limiting factors (money, manpower etc) and formulate plans in the light of these critical factors. Flexibility: The process of planning should be adaptable to changing environmental conditions. Planning is an intellectual process: The quality of planning will vary according to the quality of the mind of the manager. Purpose of Planning Planning gives direction Reduces the impact of change Minimizes waste and redundancy Sets the standards used in controlling 1

25 Planning Process (or) Steps in Planning Being Aware of Opportunities Setting Objectives or Goals Considering Planning Premises Identifying Alternatives Comparing Alternatives in light of goals sought Choosing an Alternative Formulating Supporting Plans Quantifying plans by making Budgets Being aware of opportunities Managers should take a preliminary look at possible future opportunities and see them clearly and completely, know where their company stands in light of its strengths and weaknesses, understand what problems it has to solve and why and know what it can expect to gain. Planning requires a realistic diagnosis of the opportunity situation. Establishing Objectives The second step in planning is to establish objectives for the entire enterprise and then for each subordinate work unit. Objectives specify the expected results and indicate the endpoints of what is to be done, where the primary emphasis is to be placed and what is to be accomplished by the network of strategies, policies, procedures, rules, budgets and programs. Enterprise objectives give direction to the major plans, which by reflecting these objectives, define the objective of every major department. Major departmental objectives in turn control the objectives of subordinate departments and so on down the line. In other words, objectives form a hierarchy. 2

26 Managers should also have the opportunity to contribute ideas for setting their own goals and those of the enterprise. 3. Developing Premises The next logical step in planning is to establish, circulate and obtain agreement to utilize critical planning premises such as forecasts, applicable basic policies and existing company plans. In what environment internal or external will our plans operate? Premises Assumptions about the environment in which the plan is to be carried out. It is important for all the managers involved in planning to agree on the premises. Principle of Planning Premises o The more thoroughly individuals charged with planning understand and agree to utilize consistent planning premises, the more coordinated enterprise planning will be. Forecasting is important in premising. 4. Determining Alternative Courses The fourth step in planning is to search for and examine alternative courses of action. The more common problem is not finding alternatives but reducing the number of alternatives so that the most promising may be analysed. 5. Evaluating Alternative Courses After seeking out alternative courses and examining their strong and weak points, the next step is to evaluate the alternatives by weighing them in light of premises and goals. 6. Selecting a Course This is the point at which the plan is adopted. i.e., the real point of decision making. Occasionally, an analysis and evaluation of alternative courses will disclose that two or more are advisable and the manager may decide to follow several courses rather than the one best course. 7. Formulating Derivative Plans Derivative plans are almost invariably required to support the basic plan. 8. Quantifying Plans by Budgeting After decisions are made and plans are set, the final step is to quantify them by converting them into budgets. 3

27 The overall budget of an enterprise represents the sum total of income and expenses, with resultant profit or surplus and the budgets of major balance sheet items such as cash and capital expenditures. If done well, budgets become a means of adding the various plans and set important standards against which planned progress can be measured. Types of Plan Plans Documents that outline how goals are going to be met including resource allocations, schedules and other necessary actions to accomplish the goals. Types I. Strategic Plans - Plans that apply to the entire organization, establish the organization s overall goals and seek to position the organization in terms of its environment. Operational Plans - Plans that specify the details of how the overall goals are to be achieved. Long-term plans - Plans within a time frame beyond three years Short-term plans - Plans covering one year or less. Directional Plans - Plans that are flexible and that set out general principles. Specific Plans - Plans that are clearly defined and that leave no room for interpretation Single-use plan - A one-time plan specifically designed to meet the needs of a unique situation. Standing Plans - Ongoing plans that provide guidance for activities performed repeatedly. 4

28 II. Operational plans lead to the achievement of tactical plans, which in turn lead to the attainment of strategic plans. In addition to these three types of plans, managers should also develop a contingency plan in case their original plans fail. a) Strategic plans: A strategic plan is an outline of steps designed with the goals of the entire organization as a whole in mind, rather than with the goals of specific divisions or departments. It is further classified as i) Mission:. The mission is a statement that reflects the basic purpose and focus of the organization which normally remain unchanged. The mission of the company is the answer of the question : why does the organization exists? Mission of Ford: we are a global, diverse family with a proud inheritance, providing exceptional products and services. ii) Objectives or goals: Both goal and objective can be defined as statements that reflect the end towards which the organization is aiming to achieve. However, there are significant differences between the two. A goal is an abstract and general umbrella statement, under which specific objectives can be clustered. Objectives are statements that describe in precise, measurable, and obtainable terms which reflect the desired organization s outcomes. 5

29 iii) Strategies: Strategy is the determination of the basic long term objectives of an organization and the adoption of action and collection of action and allocation of resources necessary to achieve these goals. Strategic planning begins with an organization's mission. Strategic plans look ahead over the next two, three, five, or even more years to move the organization from where it is currently to where it wants to be. Requiring multilevel involvement, these plans demand harmony among all levels of management within the organization. Top-level management develops the directional objectives for the entire organization, while lower levels of management develop compatible objectives and plans to achieve them. Top management's strategic plan for the entire organization becomes the framework and sets dimensions for the lower level planning. b) Tactical plans: A tactical plan is concerned with what the lower level units within each division must do, how they must do it, and who is in charge at each level. Tactics are the means needed to activate a strategy and make it work. Tactical plans are concerned with shorter time frames and narrower scopes than are strategic plans. These plans usually span one year or less because they are considered short-term goals. Long-term goals, on the other hand, can take several years or more to accomplish. Normally, it is the middle manager's responsibility to take the broad strategic plan and identify specific tactical actions. c) Operational plans The specific results expected from departments, work groups, and individuals are the operational goals. These goals are precise and measurable. Process 150 sales applications each week or Publish 20 books this quarter are examples of operational goals. 6

30 An operational plan is one that a manager uses to accomplish his or her job responsibilities. Supervisors, team leaders, and facilitators develop operational plans to support tactical plans (see the next section). Operational plans can be a single-use plan or a standing plan. i) Single-use plans apply to activities that do not recur or repeat. A one-time occurrence, such as a special sales program, is a single-use plan because it deals with the who, what, where, how, and how much of an activity. project. Programme: Programme consists of an ordered list of events to be followed to execute a Budget: A budget predicts sources and amounts of income and how much they are used for a specific project. ii) Standing plans are usually made once and retain their value over a period of years while undergoing periodic revisions and updates. The following are examples of ongoing plans: Ø Policy: Policies are general statements that explain how a manager should attempt to handle routine management responsibilities. Typical human resources policies, for example, address such matters as employee hiring, terminations, performance appraisals, pay increases, and discipline. Ø Procedure: A procedure is a set of step-by-step directions that explains how activities or tasks are to be carried out. Most organizations have procedures for purchasing supplies and equipment, for example. This procedure usually begins with a supervisor completing a purchasing requisition. The requisition is then sent to the next level of management for approval. The approved requisition is forwarded to the purchasing department. Depending on the amount of the request, the purchasing department may place an order, or they may need to secure quotations and/or bids for several vendors before placing the order. By defining the steps to be taken and the order in which they are to be done, procedures provide a standardized way of responding to a repetitive problem. 7

31 Ø Rule: A rule is an explicit statement that tells an employee what he or she can and cannot do. Rules are do and don't statements put into place to promote the safety of employees and the uniform treatment and behavior of employees. For example, rules about tardiness and absenteeism permit supervisors to make discipline decisions rapidly and with a high degree of fairness. d) Contingency plans Intelligent and successful management depends upon a constant pursuit of adaptation, flexibility, and mastery of changing conditions. Strong management requires a keeping all options open approach at all times that's where contingency planning comes in. Contingency planning involves identifying alternative courses of action that can be implemented if and when the original plan proves inadequate because of changing circumstances. Unexpected problems and events frequently occur. When they do, managers may need to change their plans. Anticipating change during the planning process is best in case things don't go as expected. Management can then develop alternatives to the existing plan and ready them for use when and if circumstances make these alternatives appropriate. Objective Objectives or goals are the ends toward which activity is aimed. An objective is verifiable when at the end of the period one can determine whether or not it has been achieved. Nature of objectives Objectives state end results Overall objectives need to be supported by sub objectives. Objectives form a hierarchy as well as network. Hierarchy of Objectives Key Result Area (KRA) An area in which performance is essential for the success of the enterprise. Non-verifiable objective: Eg., To make a reasonable profit. 8

32 Verifiable objective: Eg., To achieve a return on investment of 12% at the end of the current fiscal year. Management By Objectives(MBO) A management system in which specific performance goals are jointly determined by employees and their managers, progress toward accomplishing those goals is periodically reviewed and rewards are allocated on the basis of this progree. - Stephen P.Robbins and Mary Coulter Elements Goal specificity Participative decision-making An explicit time period Performance feedback Process of MBO Setting of Organizational purpose and Objectives The first basic step in MBO is the definition of organizational purpose and objectives 9

33 Questions, such as why does the organization exist?, what business are we in? and what should be our business? provide guidelines for the statement of purpose. This, in interaction with external factors then determines the long-range strategic objectives. Key Result Areas (KRAs) Organizational objectives and planning premises together provide the basis for the identification of key result areas. o It may be emphasized that KRAs are derived from the expectations of various stakeholders and indicate the priorities for organizational performance. Setting subordinate s objectives o The organizational objectives are achieved through individuals. Therefore, each individual manager must kow in advance what he is expected to achieve. o The process of objective setting begins with superior s proposed recommendations fro his subordinate s objectives. In turn, the subordinate states his own objectives as perceived by him. Thereafter, the final objectives for the subordinate are set by the mutual negotiation between superior and subordinate. Organizational Purpose and Objectives Planning Premises Key Result Areas Superior s Objectives Superior s recommendation for subordinate s objectives Subordinate s statement of his objectives Matching Resources 10 Subordinate s agreed objectives Subordinate s Performance

34 Matching resources with objectives o Resource availability becomes an important aspect of objective setting because it is the proper application of resources which ensures objective achievement. Therefore, there should be a matching between objectives and resources. o The allocation and movement of resources should be done in consultation with the subordinate manager. Appraisal o Appraisal aspect of MBO tries to measure whether the subordinate is achieving his objective or not. If not, what are the problems and how these problems can be overcome. o It is taken as a matter of system to ensure that everything is going as planned and the organization is able to achieve its objectives. Recycling o The outcome of appraisal at on level is recycled to see if the objectives have been set properly at the level concerned and also at the next higher level. o The three aspects involved in recycling process include setting of objectives at various levels, action planning in the context of those objectives and performance review. Each of these aspects gives base for others. Benefits of MBO Improvement of managing through results-oriented planning Clarification of organizational roles and structures as well as delegation of authority according to the results expected by the people occupying the roles. Encouragement of commitment to personal and organizational goals. Development of effective controls that measure results and lead to corrective actions. Problems and Limitations of MBO 11

35 Time and Cost Failure to teach MBO philosophy Problems in objective setting Emphasis on short-term objectives Inflexibility Frustration Prerequisites for installing MBO Programme Purpose of MBO Top management support Training for MBO Participation Feedback for self-direction and self-control. Strategy The determination of the mission or purpose and the basic long-term objectives of an enterprise, followed by the adoption of courses of action and allocation of resources necessary to achieve these aims. Strategic Management The set of managerial decisions and actions that determines the long-run performance of an organization. Strategic management process - a six-step process that encompasses strategic planning, implementation, and evaluation. 12

36 Types of Organizational Strategies Corporate-Level Strategy o An organizational strategy that seeks to determine what businesses a company should be in or wants to be in. Determines the direction that the organization is going and the roles that each business unit in the organization will play in pursuing that direction. o Grand Strategy Stability strategy - A corporate-level strategy characterized by an absence of significant change. Growth strategy A corporate-level strategy that seeks to increase the level of the organization s operations. Growth through direct expansion ( also called concentration) is achieved by internally increasing a firm s sales, production capacity or workforce. Growth through vertical integration is an attempt to gain control of inputs, outputs or both. In horizontal integration, a company grows by combining with other organizations in the same industry that is, combining operations with competitors. Diversification Related diversification is when a company grows by merging with or acquiring firms in different but related industries. Unrelated diversification is when a company grows by merging with or acquiring firms in different and unrelated industries. Retrenchment strategy A corporate-level strategy designed to address organizational weaknesses that are leading to performance declines. o Corporate Portfolio Analysis: BCG Matrix 13

37 A strategy tool that guides resource allocation decisions on the basis of market share and growth rate of SBUs. Business-Level Strategy 2 An organizational strategy that seeks to determine how an organization should compete in each of its businesses. o Strategic Business Units (SBUs) When an organization is in several different businesses, these single businesses that are independent and that formulate their own strategies. Competitive Advantage: What sets an organization apart: its distinct edge. Competitive Strategies: Porter s Five Forces Model 14

38 Three Generic Strategies 2 Cost Leadership Strategy A business-level strategy in which the organization is the lowest-cost producer in its industry. o Differentiation Strategy A business-level strategy in which a company offers unique products that are widely valued by customers. o Focus Strategy A business-level strategy in which a company pursues a cost or differentiation advantage in a narrow industry segment. Functional-level strategy An organizational strategy that seeks to determine how to support the business-level strategy. Policies Policy is a statement and predetermined guideline that provides directions for decision making and taking action. General statements or understandings that guide or channelize thinking in decision making. 15

39 Types Policies On the basis On the basis On the basis of levels of functions of sources Basic Policy Production Policy Originated Polic y General Marketing Appealed Policy Policy Polic y Division Personnel External Policy Policy Polic y Accounting Policy On the basis of levels o Basic policies are set by top level management o General policies are set by middle level management Division policies are set by division heads or first line supervisors. On the basis of functions Separate policies are set by management for different managerial functions such as production policy, purchasing policy, pricing policy, dividend policy, quality policy, sales policy, personnel, financial etc. On the basis of sources Originated policies are formulated by top level managers on their own intuition and experience. o Appealed policies are formulated by top level managers in response to appeals made by lower level mangers o Imposed policies are those which are imposed upon the organization by external agencies such as government, trade union and trade associations. Policy Making Process (or) Steps in Policy Making Policy formulation Policies are formulated by top management. Such policies arise out of needs and purpose perceived and defined by top management. 16

40

41 Policy Policy Policy Policy Review Formualtion Commuication Application and Appraisal Policy communication After framing the policy, the policy is communicated to those who are responsible for its applications. o Communication of policy may be in the form of policy manuals, written memorandums, board letters and announcements. Policy Application The policy should be strictly applied by subordinates. Some flexibility is also essential in day-to-day activities. Policy Review and Appraisal Policy become obsolete when it is not reviewed periodically. o Periodical review of policy is essential to avoid complacency in the future. o Management should analyse the existing policies and outdated policies must be scraped out. Decision Making Decision A choice from two or more alternatives. Decision Making Process A set of eight steps including identifying a problem, selecting an alternative and evaluating the decision s effectiveness. 2 Identification of a problem The decision making process begins with the existence of a problem. Problem : A discrepancy between an existing and a desired state of affairs. Problem identification is subjective. Before something can be characterized as a problem, managers have to be aware of the problem, be under pressure to take action and have the resources needed to take action. 3 Identification of Decision Criteria Once a manager has identified a problem that needs attention, the decision criteria important to resolving the problem must be identified. Decision Criteria: Criteria that define what s relevant in a decision. These might include criteria such as price, product model and manufacturer, standard features, optional equipment, service warranties, repair record and service support after purchase. 17

42 Whether they are explicitly stated or not, every decision maker has criteria that guide his or her decisions 3. Allocation of weights to criteria The criteria identified in step 2 are not all equally important, so the decision maker must weight the items in order to give them correct priority in the decision. A simple approach is to give the most important criterion a weight of 10 and then assign weights to the rest against that standard. The idea is to use personal preferences to prioritize the criteria identified in step 2 by assigning a weight to each. 4. Development of alternatives The fourth step requires the decision maker to list the viable alternatives that could resolve the problem. No attempt is made in this step to evaluate the alternatives, only to list them. 5. Analyzing alternatives Once the alternatives have been identified, the decision maker must critically analyze each one. Each alternative is evaluated by appraising it against the criteria established in steps 2 and 3. From this comparison, the strengths and weaknesses of each alternative become evident. 6. Selection of an alternative 18

43 The sixth step is the important act of choosing the best alternative from among those considered. The decision makers have to choose the alternative that generated the highest score in step 5. p Implementation of the alternative Step 7 is concerned with putting the decision into action. Implementation involves conveying the decision to those affected by it and getting their commitment to it. q Evaluating decision effectiveness The last step in the decision-making process involves appraising the outcome of the decision to see if the problem has been resolved. Did the alternative chosen in step 6 and implemented in step 7 accomplish the desired result? Answer to this question might send the manager back to one of the earlier steps. Type of Decisions Programmed Decisions A repetitive decision that can be handled by a routine approach The programmed decision process is characterized by high levels of certainty for both the problem formulation and the problem solution phases. Rules and procedures typically spell out exactly how to respond Programmed decisions are used for structured or routine work. Eg., Promotion decisions Non-programmed decisions Decisions that must be custom-made to solve unique and nonrecurring problems 19

44 Non-programmed decisions are made by upper-level managers, this is because upperlevel managers have to deal with unstructured problems. Non-programmed decisions are used for unstructured, novel and ill-defined situations of a non recurring nature. Eg., Introduction of the Macintosh Computer by Apple Computer. Comparison of Programmed and Non-Programmed Decisions Rational Decision Making Describes choices that are consistent and value maximizing within specified constraints. Bounded Rationality Behaviour that is rational within the parameters of a simplified decision-making process, which is limited (or bounded) by an individual s ability to process information. Satisficing Acceptance of solutions that are good enough. Escalation of Commitment An increased commitment to a previous decision despite evidence that it may have been wrong. 20

45 Intuitive decision-making A subconscious process of making decisions on the basis of experience and accumulated judgement. Rational Decision Making Process Recognise the need for a decision Definition of the problem Search and develop alternatives Evaluate alternatives Selecting an alternative among alternatives Implement chosen alternative Learn from feedback Recognize the need for a decision o Manager recognize the need for a decision in the form of a problem or opportunity. Definition of the problem o A problem is the gap between present and the desired state of affairs on the subject matter of the decision. o The definition and diagnosis of the problem involves three types of skills: noticing, interpreting and incorporating. Search and develop alternatives o The alternative course of action can be developed by collecting more information, thinking creatively, consulting experts and undertaking research. o Limiting Factor: A limiting factor is something that stands in the way of accomplishing a desired objective. 21

46 o Principle of the Limiting Factor: By recognizing and overcoming factors that stand critically in the way of a goal, the best alternative course of action can be selected. Evaluate Alternatives o After identifying alternative courses of action, they must be compared and evaluated. This step determines the relative cost of each alternative. o Managers have to determine the advantages and disadvantages of ach alternative. o Selecting an alternative course of action among alternatives Experimentation How to select from Reliance on the past amongst Choice made alternatives? Research and Analysis Experience o Experience on the part of managers greatly influence the decision making process. o Selecting a best alternative not only depends on the manager s past experience but also depends on the creative thinking and innovative skills of the manager. Experimentation o Manager tests the alternatives under actual and prevailing conditions o The experimentation may be in the form of test marketing of a new product o This method of selecting an alternative is more expensive. Research and Analysis o Research and analysis involves a search for relationships among the critical variables, constraints and premises. o This approach requires modeling of problems and to stimulate them o It is mainly a mathematical approach. The expenses required for this criterion is very less compared to experimentation. This is one of the effective criteria to choose the best alternative course of action. This method is more accurate one. Implement chose alternative 22

47 e) The decision taken by the management will not serve the purpose if it is not executed properly. o Manager has to take essential steps to implement the solution. Learn from feedback o Feedback is important because decision making is a continuous and never ending process (iii) Feedback information is very much useful in taking the corrective measures and in taking right decisions in the future. Common decision making errors and biases Decision Making under different conditions Decision making under certainty o A situation in which a manager can make accurate decisions because all outcomes are known. o It is more idealistic than realistic. Decision making under Risk o Those conditions in which the decision maker is able to estimate the likelihood of certain outcomes. 23

48 o The ability to assign probabilities to outcomes may be the result of personal experiences or secondary information. Decision making under Uncertainty o A situation in which a decision maker has neither certainty nor reasonable probability estimates available. o Force managers to rely on intuition, hunches, and gut feelings. Approaches The optimistic manager will follow a maximax choice (maximizing the maximum possible payoff) The pessimist will follow a maximin choice (maximizing the minimum possible payoff) The manager who desires to minimize his maximum regret will opt for a minimax choice. 24

49 UNIT III ORGANIZING Organising The process of creating an organization s structure. Organising is the process of defining and grouping the activities of an enterprise and establishing the authority relationships among them. Theo Haimann. Nature of Organising Division of work Coordination Plurality of persons Common objectives Well-defined authority and responsibility Organization is a structure or relationship Organization is machine of management Organization is a universal process Purpose of organizing Divides work to be done into specific jobs and departments Assigns tasks and responsibilities associated with individual jobs Coordinates diverse organizational tasks Clusters jobs into units Establishes relationships among individuals, groups and departments Establishes formal lines of authority Allocates and deploys organizational resources ORGANIZING PROCESS Organization is the process of establishing relationship among the members of the enterprise. The relationships are created in terms of authority and responsibility. Determination Enumeration Classification Assignment of Delegation of of Objectives of Objectives of Activities Duties Authority 1

50 a) Determination of Objectives: It is the first step in building up an organization. Organization is always related to certain objectives. Therefore, it is essential for the management to identify the objectives before starting any activity. Organization structure is built on the basis of the objectives of the enterprise. This step helps the management not only in framing the organization structure but also in achieving the enterprise objectives with minimum cost and efforts. Determination of objectives will consist in deciding as to why the proposed organization is to be set up and, therefore, what will be the nature of the work to be accomplished through the organization. b) Enumeration of Objectives: If the members of the group are to pool their efforts effectively, there must be proper division of the major activities. The first step in organizing group effort is the division of the total job into essential activities. Each job should be properly classified and grouped. This will enable the people to know what is expected of them as members of the group and will help in avoiding duplication of efforts. For example, the work of an industrial concern may be divided into the following major functions production, financing, personnel, sales, purchase, etc. c) Classification of Activities: The next step will be to classify activities according to similarities and common purposes and functions and taking the human and material resources into account. Then, closely related and similar activities are grouped into divisions and departments and the departmental activities are further divided into sections. d) Assignment of Duties: Here, specific job assignments are made to different subordinates for ensuring a certainty of work performance. Each individual should be given a specific job to do according to his ability and made responsible for that. He should also be given the adequate authority to do the job assigned to him. e) Delegation of Authority: Everybody should clearly know to whom he is accountable; corresponding to the 2

51 responsibility, authority is delegated to the subordinates for enabling them to show work performance. This will help in the smooth working of the enterprise by facilitating delegation of responsibility and authority. ORGANIZATIONAL STRUCTURE The formal framework, by which job tasks are divided, grouped and coordinated. Formal and Informal Organization Formal Organization The intentional structure of roles in a formally organized enterprise. According to Classical Theorists, formal organization is built on four pillars: o Division of labour o Scalar and functional processes o Structure o Span of Control Characteristics Organization structure is designed by the top management to fulfill certain requirements performance of necessary activities thereby achieving organizational goals. Organization structure is based on the principles of division of labour and efficiency in operations. Organization concentrates more on the performance of jobs and not on the individuals performing the jobs The authority and responsibility assigned to each job have to be adhered to by the job holders. Based on the concept of authority and responsibility people are placed in hierarchy and their status is determined accordingly. Coordination among members and their control are well specified through processes, procedures, rules, etc. Informal Organization A network of interpersonal relationships that arise when people associate with one another. Characteristics Informal organization is a natural outcome at the workplace. It is not designed and planned. 3

52 Informal organization is created on the basis of some similarity among its members. The bases of similarity may be age, gender, place of origin, caste, religion, personality characteristics, likings/disliking, etc. Membership in an informal organization is voluntary. A person may become member of several informal organizations at the same time. Behavior of members of the informal organization is coordinated and controlled by group norms and not by the norms of the formal organization. Comparison of Formal and Informal Organization Basis of Comparison Formal Organization Informal Organization Formation Planned and deliberate Spontaneous Purpose Well-set goals Social interaction Structure Well structured Unstructured Nature Official Unofficial Focus Positions Persons Leadership Superior Anyone Source of Power Delegated Given by group Guidelines for behaviour Rules and Procedures Group norms Sources of control Reward/Punishment Sanctions LINE AND STAFF AUTHORITY Authority and Power Power: The ability of individuals or groups to induce or influence the beliefs or actions of other persons or groups. Authority: The right in a position to exercise discretion in making decisions affecting others Line/Staff Concepts Line Authority: The relationship in which a superior exercises direct supervision over a subordinate. Scalar Principle: The clearer the line of authority, the clearer will be the responsibility for decision making and the more effective will be organizational communication. Staff Relationship: The nature of staff relationship is advisory. The function of people in a pure staff capacity is to investigate, research and give advice to line managers. Functional Authority The right delegated to an individual or a department to control specified processes, practices, policies or other matters relating to activities undertaken by persons in other departments. Line Organization/Scaler Organization 4

53 Line organization structure is based on scaler or hierarchical principles ie., relative authority and responsibility. Everyone has a well-defined manager and there is clear definition of the routes of authority and communication The top-level management takes the major decisions and passes it to middle-level subordinates who implement them. The middle-level management identifies the job and assigns the responsibility to different people according to their functions and ability. CEO/MD/GM Marketing Manager Personnel/ HRD Finance/Accounts Production Manager Manager Manager Assistant Manager Assistant Manager Superintendent Foreman Advantages Workers Easy to establish and operate It is economical and easy to understand No confusion as authority and responsibilities of each employee are clearly defined. Discipline and loyalty is ensured due to unified command Line organization promotes staff discipline more easily than other forms 5

54 Disadvantages It is autocrative and dictorial in nature Line organization is not suitable for large scale enterprise where high level of specialization is required. Specialized variety of job is difficult to supervise by a supervisor Limited opportunities for the members to acquire experience of the other functions of the enterprise. The head of each department is afforded total control of his workforce and to this extent the effectiveness of his department depends upon his capabilities. Line and Staff Organization In line and staff organization, the line executives are responsible for maintaining discipline, production and the staff division is responsible for research, planning, scheduling, establishing standards and recording of performance. The line managers are supplied with services of staff for the basic functions like production, marketing, finance, accounting, personnel, R&D, etc. The line managers are decision takers, taking decisions with the help of staff experts. Staff experts can suggest their recommendations to the line managers The implementation is the responsibility of line managers. Hence, the staff experts are called as thinkers while the line managers are called as doers. 6

55 Advantages Operational efficiency is increased Offer greater flexibility Wastage of raw material, machine hours are reduced considerably. Discipline and stability can be achieved Better chances of advancement for both line and staff managers Services of staff executives can be used to train line executives Disadvantages Possibility of misunderstanding between line and staff employees if functions are not defined clearly Line executives depend too much on staff executives, in such conditions line executive may lose their initiative and creativity Line manager s approach to the problem is practical while the staff management approach being experts in their field is theoretical. ORGANIZATION CHART An organization chart indicates how departments are tied together along the principal lines of authority. An organizational chart shows formal authority relationships and omits the many significant informal relationships. Chief Manager Production Works Manager Quality Control Marketing Manager Manager Manager Foreman Foreman Foreman Machine-Shop Assembly-Shop Dispatch Workmen Workmen Workmen

56 DEPARTMENTATION The basis by which jobs are grouped together. Forms (or) Types Departmentation by Enterprise Function Departmentation by Territory or Geography Departmentation by Customer Group Departmentation by Product Departmentation by Process Departmentation by Enterprise Function Grouping of activities according to the functions of an enterprise such as production, sales and financing. Plant Manager Manager Manager Manager Manager Manager Engineering Accounting Manufacturing Human Purchasing Advantages Efficiencies from putting together similar specialities and people with common skills, knowledge and orientations Coordination within functional area In-depth specialization Disadvantages Poor communication across functional areas Limited view of organizational goals Departmentaion by Geography or Territory Grouping of activities by area or territory is common in enterprises operating over wide geographic areas. Groups jobs on the basis of territory or geography. 8

57 Vice President for Sales Sales Director Sales Director Sales Director Sales Director Western Region Southern Region Midwestern Region Eastern Region Advantages More effective and efficient handling of specific regional issues that arise Serve needs of unique geographic markets better Disadvantages Duplication of functions Can feel isolated from other organizational areas Departmentation by Customer Group Grouping of activities that reflects a primary interest in customers Groups jobs on the basis of common customers Chief Executive Manager Manager Manager Manager Industrial Consumer Government Private Relations needs and Division by Consumers Consumers Disadvantages Duplication of functions Limited view of organizational goals. Departmentation by product Grouping of activities according to products or product lines, especially in multiline, large enterprises Groups jobs by product line. Chief Executive 9 Chemical Division Foodstuff Division Cosmetics Division Drug Division

58 Advantages Allows specialization in particular products and services Managers can become experts in their industry Closer to customers Disadvantages Duplication of functions Limited view of organizational goals Departmentation by Process Group jobs on the basis of product or customer flow Chief Executive Gear Shop Forging Section Press Section Electronic Data Processing Advantage: More efficient flow of work activities Disadvantage: Can only be used with certain types of products. Matrix Departmentation 10

59 The combining of functional and project or product patterns of departmentation in the same organization Advantages Efficiently manage large, complex tasks Effectively carry out large, complex tasks Disadvantages Requires high levels of coordination Conflict between bosses Requires high levels of management skills SPAN OF CONTROL The number of employees a manager can efficiently and effectively manage. o Organization with narrow spans o Organization with wide spans Organization with narrow spans A great deal of time spent with subordinates. 11

60 MG2351 PRINCIPLES OF MANAGEMENT Advantages Close supervision Close control Fast communication between subordinates and superiors Disadvantages Superiors tend to get too involved in subordinate s work Many levels of management High costs due to many levels Excessive distance between lowest level and top level Organization with wide spans Very little time spent with subordinates Advantages Superiors are forced to delegate Clear policies must be made Subordinates must be carefully selected Disadvantages Tendency of overloaded superiors to become decision bottlenecks Danger of superior s loss of control 12

61 Requires exceptional quality of managers Principle of the span of management There is a limit to the number of subordinates a manger can effectively supervise, but the exact number will depend on the impact of underlying factors. Factors influencing the span of management Narrow Spans Little or no training for subordinates Inadequate or unclear authority delegation Non-verifiable objectives and standards Ineffective meetings Complex task Immature subordinates Incompetent and untrained manager Wide Spans Thorough training of subordinates Clear delegation and well-defined tasks Verifiable objectives used as standards Effective meetings Simple task Mature subordinates Competent and trained manager CENTRALIZATION AND DECENTRALIZATION Centralization The degree to which decision making is concentrated at a single point in the organization Advantages of Centralization p Provide Power and prestige for manager q Promote uniformity of policies, practices and decisions r s Minimal extensive controlling procedures and practices Minimize duplication of function Disadvantages of Centralization Neglected functions for mid. Level, and less motivated beside personnel. Decentralization The degree to which lower-level employees provide input or actually make decisions. Advantages of Decentralization 13

62 Raise morale and promote interpersonal relationships Relieve from the daily administration Bring decision-making close to action Develop Second-line managers Promote employee s enthusiasm and coordination Facilitate actions by lower-level managers Disadvantages of Decentralization Top-level administration may feel it would decrease their status Managers may not permit full and maximum utilization of highly qualified personnel Increased costs. It requires more managers and large staff It may lead to overlapping and duplication of effort Factors that influence the amount of centralization and decentralization More Centralization More Decentralization Environment is stable Environment is complex, uncertain Lower-level managers are not as capable or Lower-level managers are capable and experienced at making decisions as upper-level experienced at making decisions managers Lower-level managers do not want to have a Lower-level managers want a voice in say in decisions decisions Decisions are significant Decisions are relatively minor Organization is facing a crisis or the risk of Corporate culture is open to allowing managers company failure to have a say in what happens Company is large Company is geographically dispersed Effective implementation of company Effective implementation of company strategies depends on managers retaining say strategies depends on managers having over what happens involvement and flexibility to make decisions. Different kinds of Centralization Centralization of Performance Departmental Centralization Centralization of Management DELEGATION OF AUTHORITY Authority is delegated when a superior gives a subordinate discretion to make decisions. Process 14

63 Determination of Results Expected Assignment of Duties Authorisation for Action Creation of Obligation Principles Delegation by results expected Functional definition Clarity of lines of authority Level of authority Absoluteness of responsibility Parity of authority and responsibility Blocks to effective Delegation Factors in Delegator (Superior) Love for authority Maintenance of tight control Fear of subordinates Fear of exposure Attitude towards subordinates Personality of superior Factors in Delegant (Subordinate) Assuming too much responsibility Fear of criticism Lack of self-confidence Lack of resources Inadequate positive incentives When superior is easily available for making decisions Measures for effective delegation 15

64 Define assignments and delegate authority in light of results sought Maintain open lines of communication Establish proper controls Select the person in light of the job to be done Reward effective delegation and successful assumption of authority STAFFING Filling and Keeping filled positions in the organization Stages The staffing process encompasses man power planning, recruitment, selection, and training. Manpower Planning Manpower Planning which is also called as Human Resource Planning consists of putting right number of people, right kind of people at the right place, right time, doing the right things for which they are suited for the achievement of goals of the organization. Recruitment Recruitment is the process of finding and attempting to attract job candidates who are capable of effectively filling job vacancies. Job descriptions and job specifications are important in the recruiting process because they specify the nature of the job and the qualifications required of job candidates. Selection Selecting a suitable candidate can be the biggest challenge for any organization. The success of an organization largely depends on its staff. Selection of the right candidate builds the foundation of any organization's success and helps in reducing turnovers. Training and Development Training and Development is a planned effort to facilitate employee learning of job- related behaviors in order to improve employee performance. RECRUITMENT 16

65 MG2351 PRINCIPLES OF MANAGEMENT The process of locating, identifying and attracting capable applicants Recruiting Sources The source used is influenced by three factors The local labour market The type or level of position The size of the organization Recruitment Process The recruitment process consists of the following steps Identification of vacancy Preparation of job description and job specification Selection of sources Advertising the vacancy Managing the response 17

66 a) Identification of vacancy: The recruitment process begins with the human resource department receiving requisitions for recruitment from any department of the company. These contain: Posts to be filled Number of persons Duties to be performed Qualifications required 5. Preparation of job description and job specification: A job description is a list of the general tasks, or functions, and responsibilities of a position. It may often include to whom the position reports, specifications such as the qualifications or skills needed by the person in the job, or a salary range. A job specification describes the knowledge, skills, education, experience, and abilities you believe are essential to performing a particular job. c) Selection of sources: Every organization has the option of choosing the candidates for its recruitment processes from two kinds of sources: internal and external sources. The sources within the organization itself (like transfer of employees from one department to other, promotions) to fill a position are known as the internal sources of recruitment. Recruitment candidates from all the other sources (like outsourcing agencies etc.) are known as the external sources 18

67 of the recruitment. d) Advertising the vacancy: After choosing the appropriate sources, the vacancy is communicated to the candidates by means of a suitable media such as television, radio, newspaper, internet, direct mail etc. e) Managing the response: After receiving an adequate number of responses from job seekers, the sieving process of the resumes begins. This is a very essential step of the recruitment selection process, because selecting the correct resumes that match the job profile, is very important. Naturally, it has to be done rather competently by a person who understands all the responsibilities associated with the designation in its entirety. Candidates with the given skill set are then chosen and further called for interview. Also, the applications of candidates that do not match the present nature of the position but may be considered for future requirements are filed separately and preserved. The recruitment process is immediately followed by the selection process. Job Analysis Job Analysis is the process of describing and recording aspects of jobs and specifying the skills and other requirements necessary to perform the job. The outputs of job analysis are a) Job description b) Job Specification Job Description A job description (JD) is a written statement of what the job holder does, how it is done, under what conditions it is done and why it is done. It describes what the job is all about, throwing light on job content, environment and conditions of employment. It is descriptive in nature and defines the purpose and scope of a job. The main purpose of writing a job description is to differentiate the job from other jobs and state its outer limits. Contents A job description usually covers the following information: Job title: Tells about the job title, code number and the department where it is done. Job summary: A brief write-up about what the job is all about. Job activities: A description of the tasks done, facilities used, extent of supervisory help, 19

68 etc. Working conditions: The physical environment of job in terms of heat, light, noise and other hazards. Social environment: Size of work group and interpersonal interactions required to do the job. Job Specification Job specification summarizes the human characteristics needed for satisfactory job completion. It tries to describe the key qualifications someone needs to perform the job successfully. It spells out the important attributes of a person in terms of education, experience, skills, knowledge and abilities (SKAs) to perform a particular job. The job specification is a logical outgrowth of a job description. For each job description, it is desirable to have a job specification. This helps the organization to find what kinds of persons are needed to take up specific jobs. A job specification usually covers the following information: Education Experience Skill, Knowledge, Abilities Work Orientation Factors Age SELECTION PROCESS Selecting a suitable candidate can be the biggest challenge for any organisation. The success of an organization largely depends on its staff. Selection of the right candidate builds the foundation of any organization's success and helps in reducing turnovers. Though there is no fool proof selection procedure that will ensure low turnover and high profits, the following steps generally make up the selection process- 20

69 a)initial Screening This is generally the starting point of any employee selection process. Initial Screening eliminates unqualified applicants and helps save time. Applications received from various sources are scrutinized and irrelevant ones are discarded. b)preliminary Interview It is used to eliminate those candidates who do not meet the minimum eligibility criteria laid down by the organization. The skills, academic and family background, competencies and interests of the candidate are examined during preliminary interview. Preliminary interviews are less formalized and planned than the final interviews. The candidates are given a brief up about the company and the job profile; and it is also examined how much the candidate knows about the company. Preliminary interviews are also called screening interviews. c) Filling Application Form An candidate who passes the preliminary interview and is found to be eligible for the job is asked to fill in a formal application form. Such a form is designed in a way that it records the personal as well professional details of the candidates such as age, qualifications, reason for leaving previous job, experience, etc. d)personal Interview Most employers believe that the personal interview is very important. It helps them in 21

70 obtaining more information about the prospective employee. It also helps them in interacting with the candidate and judging his communication abilities, his ease of handling pressure etc. In some Companies, the selection process comprises only of the Interview. e)references check Most application forms include a section that requires prospective candidates to put down names of a few references. References can be classified into - former employer, former customers, business references, reputable persons. Such references are contacted to get a feedback on the person in question including his behaviour, skills, conduct etc. f)background Verification A background check is a review of a person's commercial, criminal and (occasionally) financial records. Employers often perform background checks on employers or candidates for employment to confirm information given in a job application, verify a person's identity, or ensure that the individual does not have a history of criminal activity, etc., that could be an issue upon employment. g)final Interview Final interview is a process in which a potential employee is evaluated by an employer for prospective employment in their organization. During this process, the employer hopes todetermine whether or not the applicant is suitable for the job. Different types of tests are conducted to evaluate the capabilities of an applicant, his behaviour, special qualities etc. Separate tests are conducted for various types of jobs. Types of Tests Intelligence Tests Proficiency and Aptitude Tests Vocational Tests Personality Tests h)physical Examination If all goes well, then at this stage, a physical examination is conducted to make sure that the candidate has sound health and does not suffer from any serious ailment. i)job Offer 22

71 A candidate who clears all the steps is finally considered right for a particular job and is presented with the job offer. An applicant can be dropped at any given stage if considered unfit for the job. Selection Decision Outcomes Selection errors: Reject errors for potentially successful applicants Accept errors for ultimately poor performers EMPLOYEEINDUCTION/ ORIENTATION Orientation or induction is the process of introducing new employees to an organization, to their specific jobs & departments, and in some instances, to their community. Purposes of Orientation 1. To Reduce Startup-Costs: Proper orientation can help the employee get "up to speed" much more quickly, thereby reducing the costs associated with learning the job. 2. To Reduce Anxiety: Any employee, when put into a new, strange situation, will experience anxiety that can impede his or her ability to learn to do the job. Proper orientation helps to reduce anxiety that 23

72 results from entering into an unknown situation, and helps provide guidelines for behaviour and conduct, so the employee doesn't have to experience the stress of guessing. 3. To Reduce Employee Turnover: Employee turnover increases as employees feel they are not valued, or are put in positions where they can't possibly do their jobs. Orientation shows that the organization values the employee, and helps provide tools necessary for succeeding in the job. 4. To Save Time for Supervisor & Co-Workers: Simply put, the better the initial orientation, the less likely supervisors and co-workers will have to spend time teaching the employee. 5. To Develop Realistic Job Expectations, Positive Attitudes and Job Satisfaction: It is important that employees learn early on what is expected of them, and what to expect from others, in addition to learning about the values and attitudes of the organization. While people can learn from experience, they will make many mistakes that are unnecessary and potentially damaging. An orientation program principally conveys 3 types of information, namely: a) General information about the daily work routine to be followed b) A review of the organization s history, founders, objectives, operations & products or services, as well as how the employee s job contributes to the organization s needs. c) A detailed presentation of the organization s policies, work rules & employee benefits. Two Kinds of Orientation There are two related kinds of orientation. Overview Orientation Deals with the basic information an employee will need to understand the broader system he or she works in. Overview Orientation includes helping employees understand: r s t Management in general Department and the branch Important policies u General procedures (non-job specific) 24

73 p Information about compensation q Accident prevention measures r s Employee and union issues (rights, responsibilities) Physical facilities Often, Overview Orientation can be conducted by the personnel department with a little help from the branch manager or immediate supervisor, since much of the content is generic in nature. Job-Specific Orientation The process that is used to help employees understand: p Function of the organization, q Responsibilities, r Expectations, s t Duties Policies, procedures, rules and regulations u Layout of workplace v Introduction to co-workers and other people in the broader organization. Job specific orientation is best conducted by the immediate supervisor, and/or manager, since much of the content will be specific to the individual. Often the orientation process will be ongoing, with supervisors and co-workers supplying coaching. CAREER STAGES Career: The sequence of positions held by a person during his or her lifetime. Four distinct career stages have been identified: trial, establishment/advancement, midcareer, and late career. Each stage represents different career needs and interests of the individual a) Trial stage: The trial stage begins with an individual's exploration of career-related matters and ends usually at about age 25 with a commitment on the part of the individual to a particular occupation. Until the decision is made to settle down, the individual may try a number of jobs and a number of organizations. Unfortunately for many organizations, this trial and exploration stage results in high level of turnover among new employees. Employees in this stage need opportunities for self-exploration and a variety of job activities or assignments. 25

74 b) Establishment Stage: The establishment/advancement stage tends to occur between ages 25 and 44. In this stage, the individual has made his or her career choice and is concerned with achievement, performance, and advancement. This stage is marked by high employee productivity and career growth, as the individual is motivated to succeed in the organization and in his or her chosen occupation. Opportunities for job challenge and use of special competencies are desired in this stage. The employee strives for creativity and innovation through new job assignments. Employees also need a certain degree of autonomy in this stage so that they can experience feelings of individual achievement and personal success. c) Mid Career Crisis Sub Stage: The period occurring between the mid-thirties and mid-forties during which people often make a major reassessment of their progress relative to their original career ambitions and goals. (e) Maintenance stage: The mid-career stage, which occurs roughly between the ages 45 and 64, has also been referred to as the maintenance stage. This stage is typified by a continuation of established patterns of work behavior. The person is no longer trying to establish a place for himself or herself in the organization, but seeks to maintain his or her position. This stage is viewed as a mid-career plateau in which little new ground is broken. The individual in this stage may need some technical updating in his or her field. The employee should be encouraged to develop new job skills in order to avoid early stagnation and decline. (f) Late-career stage: In this stage the career lessens in importance and the employee plans for 26

75 retirement and seeks to develop a sense of identity outside the work environment. CAREER DEVELOPMENT Career development not only improves job performance but also brings about the growth of the personality. Individuals not only mature regarding their potential capacities but also become better individuals. Purpose of Development Management development attempts to improve managerial performance by imparting Knowledge Changing attitudes Increasing skills The major objective of development is managerial effectiveness through a planned and a deliberate process of learning. This provides for a planned growth of managers to meet the future organizational needs. Development Process The development process consists of the following steps 1. Setting Development Objectives: It develops a framework from which executive need can be determined. 2. Ascertaining Development Needs: It aims at organizational planning & forecast the present and future growth. 3. Determining Development Needs: 27

76 This consists of 7. Appraisal of present management talent 8. Management Manpower Inventory The above two processes will determine the skill deficiencies that are relative to the future needs of the organization. 4. Conducting Development Programs: It is carried out on the basis of needs of different individuals, differences in their attitudes and behavior, also their physical, intellectual and emotional qualities. Thus a comprehensive and well conceived program is prepared depending on the organizational needs and the time & cost involved. 5. Program Evaluation: It is an attempt to assess the value of training in order to achieve organizational objectives. TRAINING Training is a process of learning a sequence of programmed behaviour. It improves the employee's performance on the current job and prepares them for an intended job. Purpose of Training: To improve Productivity: Training leads to increased operational productivity and increased company profit. To improve Quality: Better trained workers are less likely to make operational mistakes. 3) To improve Organizational Climate: Training leads to improved production and product quality which enhances financial incentives. This in turn increases the overall morale of the organization. 3. To increase Health and Safety: Proper training prevents industrial accidents. 4. Personal Growth: Training gives employees a wider awareness, an enlarged skill base and that leads to enhanced personal growth. 28

77 Steps in Training Process: p Identifying Training needs: A training program is designed to assist in providing solutions for specific operational problems or to improve performance of a trainee. Organizational determination and Analysis: Allocation of resources that relate to organizational goal. Operational Analysis: Determination of a specific employee behaviour required for a particular task. Man Analysis: Knowledge, attitude and skill one must possess for attainment of organizational objectives q Getting ready for the job: The trainer has to be prepared for the job. And also who needs to be trained - the newcomer or the existing employee or the supervisory staff. Preparation of the learner: 29

78 Putting the learner at ease Stating the importance and ingredients of the job Creating interest Placing the learner as close to his normal working position Familiarizing him with the equipment, materials and trade terms 7. Presentation of Operation and Knowledge: The trainer should clearly tell, show, illustrate and question in order to convey the new knowledge and operations. The trainee should be encouraged to ask questions in order to indicate that he really knows and understands the job. 3. Performance Try out: The trainee is asked to go through the job several times. This gradually builds up his skill, speed and confidence. 4. Follow-up: This evaluates the effectiveness of the entire training effort Training Types and Methods TRAINING METHODS Training methods can be broadly classified as on-the-job training and off-the-job taining a)on-the-job training On the job training occurs when workers pick up skills whilst working along side experienced workers at their place of work. For example this could be the actual assembly line or offices where the employee works. New workers may simply shadow or observe fellow employees to begin with and are often given instruction manuals or interactive training programmes to work through. Job Rotation Lateral transfers allowing employees to work at different jobs. Provides good 30

79 exposure to a variety of tasks. Understudy assignments Working with the seasoned veteran, coach or mentor. Provides support and encouragement from an experienced worker. b)off-the-job training This occurs when workers are taken away from their place of work to be trained. This may take place at training agency or local college, although many larger firms also have their own training centres. Training can take the form of lectures or self-study and can be used to develop more general skills and knowledge that can be used in a variety of situations. The various types of off-the-job training are (i) Instructor presentation: The trainer orally presents new information to the trainees, usually through lecture. Instructor presentation may include classroom lecture, seminar, workshop, and the like. (ii) Group discussion: The trainer leads the group of trainees in discussing a topic. (iii) Demonstration: The trainer shows the correct steps for completing a task, or shows an example of a correctly completed task. (iv) Assigned reading: The trainer gives the trainees reading assignments that provide new information. (v) Exercise: The trainer assigns problems to be solved either on paper or in real situations related to the topic of the training activity. (vi) Case study: The trainer gives the trainees information about a situation and directs them to come to a decision or solve a problem concerning the situation. (vii) Role play: Trainees act out a real-life situation in an instructional setting. (viii) Field visit and study tour: Trainees are given the opportunity to observe and interact with the problem being solved or skill being learned. (ix) Simulation Exercises: Learning a job by actually performing the work (or its simulation) (x) Vestibule Training: Learning tasks on the same equipment that one actually will use on the job but in a simulated work environment. PERFORMANCE APPRAISAL 31

80 Performance appraisal is the process of obtaining, analyzing and recording information about the relative worth of an employee. The focus of the performance appraisal is measuring and improving the actual performance of the employee and also the future potential of the employee. Its aim is to measure what an employee does. Objectives of Performance appraisal To review the performance of the employees over a given period of time. To judge the gap between the actual and the desired performance. To help the management in exercising organizational control. Helps to strengthen the relationship and communication between superior subordinates and management employees. To diagnose the strengths and weaknesses of the individuals so as to identify the training and development needs of the future. To provide feedback to the employees regarding their past performance. Provide information to assist in the other personal decisions in the organization. Provide clarity of the expectations and responsibilities of the functions to be performed by the employees. To judge the effectiveness of the other human resource functions of the organization such as recruitment, selection, training and development. To reduce the grievances of the employees. Process of performance appraisal 32

81 a) Establishing performance standards The first step in the process of performance appraisal is the setting up of the standards which will be used to as the base to compare the actual performance of the employees. This step requires setting the criteria to judge the performance of the employees as successful or unsuccessful and the degrees of their contribution to the organizational goals and objectives. The standards set should be clear, easily understandable and in measurable terms. In case the performance of the employee cannot be measured, great care should be taken to describe the standards. b) Communicating the standards: After establishing the standards, it is the responsibility of the management to communicate the standards to all the employees of the organization. The employees should be informed and the standards should be clearly explained to the. This will help them to understand their roles and to know what exactly is expected from them. The standards should also be communicated to the appraisers or the evaluators and if required, the standards can also be modified at this stage itself according to the relevant feedback from the employees or the evaluators. 33

82 c) Measuring the actual performance: The most difficult part of the Performance appraisal process is measuring the actual performance of the employees that is the work done by the employees during the specified period of time. It is a continuous process which involves monitoring the performance throughout the year. This stage requires the careful selection of the appropriate techniques of measurement, taking care that personal bias does not affect the outcome of the process and providing assistance rather than interfering in an employees work. d) Comparing the actual with the desired performance: The actual performance is compared with the desired or the standard performance. The comparison tells the deviations in the performance of the employees from the standards set. The result can show the actual performance being more than the desired performance or, the actual performance being less than the desired performance depicting a negative deviation in the organizational performance. It includes recalling, evaluating and analysis of data related to the employees performance. e) Discussing results: The result of the appraisal is communicated and discussed with the employees on oneto-one basis. The focus of this discussion is on communication and listening. The results, the problems and the possible solutions are discussed with the aim of problem solving and reaching consensus. The feedback should be given with a positive attitude as this can have an effect on the employees future performance. The purpose of the meeting should be to solve the problems faced and motivate the employees to perform better. f) Decision making: The last step of the process is to take decisions which can be taken either to improve the performance of the employees, take the required corrective actions, or the related HR decisions like rewards, promotions, demotions, transfers etc. Performance Appraisal Methods Written Essay 34

83 A Performance appraisal technique in which an evaluator writes out a description of an employee s strengths and weaknesses, past performance and potential. Critical Incidents A performance appraisal technique in which the evaluator focuses on the critical behaviours that separate effective from ineffective job performance Graphic rating scales A performance appraisal technique in which an employee is rated on a set of performance factors. Behaviourally Anchored Rating Scales (BARS) A performance appraisal technique that appraises an employee on examples of actual job behavior. Multiperson Comparisons Performance appraisal techniques that compare one individual s performance with that of one or more other individuals o Group order ranking A multiperson comparison that requires the evaluator to place employees into a particular classification g) Individual Ranking A multiperson comparison that requires the evaluator to list employees in order from lowest to highest. Paired comparison A multicomparison in which each employee is compared with every other employee in the comparison group and rated as either the superior or weaker member of the pair. 360 Degree Feedback A performance appraisal method that utilizes feedback from supervisors, employees and co workers. Advantages and Disadvantages of Performance Appraisal Methods 35

84 Errors in Performance Appraisal 36

85 Unit IV DIRECTING Management function influencing people so that they will contribute to organizational and group goals. Involves motivating subordinates, influencing individuals or teams as they work, selecting the most effective communication channels or dealing in any way with employee behavior issues. Creativity and Innovation Creativity The ability to combine ideas in a unique way or to make unusual associations between ideas. Innovation The process of taking a creative idea and turning it into a useful product, service or work method. The Creative Process Unconscious Scanning Legal Intuition Insight Formulation and Verification Systems View of Innovation Innovation Variables 1

86 Structural Variables o Adopt an organic structure o Make available plentiful resources o Engage in frequent interunit communication Minimize extreme time pressures on creative activities Provide explicit support for creativity Cultural Variables Accept ambiguity o Tolerate the impractical Have low external controls Tolerate risk taking o Tolerate conflict o Focus on ends rather than means Develop an open-system focus o Provide positive feedback Human Resource Variables o Actively promote training and development to keep employees skills current. o Offer high job security to encourage risk taking. Encourage individual to be champions of change. Idea Champion Individuals who actively and enthusiastically support new ideas, build support, overcome resistance and ensure that innovations are implemented. MOTIVATION 2

87 The willingness to exert high levels of effort to reach organizational goals, conditioned by the effort s ability to satisfy some individual need. Effort: a measure of intensity or drive. Direction: toward organizational goals Need: personalized reason to exert effort Need An internal state that makes certain outcomes appear attractive. The Motivation Process Unsatisfied Search Satisfied Reduciton Tension Drive Need Behaviour Need of Tension Types of Motivation 1. Positive Motivation - This type of motivation is generally based on reward. 2. Negative Motivation - This type of motivation is based on force and fear. THEORIES OF MOTIVATION Early Theories Maslow's Hierarchy of Needs Theory McGregor's Theory X and Theory Y Herzberg's Motivation-Hygiene Theory Contemporary Theories Three-Needs Theory (McClelland) ERG Theory of Motivation Goal-Setting Theory Reinfocement Theory Equity Theory Expectancy Theory Maslow s Hierarchy of Needs Theory 3

88 Needs were categorized as five levels of lower- to higher-order needs. Individuals must satisfy lower-order needs before they can satisfy higher order needs. Satisfied needs will no longer motivate. Motivating a person depends on knowing at what level that person is on the hierarchy. Hierarchy of needs Lower-order (external): physiological, safety Higher-order (internal): social, esteem, self-actualization McGregor s Theory X and Theory Y Theory X 1 Assumes that workers have little ambition, dislike work, avoid responsibility, and require close supervision. Theory Y 1 Assumes that workers can exercise self-direction, desire responsibility, and like to work. Assumption Motivation is maximized by participative decision making, interesting jobs, and good group relations. Herzberg s Motivation-Hygiene Theory The motivation theory that intrinsic factors are related to job satisfaction and motivation, whereas extrinsic factors are associated with job dissatisfaction. 4

89 Job satisfaction and job dissatisfaction are created by different factors. Hygiene factors: extrinsic (environmental) factors that create job dissatisfaction. Motivators: intrinsic (psychological) factors that create job satisfaction. o Attempted to explain why job satisfaction does not result in increased performance. o The opposite of satisfaction is not dissatisfaction, but rather no satisfaction. Contemporary Theories of Motivation Three-Needs Theory (McClelland) There are three major acquired needs that are major motives in work. o Need for achievement (nach) o The drive to excel and succeed o Need for power (npow) o The need to influence the behavior of others o Need of affiliation (naff) o The desire for interpersonal relationships ERG Theory of Motivation 5

90 Alderfer has tried to rebuild the hierarchy of needs of Maslow into another model named ERG i.e. Existence Relatedness Growth. According to him there are 3 groups of core needs as mentioned above. The existence group is concerned mainly with providing basic material existence. The second group is the individuals need to maintain interpersonal relationship with other members in the group. The final group is the intrinsic desire to grow and develop personally. The major conclusions of this theory are : In an individual, more than one need may be operative at the same time. If a higher need goes unsatisfied than the desire to satisfy a lower need intensifies. It also contains the frustration-regression dimension. Goal-Setting Theory o Proposes that setting goals that are accepted, specific, and challenging yet achievable will result in higher performance than having no or easy goals. o Is culture bound to the U.S. and Canada. Benefits of Participation in Goal-Setting o Increases the acceptance of goals. o Fosters commitment to difficult, public goals. 6

91 Provides for self-feedback (internal locus of control) that guides behavior and motivates performance (self-efficacy). Reinforcement Theory o Assumes that a desired behavior is a function of its consequences, is externally caused, and if reinforced, is likely to be repeated. o Positive reinforcement is preferred for its long-term effects on performance. Ignoring undesired behavior is better than punishment which may create additional dysfunctional behaviors. Equity Theory Proposes that employees perceive what they get from a job situation (outcomes) in relation to what they put in (inputs) and then compare their inputs-outcomes ratio with the inputs-outcomes ratios of relevant others. o If the ratios are perceived as equal then a state of equity (fairness) exists. o If the ratios are perceived as unequal, inequity exists and the person feels under-or over-rewarded. o When inequities occur, employees will attempt to do something to rebalance the ratios (seek justice). Expectancy Theory States that an individual tends to act in a certain way based on the expectation that the act will be followed by a given outcome and on the attractiveness of that outcome to the individual. 7

92 Key to the theory is understanding and managing employee goals and the linkages among and between effort, performance and rewards. o Effort: employee abilities and training/development o Performance: valid appraisal systems o Rewards (goals): understanding employee needs o Expectancy Relationships Expectancy (effort-performance linkage) The perceived probability that an individual s effort will result in a certain level of performance. o Instrumentality The perception that a particular level of performance will result in the attaining a desired outcome (reward). o Valence The attractiveness/importance of the performance reward (outcome) to the individual. Designing Motivating Jobs o Job Design o The way into which tasks can be combined to form complete jobs. o Factors influencing job design: o Changing organizational environment/structure o The organization s technology o Employees skill, abilities, and preferences o Job enlargement o Increasing the job s scope (number and frequency of tasks) o Job enrichment o Increasing responsibility and autonomy (depth) in a job. o Job Characteristics Model (JCM) 8

93 4 A conceptual framework for designing motivating jobs that create meaningful work experiences that satisfy employees growth needs. t Five primary job characteristics: Skill variety: how many skills and talents are needed? Task identity: does the job produce a complete work? Task significance: how important is the job? Autonomy: how much independence does the jobholder have? Feedback: do workers know how well they are doing? SATISFACTION Employee satisfaction (Job satisfaction) is the terminology used to describe whether employees are happy and contented and fulfilling their desires and needs at work. 3 Many measures purport that employee satisfaction is a factor in employee motivation, employee goal achievement, and positive employee morale in the workplace. p Factors contributing to employee satisfaction include treating employees with respect, providing regular employee recognition, empowering employees, offering above industry-average benefits and compensation, providing employee perks and company activities, and positive management within a success framework of goals, measurements, and expectations. o Employee satisfaction is often measured by anonymous employee satisfaction surveys administered periodically that gauge employee satisfaction in areas such as: o management, o understanding of mission and vision, o empowerment, o teamwork, o communication, and o Coworker interaction. o The facets of employee satisfaction measured vary from company to company. p A second method used to measure employee satisfaction is meeting with small groups of employees and asking the same questions verbally. Leadership Leader Someone who can influence others and who has managerial authority 9

94 Leadership What leaders do; the process of influencing a group to achieve goals Early Leadership Theories Trait Theories (1920s-30s) Research focused on identifying personal characteristics that differentiated leaders from nonleaders was unsuccessful. Later research on the leadership process identified seven traits associated with successful leadership: Behavioral Theories Drive, the desire to lead, honesty and integrity, self-confidence, intelligence, job-relevant knowledge, and extraversion. Autocratic style Democratic Style Laissez Faire Style Autocratic style A leader who tended to centralize authority, dictate work methods, make unilateral decisions and limit employee participation. Autocratic leadership is a classical leadership style with the following characteristics: o Manager seeks to make as many decisions as possible o Manager seeks to have the most authority and control in decision making o Manager seeks to retain responsibility rather than utilize complete delegation o Consultation with other colleagues in minimal and decision making becomes a solitary process o Managers are less concerned with investing their own leadership development, and prefer to simply work on the task at hand. Advantages Reduced stress due to increased control A more productive group while the leader is watching Improved logistics of operations Disadvantages Faster decision making 10

95 Short-termistic approach to management. Manager perceived as having poor leadership skills Increased workload for the manager People dislike being ordered around Teams become dependent upon their leader Democratic Style Democratic Leadership is the leadership style that promotes the sharing of responsibility, the exercise of delegation and continual consultation. The style has the following characteristics: Manager seeks consultation on all major issues and decisions. Manager effectively delegate tasks to subordinates and give them full control and responsibility for those tasks. Manager welcomes feedback on the results of intiatives and the work environment. Manager encourages others to become leaders and be involved in leadership development. Advantages Positive work environment Successful initiatives Creative thinking Reduction of friction and office politics Reduced employee turnover Disadvantages Takes long time to take decisions Danger of pseudo participation Like the other styles, the democratic style is not always appropriate. It is most successful when used with highly skilled or experienced employees or when implementing operational changes or resolving individual or group problems. Laissez-Faire Style This French phrase means leave it be and is used to describe a leader who leaves his/her colleagues to get on with their work. The style is largely a "hands off" view that tends to minimize the amount of direction and face time required. Advantages 11

96 r s No work for the leader Frustration may force others into leadership roles t Allows the visionary worker the opportunity to do what they want, free from interference u Empowers the group Disadvantages It makes employees feel insecure at the unavailability of a manager. The manager cannot provide regular feedback to let employees know how well they are doing. Managers are unable to thank employees for their good work. The manager doesn t understand his or her responsibilities and is hoping the employees can cover for him or her. The Managerial Grid Appraises leadership styles using two dimensions: o Concern for people o Concern for production Places managerial styles in five categories: o Impoverished management o Task management o Middle-of-the-road management o Country club management o Team management Contingency Theories of Leadership The Fiedler Model 12

97 Proposes that effective group performance depends upon the proper match between the leader s style of interacting with followers and the degree to which the situation allows the leader to control and influence. Least-preferred co-worker (LPC) questionnaire Determines leadership style by measuring responses to 18 pairs of contrasting adjectives. High score: a relationship-oriented leadership style Low score: a task-oriented leadership style Situational factors in matching leader to the situation: Leader-member relations o Task structure o Position power Hersey and Blanchard s Situational Leadership Theory (SLT) Argues that successful leadership is achieved by selecting the right leadership style which is contingent on the level of the followers readiness. o Acceptance: leadership effectiveness depends on whether followers accept or reject a leader. o Readiness: the extent to which followers have the ability and willingness to accomplish a specific task. Creates four specific leadership styles incorporating Fiedler s two leadership dimensions: Telling: high task-low relationship leadership Selling: high task-high relationship leadership 13

98 MG2351 PRINCIPLES OF MANAGEMENT Participating: low task-high relationship leadership Delegating: low task-low relationship leadership Posits four stages follower readiness: R1: followers are unable and unwilling R2: followers are unable but willing R3: followers are able but unwilling R4: followers are able and willing Leader Participation Model (Vroom and Yetton) Path-Goal Model 14

99 States that the leader s job is to assist his or her followers in attaining their goals and to provide direction or support to ensure their goals are compatible with organizational goals. Contemporary Views on Leadership r s t Transactional Leadership Leaders who guide or motivate their followers in the direction of established goals by clarifying role and task requirements. Transformational Leadership Leaders who inspire followers to transcend their own self-interests for the good of the organization by clarifying role and task requirements. Charismatic Leadership An enthusiastic, self-confident leader whose personality and actions influence people to behave in certain ways. u Visionary Leadership A leader who creates and articulates a realistic, credible, and attractive vision of the future that improves upon the present situation. Communication The transfer and understanding of meaning. The transfer of information from a sender to a receiver, with the information being understood by the receiver. Interpersonal Communication Communication between two or more people Organizational Communication 15

100 All the patterns, network, and systems of communications within an organization Four Functions of Communication Control Formal and informal communications act to control individuals behaviors in organizations. Motivation Communications clarify for employees what is to done, how well they have done it, and what can be done to improve performance. Emotional Expression Social interaction in the form of work group communications provides a way for employees to express themselves. Information Individuals and work groups need information to make decisions or to do their work. Process of Interpersonal Communication Message Source: sender s intended meaning Encoding The message converted to symbolic form Channel The medium through which the message travels Decoding The receiver s retranslation of the message Noise Disturbances that interfere with communications Distortions in Communications (xi) Message Encoding The effect of the skills, attitudes, and knowledge of the sender on the process of encoding the message 16

101 The social-cultural system of the sender The Message Symbols used to convey the message s meaning The content of the message itself The choice of message format Noise interfering with the message The Channel The sender s choice of the appropriate channel or multiple channels for conveying the message Receiver The effect of skills, attitudes, and knowledge of the receiver on the process of decoding the message The social-cultural system of the receiver Feedback Loop Communication channel distortions affecting the return message from receiver to sender Interpersonal Communication Methods Face-to-face Bulletin boards Telephone Audio- and videotapes Group meetings Hotlines Formal presentations Memos Computer conferencing Traditional Mail Voice mail Fax machines Teleconferences Employee publications Videoconferences Barriers to Effective Interpersonal Communication Barriers to communication are factors that block or significantly distort successful communication. Effective managerial communication skills helps overcome some, but not all, barriers to communication in organizations. The more prominent barriers to effective communication which every manager should be aware of is given below: a) Filtering: Filtering refers to a sender manipulating information so it will be seen more favourably by the receiver. The major determinant of filtering is the number of levels in an organization's structure. The more vertical levels in the organization's hierarchy, the more opportunities for filtering. Sometimes the information is filtered by the sender himself. If the sender is hiding some 17

102 meaning and disclosing in such a fashion as appealing to the receiver, then he is "filtering" the message deliberately. A manager in the process of altering communication in his favour is attempting to filter the information. b) Selective Perception: Selective perception means seeing what one wants to see. The receiver, in the communication process, generally resorts to selective perception i.e., he selectively perceives the message based on the organizational requirements, the needs and characteristics, background of the employees etc. Perceptual distortion is one of the distressing barriers to the effective communication. People interpret what they see and call it a reality. In our regular activities, we tend to see those things that please us and to reject or ignore unpleasant things. Selective perception allows us to keep out dissonance (the existence of conflicting elements in our perceptual set) at a tolerable level. If we encounter something that does not fit out current image of reality, we structure the situation to minimize our dissonance. Thus, we manage to overlook many stimuli from the environment that do not fit into out current perception of the world. This process has significant implications for managerial activities. For example, the employment interviewer who expects a female job applicant to put her family ahead of her career is likely to see that in female applicants, regardless of whether the applicants feel that way or not. c) Emotions: How the receiver feels at the time of receipt of information influences effectively how he interprets the information. For example, if the receiver feels that the communicator is in a jovial mood, he interprets that the information being sent by the communicator to be good and interesting. Extreme emotions and jubilation or depression are quite likely to hinder the effectiveness of communication. A person's ability to encode a message can become impaired when the person is feeling strong emotions. For example, when you are angry, it is harder to consider the other person's viewpoint and to choose words carefully. The angrier you are, the harder this task becomes. Extreme emotions such as jubilation or depression - are most likely to hinder effective communication. In such instances, we are most prone to disregard our rational and objective thinking processes and substitute emotional judgments. d) Language: Communicated message must be understandable to the receiver. Words mean different things to different people. Language reflects not only the personality of the individual but also the culture of society in which the individual is living. In organizations, people from different regions, different backgrounds, and speak different languages. People will have different academic backgrounds, different intellectual facilities, and hence the jargon they use 18

103 varies. Often, communication gap arises because the language the sender is using may be incomprehensible, vague and indigestible. Language is a central element in communication. It may pose a barrier if its use obscures meaning and distorts intent. Words mean different things to different people. Age, education and cultural background are three of the more obvious variables that influence the language a person uses and the definitions he or she gives to words. Therefore, use simple, direct, declarative language. Speak in brief sentences and use terms or words you have heard from you audience. As much as possible, speak in the language of the listener. Do not use jargon or technical language except with those who clearly understand it. e) Stereotyping: Stereotyping is the application of selective perception. When we have preconceived ideas about other people and refuse to discriminate between individual behaviours, we are applying selective perception to our relationship with other people. Stereotyping is a barrier to communications because those who stereotype others use selective perception in their communication and tend to hear only those things that confirm their stereotyped images. Consequently, stereotypes become more deeply ingrained as we find more "evidence" to confirm our original opinion. Stereotyping has a convenience function in our interpersonal relations. Since people are all different, ideally we should react and interact with each person differently. To do this, however, requires considerable psychological effort. It is much easier to categorize (stereotype) people so that we can interact with them as members of a particular category. Since the number of categories is small, we end up treating many people the same even though they are quite different. Our communications, then, may be directed at an individual as a member of a category at the sacrifice of the more effective communication on a personal level. f) Status Difference: The organizational hierarchy pose another barrier to communication within organization, especially when the communication is between employee and manager. This is so because the employee is dependent on the manager as the primary link to the organization and hence more likely to distort upward communication than either horizontal or downward communication. Effective supervisory skills make the supervisor more approachable and help reduce the risk of problems related to status differences. In addition, when employees feel secure, they are more likely to be straightforward in upward communication. g) Use of Conflicting Signals: A sender is using conflicting signals when he or she sends inconsistent messages. A vertical message might conflict with a nonverbal one. For example, if a manager says to his employees, "If you have a problem, just come to me. My door is always open", but he looks annoyed whenever an employee knocks on his door". Then we say the manager is sending 19

104 conflicting messages. When signals conflict, the receivers of the message have to decide which, if any, to believe. h) Reluctance to Communicate: For a variety of reasons, managers are sometimes reluctant to transmit messages. The reasons could be:- They may doubt their ability to do so. They may dislike or be weary of writing or talking to others. They may hesitate to deliver bad news because they do not want to face a negative reaction. When someone gives in to these feelings, they become a barrier to effective communications. i) Projection: Projection has two meanings. p Projecting one's own motives into others behavior. For example, managers who are motivated by money may assume their subordinates are also motivated by it. If the subordinate's prime motive is something other than money, serious problems may arise. q The use of defense mechanism to avoid placing blame on oneself. As a defense mechanism, the projection phenomenon operates to protect the ego from unpleasant communications. Frequently, individuals who have a particular fault will see the same fault in others, making their own fault seem not so serious. j) The "Halo Effect": The term "halo effect" refers to the process of forming opinions based on one element from a group of elements and generalizing that perception to all other elements. For example, in an organization, a good attendance record may cause positive judgments about productivity, attitude, or quality of work. In performance evaluation system, the halo effect refers to the practice of singling out one trait of an employee (either good or bad) and using this as a basis for judgments of the total employee. k) Information Overload Being confronted with a quantity of information that exceeds an individual s capacity to process it. l) Defensiveness When threatened, reacting in a way that reduces the ability to achieve mutual understanding. m) National Culture Culture influences the form, formality, openness, patterns and use of information in communications. 20

105 Overcoming the Barriers to Effective Interpersonal Communications e) Use Feedback f) Simplify Language g) Listen Actively h) Constrain Emotions i) Watch Nonverbal Cues Types of Organizational Communication Formal Communication Communication that follows the official chain of command or is part of the communication required to do one s job. Informal Communication Communication that is not defined by the organization s hierarchy. Permits employees to satisfy their need for social interaction. Can improve an organization s performance by creating faster and more effective channels of communication. Communication Flows or Channels of Communication Direction of Communication Flow (iii)downward Communications that flow from managers to employees to inform, direct, coordinate, and evaluate employees. (iv) Upward 21

106 Communications that flow from employees up to managers to keep them aware of employee needs and how things can be improved to create a climate of trust and respect. Lateral (Horizontal) Communication Communication that takes place among employees on the same level in the organization to save time and facilitate coordination. Diagonal Communication Communication that cuts across both work areas and organizational levels in the interest of efficiency and speed. Types of Communication Networks Chain Network Communication flows according to the formal chain of command, both upward and downward. Wheel Network All communication flows in and out through the group leader (hub) to others in the group. All-Channel Network Communications flow freely among all members of the work team. The Grapevine An informal organizational communication network that is active in almost every organization. Provides a channel for issues not suitable for formal communication channels. The impact of information passed along the grapevine can be countered by open and honest communication with employees. Guidelines for Effective Communication 1. Clarify the purpose of the message 22

107 Use intelligible encoding Consult others views Consider receivers needs Use appropriate tone and language and ensure credibility Get feedback Consider receivers emotions and motivations Listen Organizational Culture The general pattern of behaviour, shared beliefs and values that organization members have in common. Elements of Organizational Culture Johnson and Scholes described a cultural web, identifying a number of elements that can be used to describe or influence Organizational Culture: The six elements are: a) Stories: The past events and people talked about inside and outside the company. Who and what the company chooses to immortalize says a great deal about what it values, and perceives as great behavior. b) Rituals and Routines: The daily behavior and actions of people that signal acceptable behavior. This determines what is expected to happen in given situations, and what is valued by management. c) Symbols: The visual representations of the company including logos, how plush the offices are, and the formal or informal dress codes. d) Organizational Structure: This includes both the structure defined by the organization chart, and the unwritten lines of power and influence that indicate whose contributions are most valued. 23

108 e) Control Systems: The ways that the organization is controlled. These include financial systems, quality systems, and rewards (including the way they are measured and distributed within the organization.) f) Power Structures: The pockets of real power in the company. This may involve one or two key senior executives, a whole group of executives, or even a department. The key is that these people have the greatest amount of influence on decisions, operations, and strategic direction. Types of Organizational Culture Strong Culture o Organizations in which the key values are intensely held and widely shared. Weak Culture o Organizations in which the key values are narrowly held and shallowly shared. Dimensions of Organizational Culture Attention to Detail Outcome Orientation People Orientation Team Orientation Aggressiveness Stability Innovation and Risk Taking MANAGING CULTURAL DIVERSITY Experts indicate that business owners and managers who hope to create and manage an effective, harmonious multicultural work force should remember the importance of the following: Setting a good example This basic tool can be particularly valuable for small business owners who hope to establish a healthy environment for people of different cultural backgrounds, since they are generally able to wield significant control over the business's basic outlook and atmosphere. Communicate in writing Company policies that explicitly forbid prejudice and discriminatory behavior should be included in employee manuals, mission statements, and other written communications. Training programs Training programs designed to engender appreciation and knowledge of the characteristics and benefits of multicultural work forces have become ubiquitous in recent years. "Two types of training are most popular: awareness and skillbuilding,". "The former introduces the topic of managing diversity and generally 24

109 includes information on work force demographics, the meaning of diversity, and exercises to get participants thinking about relevant issues and raising their own self-awareness. The skill- building training provides more specific information on cultural norms of different groups and how they may affect work behavior." New employee orientation programs are also ideal for introducing workers to the company's expectations regarding treatment of fellow workers, whatever their cultural or ethnic background. Recognize individual differences There are various dimensions around which differences in human relationships m a y be understood. These include such factors as orientation towards authority; acceptance of power inequalities; desire for orderliness and structure; the need to belong to a wider social group and so on. Differences in cultural background: There are several sources of difference. Some relate to factors such as personality, aptitude, or competence. It is a mistake to assume that all perceived differences are cultural in origin. Too many managers tend to fall back on the easy 'explanation' that individual behavior or performance can be attributed to the fact that someone is 'Italian' or 'a Catholic' or 'a woman.' Actively seek input from minority groups Soliciting the opinions and involvement of minority groups on important work committees, etc., is beneficial not only because of the contributions that they can make, but also because such overtures confirm that they are valued by the company. Serving on relevant committees and task forces can increase their feelings of belonging to the organization Revamp reward systems An organization's performance appraisal and reward systems should reinforce the importance of effective diversity management. This includes assuring that minorities are provided with adequate opportunities for career development. Make room for social events Company sponsored social events picnics, softball games, volleyball leagues, bowling leagues, Christmas parties, etc. can be tremendously useful in getting members of different ethnic and cultural backgrounds together and providing them with opportunities to learn about one another. Flexible work environment Flexible work environments which is characterized as a positive development for all workers could have particularly "beneficial to people from nontraditional cultural backgrounds because their approaches to problems are more likely to be different from past norms." Don't assume similar values and opinions In the absence of reliable information there is a well-documented tendency for individuals to assume that others are 'like them.' Continuous monitoring Experts recommend that business owners and managers establish and maintain systems that can continually monitor the organization's policies and practices to ensure that it continues to be a good environment for all employees. 25

110 Unit - V CONTROLLING The process of monitoring activities to ensure that they are being accomplished as planned and of correcting any significant deviations. Control is the process through which managers assure that actual activities conform to planned activities. Nature & Purpose of Control Control is an essential function of management Control is an ongoing process Control is forward working because past cannot be controlled Control involves measurement The essence of control is action Control is an integrated system Designing Control Systems Market Control Emphasizes the use of external market mechanisms to establish the standards used in the control system. External measures: price competition and relative market share Bureaucratic Control Emphasizes organizational authority and relies on rules, regulations, procedures, and policies. Clan Control Regulates behavior by shared values, norms, traditions, rituals, and beliefs of the firm s culture. CONTROLPROCESS The basic control process involves mainly these steps as shown in Figure 1

111 a) The Establishment of Standards: Because plans are the yardsticks against which controls must be revised, it follows logically that the first step in the control process would be to accomplish plans. Plans can be considered as the criterion or the standards against which we compare the actual performance in order to figure out the deviations. Examples for the standards Profitability standards: In general, these standards indicate how much the company would like to make as profit over a given time period- that is, its return on investment. Market position standards: These standards indicate the share of total sales in a particular market that the company would like to have relative to its competitors. Productivity standards: How much that various segments of the organization should produce is the focus of these standards. Product leadership standards: These indicate what must be done to attain such a position. Employee attitude standards: These standards indicate what types of attitudes the company managers should strive to indicate in the company s employees. Social responsibility standards: Such as making contribution to the society. Standards reflecting the relative balance between short and long range goals. Measurement of Performance: The measurement of performance against standards should be on a forward looking basis so 2

112 that deviations may be detected in advance by appropriate actions. The degree of difficulty in measuring various types of organizational performance, of course, is determined primarily by the activity being measured. For example, it is far more difficult to measure the performance of highway maintenance worker than to measure the performance of a student enrolled in a college level management course. c) Comparing Measured Performance to Stated Standards: When managers have taken a measure of organizational performance, their next step in controlling is to compare this measure against some standard. A standard is the level of activity established to serve as a model for evaluating organizational performance. The performance evaluated can be for the organization as a whole or for some individuals working within the organization. In essence, standards are the yardsticks that determine whether organizational performance is adequate or inadequate. d) Taking Corrective Actions: After actual performance has been measured compared with established performance standards, the next step in the controlling process is to take corrective action, if necessary. Corrective action is managerial activity aimed at bringing organizational performance up to the level of performance standards. In other words, corrective action focuses on correcting organizational mistakes that hinder organizational performance. Before taking any corrective action, however, managers should make sure that the standards they are using were properly established and that their measurements of organizational performance are valid and reliable. At first glance, it seems a fairly simple proposition that managers should take corrective action to eliminate problems - the factors within an organization that are barriers to organizational goal attainment. In practice, however, it is often difficult to pinpoint the problem causing some undesirable organizational effect. BARRIERS FOR CONTROLLING There are many barriers, among the most important of them: Control activities can create an undesirable overemphasis on short-term production as opposed to long- term production. 3

113 Control activities can increase employees' frustration with their jobs and thereby reduce morale. This reaction tends to occur primarily where management exerts too much control. Control activities can encourage the falsification of reports. Control activities can cause the perspectives of organization members to be too narrow for the good of the organization. Control activities can be perceived as the goals of the control process rather than the means by which corrective action is taken. REQUIREMENTS FOR EFFECTIVE CONTROL The requirements for effective control are a) Control should be tailored to plans and positions This means that, all control techniques and systems should reflect the plans they are designed to follow. This is because every plan and every kind and phase of an operation has its unique characteristics. b) Control must be tailored to individual managers and their responsibilities This means that controls must be tailored to the personality of individual managers. This is because control systems and information are intended to help individual managers carry out their function of control. If they are not of a type that a manager can or will understand, they will not be useful. c) Control should point up exceptions as critical points This is because by concentration on exceptions from planned performance, controls based on the time honored exception principle allow managers to detect those places where their attention is required and should be given. However, it is not enough to look at exceptions, because some deviations from standards have little meaning and others have a great deal of significance. d) Control should be objective This is because when controls are subjective, a manager s personality may influence judgments of performance inaccuracy. Objective standards can be quantitative such as costs or man hours per unit or date of job completion. They can also be qualitative in the case of training programs 4

114 that have specific characteristics or are designed to accomplish a specific kind of upgrading of the quality of personnel. e) Control should be flexible This means that controls should remain workable in the case of changed plans, unforeseen circumstances, o r out si ght failures. Much f l e x i b i l i t y i n c o n t r o l c a n b e provi d ed b y ha vi n g alternative plans for various probable situations. f) Control should be economical This means that control must worth their cost. Although this requirement is simple, its practice is often complex. This is because a manager may find it difficult to know what a particular system is worth, or to know what it costs. g) Control should lead to corrective actions This is because a control system will be of little benefit if it does not lead to corrective action, control is justified only if the indicated or experienced deviations from plans are corrected through appropriate planning, organizing, directing, and leading. TYPES OF CONTROL SYSTEMS The control systems can be classified into three types namely feed forward, concurrent and feedback control systems. a) Feed forward controls: They are preventive controls that try to anticipate problems and take corrective action before they occur. Example a team leader checks the quality, completeness and reliability of their tools prior to going to the site. 5

115 5. Concurrent controls: They (sometimes called screening controls) occur while an activity is taking place. Example the team leader checks the quality or performance of his members while performing. 6. Feedback controls: They measure activities that have already been completed. Thus corrections can take place after performance is over. Example feedback from facilities engineers regarding the completed job. Advantages of feedback controls Feedback provides managers with information on the effectiveness of their planning efforts. Feedback enhances employee motivation by providing them with information on how well they are doing. BUDGETARY CONTROL Definition: Budgetary Control is defined as "the establishment of budgets, relating the responsibilities of executives to the requirements of a policy, and the continuous comparison of actual with budgeted results either to secure by individual action the objective of that policy or to provide a base for its revision. Salient features: a. Objectives: Determining the objectives to be achieved, over the budget period, and the policy(ies) that might be adopted for the achievement of these ends. b. Activities: Determining the variety of activities that should be undertaken for achievement of the objectives. c. Plans: Drawing up a plan or a scheme of operation in respect of each class of activity, in physical a well as monetary terms for the full budget period and its parts. d. Performance Evaluation: Laying out a system of comparison of actual performance by each person section or department with the relevant budget and determination of causes for the discrepancies, if any. e. Control Action: Ensuring that when the plans are not achieved, corrective actions are taken; and when corrective actions are not possible, ensuring that the plans are revised and objective achieved 6

116 CLASSIFICATION OF BUDGETS Budgets may be classified on the following bases a) BASED ON TIME PERIOD: (i) Long Term Budget Budgets which are prepared for periods longer than a year are called LongTerm Budgets. Such Budgets are helpful in business forecasting and forward planning. Eg: Capital Expenditure Budget and R&D Budget. Short Term Budget Budgets which are prepared for periods less than a year are known as ShortTerm Budgets. Such Budgets are prepared in cases where a specific action has to be immediately taken to bring any variation under control. Eg: Cash Budget. b) BASED ON CONDITION: (i) Basic Budget Budget, which remains unaltered over a long period of time, is called Basic Budget. (ii) Current Budget A Budget, which is established for use over a short period of time and is related to the current conditions, is called Current Budget. c) BASED ON CAPACITY: 7