Principles of Management PDF

Principles of Management Unit I Evolution of Management Science The concept of management has acquired special significance in the present competitive and complex business world. Efficient and purposeful management is absolutely essential for the survival of a business unit. Management concept is...

Principles of Management Unit I Evolution of Management Science The concept of management has acquired special significance in the present competitive and complex business world. Efficient and purposeful management is absolutely essential for the survival of a business unit. Management concept is comprehensive and covers all aspects of business. In simple words, management means utilising available resources in the best possible manner and also for achieving well defined objectives. It is a distinct and dynamic process involving use of different resources for achieving well defined objectives. The resources are: men, money, materials, machines, methods and markets. These are the six basic inputs in management process (six M's of management) and the output is in the form of achievement of objectives. It is the end result of inputs and is available through efficient management process. Management is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively. Management comprises planning, organizing, staffing, leading, coordinating and controlling an organization (a group of one or more people or entities) or effort for the purpose of accomplishing a goal. Resourcing encompasses the development and manipulation of human resources, financial resources, technological resources and natural resources. Management is essential for the conduct of business activity in an orderly manner. It is a vital function concerned with all aspects of working of an enterprise. Definition According to Harold Koontz, "Management is the art of getting things done through and with people in formally organized groups". According to Henry Fayol, "To manage is to forecast and to plan, to organise, to command, to coordinate and to control". According to Peter Drucker, "Management is a multi-purpose organ that manages business and manages managers and manages workers and work". Management is needed for planning business activities, for guiding employees in the right direction and finally for coordinating their efforts for achieving best/most favorable results. Efficient management is needed in order to achieve the objectives of business activity in an orderly and quick manner. Planning, Organising, Coordinating and Controlling are the basic functions of management. Management is needed as these functions are performed through the management process. Management is needed for effective communication within and outside the Organisation. Management is needed for motivating employees and also for coordinating their efforts so as to achieve business objectives quickly. Efficient management is needed for success, stability and prosperity of a business enterprise. Modem business is highly competitive and needs efficient and capable management for survival and growth. Management is needed as it occupies a unique position in the smooth functioning of a business unit. This suggests the need of efficient management of business enterprises. Profitable/successful business may not be possible without efficient management. Survival of a business unit in the present competitive world is possible only through efficient and competent management. Management as both Science and Art Management is both an art and a science. The above mentioned points clearly reveals that management combines features of both science as well as art. It is considered as a science because it has an organized body of knowledge which contains certain universal truth. It is called an art because managing requires certain skills which are personal possessions of managers. Science provides the knowledge & art deals with the application of knowledge and skills. Features of Management  Management is Goal-Oriented  Management integrates Human, Physical and Financial Resources  Management is Continuous  Management is all Pervasive  Management is a Group Activity Management Functions According to Henry Fayol, “To manage is to forecast and plan, to organize, to command, & to control”. Whereas Luther Gullick has given a keyword ’POSDCORB’ where P stands for Planning, O for Organizing, S for Staffing, D for Directing, Co for Co-ordination, R for reporting & B for Budgeting. But the most widely accepted are functions of management given by KOONTZ and O’DONNEL i.e. Planning, Organizing, Staffing, Directing and Controlling. Planning It is the basic function of management. Planning is determination of courses of action to achieve desired goals. Thus, planning is a systematic thinking about ways & means for accomplishment of pre- determined goals. Planning is necessary to ensure proper utilization of human & non-human resources. It is all pervasive, it is an intellectual activity and it also helps in avoiding confusion, uncertainties, risks, wastages etc. Organising It is the process of bringing together physical, financial and human resources and developing productive relationship amongst them for achievement of organizational goals. According to Henry Fayol, “To organize a business is to provide it with everything useful or its functioning i.e. raw material, tools, capital and personnel’s”. To organize a business involves determining & providing human and non- human resources to the organizational structure. Organizing as a process involves:  Identification of activities.  Classification of grouping of activities.  Assignment of duties.  Delegation of authority and creation of responsibility.  Coordinating authority and responsibility relationships. Staffing The main purpose of staffing is to put right man on right job. According to Kootz & O’Donell, “Managerial function of staffing involves manning the organization structure through proper and effective selection, appraisal & development of personnel to fill the roles designed un the structure”. Staffing involves:  Manpower Planning (estimating man power in terms of searching, choose the person and giving the right place).  Recruitment, Selection & Placement.  Training & Development.  Remuneration.  Performance Appraisal.  Promotions & Transfer. Directing It is that part of managerial function which actuates the organizational methods to work efficiently for achievement of organizational purposes. Direction is that inert-personnel aspect of management which deals directly with influencing, guiding, supervising, motivating sub-ordinate for the achievement of organizational goals. Direction has following elements:  Supervision  Motivation  Leadership  Communication Controlling It implies measurement of accomplishment against the standards and correction of deviation if any to ensure achievement of organizational goals. The purpose of controlling is to ensure that everything occurs in conformities with the standards. An efficient system of control helps to predict deviations before they actually occur. According to Koontz & O’Donell “Controlling is the measurement & correction of performance activities of subordinates in order to make sure that the enterprise objectives and plans desired to obtain them as being accomplished”. Therefore controlling has following steps: a. Establishment of standard performance.  b. Measurement of actual performance. c. Comparison of actual performance with the standards and finding out deviation if any. d. Corrective action. Levels of Management The term Levels of Management refers to a line of demarcation between various managerial positions in an organization. The number of levels in management increases when the size of the business and work force increases and vice versa. The level of management determines a chain of command, the amount of authority & status enjoyed by any managerial position. The levels of management can be classified in three broad categories: 1. Top level / Administrative level 2. Middle level / Executory 3. Low level / Supervisory / Operative / First-line managers 1. Top Level of Management It consists of board of directors, chief executive or managing director. The top management is the ultimate source of authority and it manages goals and policies for an enterprise. It devotes more time on planning and coordinating functions. The role of the top management can be summarized as follows - a. Top management lays down the objectives and broad policies of the enterprise. b. It issues necessary instructions for preparation of department budgets, procedures, schedules etc. c. It prepares strategic plans & policies for the enterprise. d. It appoints the executive for middle level i.e. departmental managers. e. It controls & coordinates the activities of all the departments. f. It is also responsible for maintaining a contact with the outside world. g. It provides guidance and direction. h. The top management is also responsible towards the shareholders for the performance of the enterprise. 2. Middle Level of Management The branch managers and departmental managers constitute middle level. They are responsible to the top management for the functioning of their department. They devote more time to organizational and directional functions. In small organization, there is only one layer of middle level of management but in big enterprises, there may be senior and junior middle level management. Their role can be emphasized as - a. They execute the plans of the organization in accordance with the policies and directives of the top management. b. They make plans for the sub-units of the organization. c. They participate in employment & training of lower level management. d. They interpret and explain policies from top level management to lower level. e. They are responsible for coordinating the activities within the division or department. f. It also sends important reports and other important data to top level management. g. They evaluate performance of junior managers. h. They are also responsible for inspiring lower level managers towards better performance. 3. Lower Level of Management Lower level is also known as supervisory / operative level of management. It consists of supervisors, foreman, section officers, superintendent etc. According to R.C. Davis, “Supervisory management refers to those executives whose work has to be largely with personal oversight and direction of operative employees”. In other words, they are concerned with direction and controlling function of management. Their activities include - a. Assigning of jobs and tasks to various workers. b. They guide and instruct workers for day to day activities. c. They are responsible for the quality as well as quantity of production. d. They are also entrusted with the responsibility of maintaining good relation in the organization. e. They communicate workers problems, suggestions, and recommendatory appeals etc to the higher level and higher level goals and objectives to the workers. f. They help to solve the grievances of the workers. g. They supervise & guide the sub-ordinates. h. They are responsible for providing training to the workers. i. They arrange necessary materials, machines, tools etc for getting the things done. j. They prepare periodical reports about the performance of the workers. k. They ensure discipline in the enterprise. l. They motivate workers. m. They are the image builders of the enterprise because they are in direct contact with the workers. ROLES OF MANAGER Henry Mintzberg identified ten different roles, separated into three categories. The categories he defined are as follows a) Interpersonal Roles The ones that, like the name suggests, involve people and other ceremonial duties. It can be further classified as follows  Leader – Responsible for staffing, training, and associated duties.  Figurehead – The symbolic head of the organization.  Liaison – Maintains the communication between all contacts and informers that compose the organizational network. b) Informational Roles Related to collecting, receiving, and disseminating information.  Monitor – Personally seek and receive information, to be able to understand the organization.  Disseminator – Transmits all import information received from outsiders to the members of the organization.  Spokesperson – On the contrary to the above role, here the manager transmits the organization’s plans, policies and actions to outsiders. c) Decisional Roles Roles that revolve around making choices.  Entrepreneur – Seeks opportunities. Basically they search for change, respond to it, and exploit it.  Negotiator – Represents the organization at major negotiations.  Resource Allocator – Makes or approves all significant decisions related to the allocation of resources.  Disturbance Handler – Responsible for corrective action when the organization faces disturbances. Managerial Skills: There are four skills of managers are expected to have ability of:  Technical skills: Technical skills that reflect both an understanding of and a proficiency in a specialized field. For example, a manager may have technical skills in accounting, finance, engineering, manufacturing, or computer science.  Human Skills: Human skills are skills associated with manager’s ability to work well with others, both as a member of a group and as a leader who gets things done through other.  Concept Skills: Conceptual skills related to the ability to visualize the organization as a whole, discern interrelationships among organizational parts, and understand how the organization fits into the wider context of the industry, community, and world. Conceptual skills, coupled with technical skills, human skills and knowledge base, are important ingredients in organizational performance.  Design Skills: It is the ability to solve the problems in ways that will benefit the enterprise. Managers must be able to solve the problems. The Skills vary at different levels: Top management Concept and design Skills. Middle Human Skills. Supervisor’s Technical skills. Skills of management at different levels. Management and Administration The difference between Management and Administration can be summarized under 2 categories: - 1. Functions 2. Usage / Applicability On the Basis of Functions: - Basis Management Administration Meaning Management is an art of getting things done It is concerned with formulation of through others by directing their efforts towards broad objectives, plans & policies. achievement of pre-determined goals. Nature Management is an executing function. Administration is a decision-making function. Process Management decides who should it & how should Administration decides what is to be he do it. done & when it is to be done. Function Management is a doing function because Administration is a thinking function managers get work done under their supervision. because plans & policies are determined under it. Skills Technical and Human skills Conceptual and Human skills Level Middle & lower level function Top level function On the Basis of Usage: - Basis Management Administration Applicability It is applicable to business concerns i.e. It is applicable to non-business concerns i.e. profit-making organization. clubs, schools, hospitals etc. Influence The management decisions are The administration is influenced by public influenced by the values, opinions, opinion, govt. policies, religious beliefs & decisions of the managers. organizations, customs etc. Status Management constitutes the employees Administration represents owners of the of the organization who are paid enterprise who earn return on their capital remuneration (in the form of salaries & invested & profits in the form of dividend. wages). Management theories Management theories are the set of general rules that guide the managers to manage an organization. Management theories (also known as "Transactional theories") focus on the role of supervision, organization, and group performance. Theories are an explanation to assist employees to effectively relate to the business goals and implement effective means to achieve the same. Early management theories base leadership on a system of reward and punishment. Managerial theories are often used in business; when employees are successful, they are rewarded; when they fail, they are reprimanded or punished. 1.The Classical theory of management a) Scientific Management b) Bureaucratic Management c) Administrative Management 2.Neo-Classical Theory a) Behavioral Science Approach 3.The Modern Management Theories a) Quantitative Approach b) System Approach c) Contingency Approach Difference between Classical and Neoclassical Theory The Classical theory of management Contribution of F.W.Taylor to Management thought Considered as “The Father of Scientific Management”.  Wrote “The Principles of Scientific Management” in 1911. Raised from labourer to chief engineer within 6 years. Faced soldiering problem – practice of employees deliberately working at pace slower than their capabilities. Scientific management propounded by Taylor emphasizes: Need for developing a scientific way of performing each job. Training & preparing workers to perform that particular job. Establishing harmonious relations between management & workers so that the job is performed in the desired way. Two managerial practices from Taylor’s approach are: Piece-Rate Incentive System – maximum pieces produced incentives received accordingly. Time-and-Motion study – jobs are broken down into various small tasks or motions & unnecessary motions are removed to find out the best way of doing a job. Contributions of Frank & Lillian Gilbreth Frank Gilbreth (1868-1924) is considered as the “Father of Motion Study”. Motion study involves finding out the best sequence & minimum number of motions needed to complete a task. Both were mainly involved in exploring new ways for eliminating unnecessary motions & reducing work fatigue. Gilbreths devised classification scheme to label 17 basic hand motions of workers such as “search, select, position & hold” called as “therbligs”. Frank Gilbreth is best known for his experiment in reducing the number of motions in bricklaying. By analyzing brick layers job, he reduced the number of motions in bricklaying from 18.5 to 4. Workers increased the number of bricks laid per day from 1000 to 2700 (per hr from 120 to 350 bricks). Contributions of Henry Laurence Gantt He was a close associate of Taylor. Remembered for his work on the task-and-bonus system & the Gantt Chart. Under this, if worker completed the work fast in less than standard time, he received bonus. Introduced incentive plan for foremen, who would be paid bonus for every worker who reached daily standard & would receive extra bonus if all workers reached daily standard. Chart compares actual & planned performance. Indicates the production in terms of time rather than quantity. Horizontal axis – time, work scheduled & work completed. Vertical axis – individuals & machines assigned. Limitations of Scientific Management Focuses problems at the operational level but not on the management of the organization from manager’s point of view.  Taylor & his followers overlooked the social needs of workers & overemphasized their economic & physical needs. It ignored the human desire for job satisfaction. Bureaucratic Management Weber believed that bureaucracy was the most efficient way to set up and manage an organization, and absolutely necessary for larger companies to achieve maximum productivity with many employees and tasks. Overall, Weber's ideal bureaucracy favors efficiency, uniformity and a clear distribution of power. He argued that bureaucracy constitutes the most efficient and rational way in which human activity can be organized and that systematic processes and organized hierarchies are necessary to maintain order, to maximize efficiency, and to eliminate favoritism. Major characteristics of Weber’s Ideal Bureaucracy Work specialization & division of labour Abstract rules & regulations Impersonality of managers Hierarchy of organization structure Administrative Management This theory focuses on principles that could be used by managers to coordinate the internal activities of organizations. Henry Fayol, also known as the ‘father of modern management theory’ gave a new perception of the concept of management. He introduced a general theory that can be applied to all levels of management and every department. The Fayol theory is practised by the managers to organize and regulate the internal activities of an organization. He concentrated on accomplishing managerial efficiency. Henri Fayol developed theory of management. According to him, the business operations of an organization could be divided into 6 activities. Technical – producing & manufacturing products. Commercial – buying, selling & exchange. Financial – search for & optimal use of capital. Security – protecting employees & property. Accounting – recording & taking stack of costs, profits & liabilities, maintaining balance sheets & compiling statistics. Managerial – planning, organizing, commanding, coordinating & controlling. Fourteen Principles of Management By Henri Fayol 1. Division of Work- Henri believed that segregating work in the workforce amongst the worker will enhance the quality of the product. Similarly, he also concluded that the division of work improves the productivity, efficiency, accuracy and speed of the workers. This principle is appropriate for both the managerial as well as a technical work level. 2. Authority and Responsibility- These are the two key aspects of management. Authority facilitates the management to work efficiently, and responsibility makes them responsible for the work done under their guidance or leadership. 3. Discipline- Without discipline, nothing can be accomplished. It is the core value for any project or any management. Good performance and sensible interrelation make the management job easy and comprehensive. Employees good behaviour also helps them smoothly build and progress in their professional careers. 4. Unity of Command- This means an employee should have only one boss and follow his command. If an employee has to follow more than one boss, there begins a conflict of interest and can create confusion. 5. Unity of Direction- Whoever is engaged in the same activity should have a unified goal. This means all the person working in a company should have one goal and motive which will make the work easier and achieve the set goal easily. 6. Subordination of Individual Interest- This indicates a company should work unitedly towards the interest of a company rather than personal interest. Be subordinate to the purposes of an organization. This refers to the whole chain of command in a company. 7. Remuneration- This plays an important role in motivating the workers of a company. Remuneration can be monetary or non-monetary. However, it should be according to an individual’s efforts they have made. 8. Centralization- In any company, the management or any authority responsible for the decision-making process should be neutral. However, this depends on the size of an organization. Henri Fayol stressed on the point that there should be a balance between the hierarchy and division of power. 9. Scalar Chain- Fayol on this principle highlights that the hierarchy steps should be from the top to the lowest. This is necessary so that every employee knows their immediate senior also they should be able to contact any, if needed. 10. Order- A company should maintain a well-defined work order to have a favourable work culture. The positive atmosphere in the workplace will boost more positive productivity. 11. Equity- All employees should be treated equally and respectfully. It’s the responsibility of a manager that no employees face discrimination. 12. Stability- An employee delivers the best if they feel secure in their job. It is the duty of the management to offer job security to their employees. 13. Initiative- The management should support and encourage the employees to take initiatives in an organization. It will help them to increase their interest and make then worth. 14. Esprit de Corps- It is the responsibility of the management to motivate their employees and be supportive of each other regularly. Developing trust and mutual understanding will lead to a positive outcome and work environment. Limitations of Bureaucratic & Administrative Management Weber’s theory destroyed individual creativity & flexibility to respond to complex changes in the global environment. Classical theory ignored important aspects of organizational behaviour. Does not deal with problems of leadership, motivation, power or informal relations. Failed to consider impact of external & internal environment upon employee behaviour in organizations. Contribution of Neo-Classical Theory Neoclassical theory has made significant contribution to an understanding of human behavior at work and in organization. It has generated awareness of the overwhelming role of human factor in industry. This approach has given new ideas and techniques for better understanding of human behavior. The basic features of neoclassical approach are: (i) The business organisation is a social system. (ii) Human factor is the most important element in the social system. (iii) It revealed the importance of social and psychological factors in determining worker productivity and satisfaction. Contribution of Elton Mayo to the Development of Management Thought Elton Mayo (1880-1949) is recommended as the Father of Human Relations School. He introduced human relations approach to management thought. His contribution to the development of management thought is unique and is also treated as human relations approach to management. It was Mayo who led the team for conducting the study at Western Electric's Hawthorne Plant (1927-1932) to evaluate the attributes and psychological reactions of workers in on-the-job situations. His associates included John Dewery, Kurt Lewin and others. Mayo and his associates came to the following conclusions from their famous Hawthorne experiments: 1. The amount of work to be done by a worker is not determined by his physical capacity but by the social norms. 2. Non-economic rewards play a significant role in influencing the behavior of the workers. 3. Generally the workers de not reacts as individuals, but as members of group. 4. Informal leaders play an important part in setting and enforcing the group norms Mayo’s studies at the Western Electricity Company, Chicago is popularly known as Hawthorne Studies. It was a research programme of National Research Council of the National Academy of Science at the Hawthorne Plant of Western Electricity Company. In the early 20th century, it was realized that –  There was a clear-cut cause and effect relationship between the physical work, environment, the well-being and productivity of the worker.  Also, there was relationship between production and given condition of ventilation, temperature, lighting and other physical working conditions and wage incentives.  It had been believed that – improper job design, fatigue and other conditions of work mainly block efficiency. So to establish the relationship between man and the structure of formal organization, Hawthorne Studies conducted. The studies were conducted in the following four phases. 1. Illumination Experiment (1924-27) 2. Relay Assembly Test Room Experiment (1927) 3. Mass Interviewing Programme (1928-31) 4. Bank Wiring Experiment (1931-32) ILLUMINATION EXPERIMENT (1924-27) It was done to determine the effect of different levels of illumination on workers’ productivity. In this experiment, two group of female workers were located in separate rooms, each group performing the same task. The rooms were equally illuminated with stabilized room temperature, humidity, etc. Slowly the conditions of work were changed to mark change in production. After a period of one-and-a half year, it was concluded that – illumination doesn’t affect productivity of workers. RELAY ASSEMBLY TEST ROOM EXPERIMENT (1927) This experiment was conducted to observe the effects of various changes in working conditions on the workers’ output and morale. MASS INTERVIEWING PROGRAMME (1928-31) It was launched to explore the employees’ feelings (i.e., human attitudes and sentiments) by the worker’s social group (informal organization). The workers were asked to express freely and frankly their likes and dislike on the programmes and policies of the management, working conditions, and behaviour of their boss with workers, etc. After a few days there was a change in the attitude of the workers, however no reforms were introduced. That change was seen because of the following reasons:-  The workers thought that the working conditions were changed because of their complaints.  They also felt that the wages were better although the wage scale remained at the same level. After interviewing 21, 126 workers, and analysing their complaints, it was found that – there was no correlation between the nature of complaints and the facts. It was concluded that – the experiment succeeded in identifying the following three aspects:- 1. Workers feel elated if they were allowed to express freely. They develop a feeling that the conditions in the environment were changed to the better although no such change took place. 2. Subordinates should be allowed to comment freely about their supervisor. 3. It is difficult to understand the real problems, personal feelings and sentiments of the workers derived from both an employee’s personal history and his social situations at work, without appreciating their feelings and sentiments. BANK WIRING EXPERIMENT (1931-32) This experiment was done to observe and analyse the group behaviour, workers performing a task in a natural setting. For the experiment, a number of employees consisting of three groups of workmen whose work was inter-related were chosen. Their job was to solder, fix the terminals and finish the wiring. It was known as ‘The Bank Wiring Experiment’. Wages were paid on the basis of a group incentive plan and each member got his share on the basis of the total output of the group. It was found that workers had a fixed clear-cut standard of output, which was lower than management target, however they were capable of increasing their output. It was also found that the group did not allow its members to increase or decrease the output. They were highly integrated with their social structure, and informal pressure was used to set right the erring members. The following code of conduct was maintained for group solidarity:  One should not turn out too much work. If one does, he is a ‘rat buster’.  One should not turn out too little work. If one does, he is a ‘chesler’.  One should not tell a supervisor anything detrimental to an associate. If one does, he is a ‘squealer’.  One should not attempt to maintain social distance or act officious. If one is an inspector, for example, he should not act like one. Conclusions:- Mayo and the researchers concluded that:- 1. The behaviour of the team had nothing to do with management of general economic conditions of the plant. 2. The workers viewed interference of extra department personnel as disturbance.  The workers considered supervisors as representative authority to discipline the workers. 1. The logic of efficiency did not go well with the logic of sentiments. 2. One should not miss the human aspects of organization while emphasising technical and economic aspects. 3. In addition to the technical skills, the management should handle human situations, motivate, lead and communicate with the workers.  The concept of authority should be based on social skills in securing cooperation rather than expertise. CONCLUSIONS FROM HAWTHORNE STUDIES BRIEFLY 1. The social and psychological factors at the workplace, not the physical conditions of the workplace determine the employees’ morale and output. 2. The organization is a social system. 3. Non-economic rewards and sanctions significantly affect the workers’ behaviour, morale and output. 4. Workers are not inert or isolated, unrelated individual; they are social animals. 5. Division of labour strictly on specialization is not necessarily the most efficient approach. 6. The workers have a tendency to form small groups (informal organizations). The production norms and behavioural patterns are set by such groups. 7. Leadership, style of supervision, communication and participation play a central role in workers’ behaviour, satisfaction and productivity. Thus, the findings of Hawthorne studies revolutionised the organizational thought, and gave rise to a new theory called Human Relations Theory. CRITICISMS OF MAYO’S HUMAN RELATION THEORY 1. This theory lacks scientific base. 2. This theory is not based on actual behaviour of workers as they were influenced by their feelings of importance, attention and publicity they received in the research setting. Workers react positively and give their best when they know that they are being observed. 3. It is anti-union and pro-management. Mayo underestimated the role of Unions in a free society as well as never tried to integrate unions into his thinking. 4. This theory neglected the nature of work and instead focused on interpersonal relations. 5. It ignored the environmental factors of workers’ attitudes and behaviour. 6. Evidence obtained from the experiments does not support any of the conclusions derived by Mayo and the researchers. 7. It lacks economic dimension. 8. It does not consider effects of ‘conflicts’ and ‘tension’ on the workers. 9. This theory give much attention to informal relations among workers and between workers and supervisors, but little to the formal relationships with informal ones. Contributions of Mary Parker Follett Mary Parker Follett, writer, social worker, political theorist and organizational consultant, has been called "the woman who invented management." Her early influence on modern management theory has, in fact, been so pervasive that management theorist Warren Bennis has been quoted as saying of her, "Just about everything written today about leadership and organizations comes from Mary Parker Follett's writings and lectures." Follett never managed a for-profit enterprise herself, yet her keen insight into the dynamics of organizations and groups gave her theories widespread appeal. She advocated a "pull" rather than "push" approach to employee motivation, differentiated between "power over" and "power with," and postulated insightful ideas on negotiation, conflict resolution and power sharing which helped shape modern management theory. The Mary Parker Follett Theory of Management is marked by such principles as the following: 1. Conflict resolution through Integration (i.e., identifying and meeting each party's underlying and often compatible need, as opposed to attempting to meet the frequently-incompatible expressed desire of each) often results in a win-win situation. 2. In Mary Parker Follett leadership theory, genuine power is not "coercive" ("power over") but "coactive" ("power with"). 3. True leaders, according to Follett's theory, "create group power, rather than expressing personal power." Maslow's hierarchy of needs Maslow's hierarchy of needs is a motivational theory in psychology comprising a five-tier model of human needs, often depicted as hierarchical levels within a pyramid. From the bottom of the hierarchy upwards, the needs are: physiological, safety, love, esteem, and self-actualization. The original hierarchy of needs five-stage model includes: Maslow (1943, 1954) stated that people are motivated to achieve certain needs and that some needs take precedence over others. Our most basic need is for physical survival, and this will be the first thing that motivates our behavior. Once that level is fulfilled the next level up is what motivates us, and so on. 1. Physiological needs - these are biological requirements for human survival, e.g. air, food, drink, shelter, clothing, warmth, sex, sleep. If these needs are not satisfied the human body cannot function optimally. Maslow considered physiological needs the most important as all the other needs become secondary until these needs are met. 2. Safety needs - Once an individual’s physiological needs are satisfied, the needs for security and safety become salient. People want to experience order, predictability and control in their lives. These needs can be fulfilled by the family and society (e.g. police, schools, business and medical care). For example, emotional security, financial security (e.g. employment, social welfare), law and order, freedom from fear, social stability, property, health and wellbeing (e.g. safety against accidents and injury). 3. Love and belongingness needs - after physiological and safety needs have been fulfilled, the third level of human needs is social and involves feelings of belongingness. The need for interpersonal relationships motivates behavior Examples include friendship, intimacy, trust, and acceptance, receiving and giving affection and love. Affiliating, being part of a group (family, friends, work). 4. Esteem needs are the fourth level in Maslow’s hierarchy - which Maslow classified into two categories: (i) esteem for oneself (dignity, achievement, mastery, independence) and (ii) the desire for reputation or respect from others (e.g., status, prestige). Maslow indicated that the need for respect or reputation is most important for children and adolescents and precedes real self-esteem or dignity. 5. Self-actualization needs are the highest level in Maslow's hierarchy, and refer to the realization of a person's potential, self-fulfillment, seeking personal growth and peak experiences. Maslow (1943) describes this level as the desire to accomplish everything that one can, to become the most that one can be. McGregor Theory X and Theory Y McGregor believed that managers' basic beliefs have a dominant influence on the way that organisations are run. Managers' assumptions about the behaviour of people are central to this. McGregor argued that these assumptions fall into two broad categories - Theory X and Theory Y. These findings were detailed in The Human Side of Enterprise, first published in 1960. Theory X and Theory Y describe two views of people at work and may be used to describe two opposing management styles. Theory X: the traditional view of direction and control Theory X is based on the assumptions that: 1. The average human being has an inherent dislike of work and will avoid it if possible. 2. Because of this human dislike of work, most people must be coerced, controlled, directed, and threatened with punishment to get them to put forth adequate effort toward the achievement of organisational objectives. 3. The average human being prefers to be directed, wishes to avoid responsibility, has relatively little ambition, and wants security above all. A Theory X management style therefore requires close, firm supervision with clearly specified tasks and the threat of punishment or the promise of greater pay as motivating factors. A manager working under these assumptions will employ autocratic controls which can lead to mistrust and resentment from those they manage. McGregor acknowledges that the `carrot and stick' approach can have a place, but will not work when the needs of people are predominantly social and egoistic. Ultimately, the assumption that a manager’s All rights reserved. No part of this publication may be reproduced in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher. objective is to persuade people to be docile, to do what they are told in exchange for reward or escape from punishment, is presented as flawed and in need of re-evaluation. Theory Y: the integration of individual and organisational goals Theory Y is based on the assumptions that: 1. The expenditure of physical and mental effort in work is as natural as play or rest. The average human being does not inherently dislike work. Depending upon controllable conditions, work may be a source of satisfaction, or a source of punishment. 2. External control and the threat of punishment are not the only means for bringing about effort toward organisational objectives. People will exercise self-direction and self-control in the service of objectives to which they are committed. 3. Commitment to objectives is a function of the rewards associated with their achievement. The most significant of such rewards, e.g. the satisfaction of ego and self-actualisation needs, can be direct products of effort directed towards organisational objectives. 4. The average human being learns, under proper conditions, not only to accept but to seek responsibility. Avoidance of responsibility, lack of ambition, and emphasis on security are generally consequences of experience, not inherent human characteristics. 5. The capacity to exercise a relatively high degree of imagination, ingenuity, and creativity in the solution of organisational problems is widely, not narrowly, distributed in the population. 6. Under the conditions of modern industrial life, the intellectual potentialities of the average human being are only partially utilised. Theory Y assumptions can lead to more cooperative relationships between managers and workers. A Theory Y management style seeks to establish a working environment in which the personal needs and objectives of individuals can relate to, and harmonise with, the objectives of the organisation. In The Human Side of Enterprise McGregor recognised that Theory Y was not a panacea for all ills. By highlighting Theory Y, he hoped instead to persuade managers to abandon the limiting assumptions of Theory X and consider using the techniques suggested by Theory Y. Modern Management Theory: Quantitative, System and Contingency Approaches to Management The Modern Period (1960 to present). After, 1960 management thought has been turning somewhat away from the extreme human relations ideas particularly regarding the direct relation between morale and productivity. Present management thinking wishes equal emphasis on man and machine. The modern business ideologists have recognized the social responsibilities of business activities and thinking on similar lines. During the period, the principles of management reached a stage of refinement and perfection. The formation of big companies resulted in the separation of ownership and management. This change in ownership pattern inevitably brought in ‘salaried and professional managers’ in place of ‘owner managers’. The giving of control to the hired management resulted in the wider use of scientific methods of management. But at the same time the professional management has become socially responsible to various sections of society such as customers, shareholders, suppliers, employees, trade unions and other Government agencies. Under modern management thought three streams of thinking have beers noticed since 1960: (i) Quantitative or Mathematical Approach (ii) Systems Approach. (iii) Contingency Approach. (I) Quantitative or Mathematical Approach or Management Science Approach: Mathematics has made inroads into all disciplines. It has been universally recognised as an important tool of analysis and a language for precise expression of concept and relationship. Evolving from the Decision Theory School, the Mathematical School gives a quantitative basis for decision-making and considers management as a system of mathematical models and processes. This school is also sometimes called, ‘ Operations Research” or “Management Science School’. The main feature of this school is the use of mixed teams of scientists from several disciplines. It uses scientific techniques for providing quantitative base for managerial decisions. The exponents of this school view management as a system of logical process. It can be expressed in terms of mathematical symbols and relationships or models. Different mathematical and quantitative techniques or tools, such as linear programming, simulation and queuing, are being increasingly used in almost all the areas of management for studying a wide range of problems. The exponents of this school believe that all the phases of management can be expressed in quantitative terms for analysis. However, it is to be noted that mathematical models do help in the systematic analysis of problems, but models are no substitute for sound judgement. Moreover, mathematics quantitative techniques provide tools for analysis but they cannot be treated an independent system of management thought. A lot of mathematics is used in the field of physical sciences and engineering but mathematics has never been considered as separate school even in these fields. The contributions of mathematicians in the field of management are significant. This has contributed impressively in developing orderly thinking amongst managers. It has given exactness to the management discipline. Its contributions and usefulness could hardly be over-emphasized. However, it can only be treated as a tool in managerial practice. Limitations: There is no doubt that this approach helps in defining and solving complex problems resulting in orderly thinking. But the critics of this approach regard it as too narrow since it is concerned merely with the development of mathematical models and solutions for certain managerial problems. This approach suffers from the following drawbacks: (i) This approach does not give any weight age to human element which plays a dominant role in all organisations. (ii) In actual life executives have to take decisions quickly without waiting for full information to develop models. (iii) The various mathematical tools help in decision making. But decision making is one part of managerial activities. Management has many other functions than decision-making. (iv) This approach supposes that all variables to decision-making are measurable and inter-dependent. This assumption is not realistic. (v) Sometimes, the information available in the business for developing mathematical models are not upto date and may lead to wrong decision-making. Harold Knootz. Also observes that “it is too hard to see mathematics as a separate approach to management theory. Mathematics is a tool rather than a school.” (ii) Systems Approach: In the 1960, an approach to management appeared which tried to unify the prior schools of thought. This approach is commonly known as ‘Systems Approach’. Its early contributors include Ludwing Von Bertalanffy, Lawrence J. Henderson, W.G. Scott, Deniel Katz, Robert L. Kahn, W. Buckley and J.D. Thompson. They viewed organization as an organic and open system, which is composed of interacting and interdependent parts, called subsystems. The system approach is to look upon management as a system or as “an organised whole” made up of subsystems integrated into a unity or orderly totality. System approach is based on the generalization that everything is inter-related and inter-dependent. A system is composed of related and dependent element which, when in interaction, forms a unitary whole. A system is simply an assemblage or combination of things or parts forming a complex whole. One of its most important characteristic is that it is composed of hierarchy of sub-systems. That is the parts forming the major systems and so on. For example, the world can be considered to be a system in which various national economies are sub-systems. In turn, each national economy is composed of its various industries, each industry is composed of firms; and of course, a firm can be considered a system composed of sub-systems such as production, marketing, finance, accounting and so on. The basic features of systems approach are as under: (i) A system consists of interacting elements. It is set of inter related and interdependent parts arranged in a manner that produces a unified whole. (ii) The various sub-systems should be studied in their inter- relationships rather, than in isolation from each other. (iii) An organisational system has a boundary that determines which parts are internal and which are external. (iv) A system does not exist in a vaccum. It receives information, material and energy from other systems as inputs. These inputs undergo a transformation process within the system and leave the system as output to other systems. (v) An organisation is a dynamic system as it is responsive to its environment. It is vulnerable to change in its environment. In the systems approach, attention is paid towards the overall effectiveness of the system rather than the effectiveness of the sub-systems. The interdependence of the sub-systems is taken into account. The idea of systems can be applied at an organizational level. In applying system concepts, organizations are taken into account and not only the objectives and performances of different departments (sub- systems). The systems approach is considered both general and specialized systems. The general systems approach to management is mainly concerned with formal organizations and the concepts are relating to technique of sociology, psychology and philosophy. The specific management system includes the analysis of organisational structure, information, planning and control mechanism and job design, etc. As discussed earlier, system approach has immense possibilities, “A system view point may provide the impetus to unify management theory. By definitions, it could treat the various approaches such as the process of quantitative and behavioural ones as sub-systems in an overall theory of management. Thus, the systems approach may succeed where the process approach has failed to lead management out of the theory of jungle. ” Systems theory is useful to management because it aims at achieving the objectives and it views organization as an open system. Chester Barnard was the first person to utilise the systems approach in the field of management. He feels that the executive must steer through by keeping a balance between conflicting forces and events. A high order of responsible leadership makes the executives effective. H. Simon viewed organization as a complex system of decision making process. Evaluation of System Approach: The systems approach assists in studying the functions of complex organisations and has been utilised as the base for the new kinds of organisations like project management organisation. It is possible to bring out the inter-relations in various functions like planning, organising, directing and controlling. This approach has an edge over the other approaches because it is very close to reality. This approach is called abstract and vague. It cannot be easily applied to large and complex organisations. Moreover, it does not provide any tool and technique for managers. (iii) Contingency or Situational Approach: The contingency approach is the latest approach to the existing management approaches. During the 1970’s, contingency theory was developed by J.W. Lorsch and P.R. Lawrence, who were critical of other approaches presupposing one best way to manage. Management problems are different under different situations and require to be tackled as per the demand of the situation. One best way of doing may be useful for repetitive things but not for managerial problems. The contingency theory aims at integrating theory with practice in systems framework. The behaviour of an organisation is said to be contingent on forces of environment. “Hence, a contingency approach is an approach, where behaviour of one sub-unit is dependent on its environment and relationship to other units or sub-units that have some control over the sequences desired by that sub- unit.” Thus behaviour within an organisation is contingent on environment, and if a manager wants to change the behaviour of any part of the organization, he must try to change the situation influencing it. Tosi and Hammer tell that organization system is not a matter of managerial choice, but contingent upon its external environment. Contingency approach is an improvement over the systems approach. The interactions between the sub-systems of an organisation have long been recognised by the systems approach. Contingency approach also recognises that organisational system is the product of the interaction of the sub systems and the environment. Besides, it seeks to identify exact nature of inter-actions and inter-relationships. This approach calls for an identification of the internal and external variables that critically influence managerial revolution and organisational performance. According to this, internal and external environment of the organisation is made up of the organisational sub-systems. Thus, the contingency approach provides a pragmatic method of analysing organisational sub-systems and tries to integrate these with the environment. Contingency views are ultimately directed towards suggesting organisational designs situations. Therefore, this approach is also called situational approach. This approach helps us to evolve practical answers to the problems remanding solutions. Kast and Rosenzweig give a broader view of the contingency approach. They say, “The contingency view seeks to understand the inter-relationships within and among sub-systems as well as between the organization and its environment and to define patterns of relationships or configurations of variables contingency views are ultimately directed toward suggesting organization designs and managerial actions most appropriate for specific situations. Features of Contingency Approach: Firstly, the contingency approach does not accept the universality of management theory. It stresses that there is no one best way of doing things. Management is situation, and managers should explain objectives, design organisations and prepare strategies, policies and plans according to prevailing circumstances. Secondly, managerial policies and practices to be effective, must adjust to changes in environment. Thirdly, it should improve diagnostic skills so as to anticipate and ready for environmental changes. Fourthly, managers should have sufficient human relations skill to accommodate and stabilise change. Finally, it should apply the contingency model in designing the organization, developing its information and communication system, following proper leadership styles and preparing suitable objectives, policies, strategies, programmes and practices. Thus, contingency approach looks to hold a great deal of promise for the future development of management theory and practice. Evaluation: This approach takes a realistic view in management and organisation. It discards the universal validity of principles. Executives are advised to be situation oriented and not stereo-typed. So executives become innovative and creative. On the other hands, this approach does not have theoretical base. An executive is expected to know all the alternative courses of action before taking action in a situation which is not always feasible. Unit II PLANNING Planning is the fundamental management function, which involves deciding beforehand, what is to be done, when is it to be done, how it is to be done and who is going to do it. It is an intellectual process which lays down an organisation’s objectives and develops various courses of action, by which the organisation can achieve those objectives. It chalks out exactly, how to attain a specific goal. Planning is nothing but thinking before the action takes place. It helps us to take a peep into the future and decide in advance the way to deal with the situations, which we are going to encounter in future. It involves logical thinking and rational decision making. According to Koontz and O’Donnel, “Planning is deciding in advance what to do, how to do it, when to do it and who is to do it. It bridges the gap from where we are to where we want to go.” Planning is the continuous managerial process of anticipating and forecasting the future. environment of the business organization, the formulation of the long term and short term goals. to be achieved and selecting the strategies for their realization. Planning is also a management process, concerned with defining goals for a company's future direction and determining the missions and resources to achieve those targets. To meet objectives, managers may develop plans, such as a business plan or a marketing plan. The planning process provides the information top management needs to make effective decisions about how to allocate the resources in a way that will enable the organization to reach its objectives. Productivity is maximized and resources are not wasted on projects with little chance of success. Importance of Planning  It helps managers to improve future performance, by establishing objectives and selecting a course of action, for the benefit of the organisation.  It minimises risk and uncertainty, by looking ahead into the future.  It facilitates the coordination of activities. Thus, reduces overlapping among activities and eliminates unproductive work.  It states in advance, what should be done in future, so it provides direction for action.  It uncovers and identifies future opportunities and threats.  It sets out standards for controlling. It compares actual performance with the standard performance and efforts are made to correct the same. Planning is present in all types of organisations, households, sectors, economies, etc. We need to plan because the future is highly uncertain and no one can predict the future with 100% accuracy, as the conditions can change anytime. Hence, planning is the basic requirement of any organization for the survival, growth and success. Characteristics of Planning 1. Managerial function: Planning is a first and foremost managerial function provides the base for other functions of the management, i.e. organising, staffing, directing and controlling, as they are performed within the periphery of the plans made.  1. 2. Goal oriented: It focuses on defining the goals of the organisation, identifying alternative courses of action and deciding the appropriate action plan, which is to be undertaken for reaching the goals. 3. Pervasive: It is pervasive in the sense that it is present in all the segments and is required at all the levels of the organisation. Although the scope of planning varies at different levels and departments. 4. Continuous Process: Plans are made for a specific term, say for a month, quarter, year and so on. Once that period is over, new plans are drawn, considering the organisation’s present and future requirements and conditions. Therefore, it is an ongoing process, as the plans are framed, executed and followed by another plan. 5. Intellectual Process: It is a mental exercise at it involves the application of mind, to think, forecast, imagine intelligently and innovate etc. 6. Futuristic: In the process of planning we take a sneak peek of the future. It encompasses looking into the future, to analyse and predict it so that the organisation can face future challenges effectively. 7. Decision making: Decisions are made regarding the choice of alternative courses of action that can be undertaken to reach the goal. The alternative chosen should be best among all, with the least number of the negative and highest number of positive outcomes. Planning is concerned with setting objectives, targets, and formulating plan to accomplish them. The activity helps managers analyse the present condition to identify the ways of attaining the desired position in future. It is both, the need of the organisation and the responsibility of managers. Steps involved in Planning By planning process, an organisation not only gets the insights of the future, but it also helps the organisation to shape its future. Effective planning involves simplicity of the plan, i.e. the plan should be clearly stated and easy to understand because if the plan is too much complicated it will create chaos among the members of the organisation. Further, the plan should fulfill all the requirements of the organisation. Limitations of Planning (i) Planning leads to rigidity (ii) Planning may not work in a dynamic environment (iii) Planning reduces creativity (iv) Planning involves huge costs (v) Planning is a time-consuming process (vi) Planning does not guarantee success Types of Plans Single-use and standing plans An organisation has to prepare a plan before making any decision related to business operation, or undertaking any project. Plans can be classified into several types depending on the use and the length of the planning period. Certain plans have a short term horizon and help to achieve operational goals. These plans can be classified into single-use plans and standing plans. Single-use Plan: A single-use plan is developed for a one-time event or project. Such a course of action is not likely to be repeated in future, i.e., they are for non-recurring situations. The duration of this plan may depend upon the type of the project. It may span a week or a month. A project may sometimes be of only one day, such as, organising an event or a seminar or conference. These plans include budgets, programmes and projects. They consist of details, including the names of employees who are responsible for doing the work and contributing to the single-use plan. For example, a programme may consist of identifying steps, procedures required for opening a new department to deal with other minor work. Projects are similar to programmes but differ in scope and complexity. A budget is a statement of expenses, revenue and income for a specified period. Standing Plan: A standing plan is used for activities that occur regularly over a period of time. It is designed to ensure that internal operations of an organisation run smoothly. Such a plan greatly enhances efficiency in routine decision-making. It is usually developed once but is modified from time to time to meet business needs as required. Standing plans include policies, procedures, methods and rules. Policies are general forms of standing plans that specifies the organisations response to a certain situation like the admission policy of an educational institution. Procedures describe steps to be followed in particular circumstances like the procedure for reporting progress in production. Methods provide the manner in which a task has to be performed. Rules are very clearly stated as to exactly what has to be done like reporting for work at a particular time. Single-use and standing plans are part of the operational planning process. There are other types of plans which usually are not classified as single use or standing plans. A strategy, for example, is part of strategic planning or management. It is a general plan prepared by top management outlining resource allocation, priorities and takes into consideration the business environment and competition. Objectives are usually set by the top management and serve as a guide for overall planning. Each unit then formulates their own objectives keeping in view the overall organisational goals. Based on what the plans seek to achieve, plans can be classified as Objectives, Strategy, Policy, Procedure, Method, Rule, Programme, Budget. Objectives The first step in planning is setting objectives. Objectives, therefore, can be said to be the desired future position that the management would like to reach. Objectives are very basic to the organisation and they are defined as ends which the management seeks to achieve by its operations. Therefore, an objective simply stated is what you would like to achieve, i.e., the end result of activities. Objectives need to be expressed in specific terms i.e., they should be measurable in quantitative terms, in the form of a written statement of desired results to be achieved within a given time period. Strategy A strategy provides the broad contours of an organisation’s business. It will also refer to future decisions defining the organisations direction and scope in the long run. Thus, we can say a strategy is a comprehensive plan for accomplishing an organisation objectives. This comprehensive plan will include three dimensions, (i) determining long term objectives, (ii) adopting a particular course of action, and (iii) allocating resources necessary to achieve the objective. Whenever a strategy is formulated, the business environment needs to be taken into consideration. The changes in the economic, political, social, legal and technological environment will affect an organisation’s strategy. Strategies usually take the course of forming the organisation’s identity in the business environment. Major strategic decisions will include decisions like whether the organisation will continue to be in the same line of business, or combine new lines of activity with the existing business or seek to acquire a dominant position in the same market. Policy Policies are general statements that guide thinking or channelise energies towards a particular direction. Policies provide a basis for interpreting strategy which is usually stated in general terms. They are guides to managerial action and decisions in the implementation of strategy. There are policies for all levels and departments in the organisation ranging from major company policies to minor policies. Major company policies are for all to know i.e., customers, clients, competitors etc., whereas minor polices are applicable to insiders and contain minute details of information vital to the employees of an organisation. Procedure Procedures are routine steps on how to carry out activities. They detail the exact manner in which any work is to be performed. They are specified in a chronological order. Procedures are specified steps to be followed in particular circumstances. They are generally meant for insiders to follow. The sequence of steps or actions to be taken are generally to enforce a policy and to attain pre-determined objectives. Policies and procedures are interlinked with each other. Procedures are steps to be carried out within a broad policy framework. Method Methods provide the prescribed ways or manner in which a task has to be performed considering the objective. It deals with a task comprising one step of a procedure and specifies how this step is to be performed. The method may vary from task to task. Selection of proper method saves time, money and effort and increases efficiency. Rule Rules are specific statements that inform what is to be done. They do not allow for any flexibility or discretion. It reflects a managerial decision that a certain action must or must not be taken. They are usually the simplest type of plans because there is no compromise or change unless a policy decision is taken. Programme Programmes are detailed statements about a project which outlines the objectives, policies, procedures, rules, tasks, human and physical resources required and the budget to implement any course of action. Programmes will include the entire gamut of activities as well as the organisation’s policy and how it will contribute to the overall business plan. Budget A budget is a statement of expected results expressed in numerical terms. It is a plan which quantifies future facts and figures. Since budget represents all items in numbers, it becomes easier to compare actual figures with expected figures and take corrective action subsequently. Thus, a budget is also a control device from which deviations can be taken care of. But making a budget involves forecasting, therefore, it clearly comes under planning. It is a fundamental planning instrument in many organisations. DECISION MAKING Decision making is the process of making choices by identifying a decision, gathering information, and assessing alternative resolutions. Using a step-by-step decision-making process can help you make more deliberate, thoughtful decisions by organizing relevant information and defining alternatives. Decision-making is perhaps the most important component of a manager's activities. It plays the most important role in the planning process. When the managers plan, they decide on many matters as what goals their organisation will pursue, what resources they will use, and who will perform each required task. According to Andrew Smilagyi, “Decision making is a process involving information, choice of alternative actions, implementations, and evaluation that is directed to the achievement of certain stated goals.” Decision making is described as the essence of a manager's job because it is utilized in all four managerial functions of planning, organizing, leading and controlling. Decisions, both large and small, are made every day by managers and they have the potential to affect others. Characteristics of Decision Making The following are the characteristics of decision making: Decision making is a selection process. Decision making is the end process. It is preceded by detailed discussion and selection of alternatives. Decision making is the application of intellectual abilities to a great extent. Decision making is a dynamic process. Decision making is situational. A decision may be either negative or positive. Decision making involves the evaluation of available alternatives through critical appraisal methods. Decision is taken to achieve the objectives of an organisation. Type of Decisions Decisions taken by organization may be classified under various categories depending upon the scope, importance and the impact that they create in the organization. The following are the different types of decisions: a. Programmed and Non-programmed Decisions Programmed decisions are normally repetitive in nature. They are the easiest to make. For example: making purchase orders, sanctioning of different types of leave, increments in salary, settlement of normal disputes, etc. Managers in dealing with such issues of routine nature usually follow the established procedures. On the other hand, nonprogrammed decisions are different in that they are non-routine in nature. They are related to some exceptional situations for which there are no established methods of handling such things. For example: Issues related to handling a serious industrial relations problem, declining market share, increasing competition, problems with the collaborator, growing public hostility towards the organization fall in this category. b. Operational and Strategic Decisions Operational or tactical decisions relate to the present. The primary purpose is to achieve high degree of efficiency in the company‘s ongoing operations. Better working conditions, effective supervision, prudent use of existing resources, better maintenance of the equipment, etc., fall in this category. One the other hand, expanding the scale of operations, entering new markets, changing the product mix, shifting the manufacturing facility from one place to the other, striking alliances with other companies, etc., are strategic in nature. Such decisions will have far reaching impact on the organization. c. Organizational and Personal Decisions Decisions taken by managers in the ordinary course of business in their capacity as managers relating to the organizational issues are organizational decisions. For example: decisions regarding introducing a new incentive system, transferring an employee, reallocation or redeployment of employees etc. are taken by managers to achieve certain objectives. As against such decisions, managers do take some decisions which are purely personal in nature. However, their impact may not exactly confine to their selves and they may affect the organization also. For example: the manager‘s decision to quit the organization, though personal in nature, may impact for the organization. d. Individual and Group Decisions It is quite common that some decisions are taken by a manager individually while some decisions are taken collectively by a group of managers. Individual decisions are taken where the problem is of routine nature, whereas important and strategic decisions which have a bearing on many aspects of the organization are generally taken by a group. Group decision making is preferred these days because it contributes for better coordination among the people concerned with the implementation of the decision The decision-making process in 7 steps The decision-making process is spreads out in three stages: identifying phase (opportunities, problem, and crises are recognized and relevant information is collected and problems are more clearly identified), development phase (alternative solutions to problems are generated and modified) and selection phase (alternative solutions to problems are generated and modified) and seven steps. The seven steps followed by the author (Litherland, N., 2013) are: defining the problem, identifying and limiting the factors, development of potential solutions, analysis of the alternatives, selecting the best alternative, implementing the decision and establishing a control and evaluation system. I. Identify the problem The first step in the decision-making process is identifying the problem. To make a decision, you must first identify the problem you need to solve. The manager should consider critical or strategic factors in defining the problem. These factors are, in fact, obstacles in the way of finding proper solution. These are also known as limiting factors. This process must, as a minimum, identify root causes, limiting assumptions, system and organizational boundaries and interfaces. First of all, managers must identify the problem. The problem has to be found and defined. Symptoms are identified and problems should be judged, symptoms are not problems. They are warning signs of problems. So, managers should search for symptoms for identification of problems. The first step needed in taking a decision is to have detected a difference between the current situation and the desired situation. This discrepancy, or problem, exerts pressure on the managing director, forcing him/her to take action, whether it is in such fields as company policy, deadlines, financial recession, or concerning future job evaluations, among other possibilities. II. Collect relevant information Once you have identified your decision, it‘s time to gather the information relevant to that choice. After defining and analyzing the problem, the next step is to develop alternative solutions. The main aim of developing alternative solutions is to have the best possible decision out of the available alternative courses of action. In developing alternative solutions the manager comes across creative or original solutions to the problems. III. Identify the alternatives With relevant information now at your fingertips, identify possible solutions to your problem. There is usually more than one option to consider when trying meeting a goal—for example, if your company is trying to gain more engagement on social media, your alternatives could include paid social advertisements, a change in your organic social media strategy, or a combination of the two. IV. Developing alternative solutions After defining and analyzing the problem, the next step is to develop alternative solutions. The main aim of developing alternative solutions is to have the best possible decision out of the available alternative courses of action. In developing alternative solutions the manager comes across creative or original solutions to the problems. In modern times, the techniques of operations research and computer applications are immensely helpful in the development of alternative courses of action. Once you have identified multiple alternatives, weigh the evidence for or against said alternatives. See what companies have done in the past to succeed in these areas, and take a good hard look at your own organization‘s wins and losses. Identify potential pitfalls for each of your alternatives, and weigh those against the possible rewards. V. Implementation of the decision To gathered all relevant information, and developed and considered the potential paths to take. You are perfectly prepared to choose. After you‘ve ranked your options, you must choose the one that you think has the strongest chance of achieving your goal. In some instances, you can combine several options, but in most cases, there will be a clear-cut direction you want to take. VI. Take action Once you‘ve made your decision, act on it! Develop a plan to make your decision tangible and achievable. Use Lucidchart diagrams to plan the projects related to your decision, and then set the team loose on their tasks once the plan is in place. VII. Review decision Last and important step in the decision making process is evaluating your decision for effectiveness. Follow- up enables to identify the shortcoming or negatives consequences of the decision. It provides valuable feed- back on which the decision may be reviewed or reconsidered. Decision Making under various conditions Generally, the decision maker makes decision under the condition of certainty, risk and uncertainty. There are three conditions that managers may face as they make decisions. They are (1) Certainty, (2) Risk, and (3) Uncertainty. These conditions determine the probability of an error in decision making. All managers make decisions under each condition, but risk and uncertainty are common to the more complex and unstructured problems faced by top managers. Decisions are made under the condition of certainty when the manager has perfect knowledge of all the information needed to make a decision. This condition is ideal for problem solving. The challenge is simply to study the alternatives and choose the best solution. When problems tend to arise on a regular basis, a manager may address them through standard or prepared responses called programmed decisions. These solutions are already available from past experiences and are appropriate for the problem at hand. A good example is the decision to reorder inventory automatically when stock falls below a determined level. Today, an increasing number of programmed decisions are being assisted or handled by computers using decision‐support software. Structured problems are familiar, straightforward, and clear with respect to the information needed to resolve them. A manager can often anticipate these problems and plan to prevent or solve them. For example, personnel problems are common in regard to pay raises, promotions, vacation requests, and committee assignments, as examples. Proactive managers can plan processes for handling these complaints effectively before they even occur. Risk In a risk environment, the manager lacks complete information. This condition is more difficult. A manager may understand the problem and the alternatives, but has no guarantee how each solution will work. Risk is a fairly common decision condition for managers. When new and unfamiliar problems arise, nonprogrammed decisions are specifically tailored to the situations at hand. The information requirements for defining and resolving nonroutine problems are typically high. Although computer support may assist in information processing, the decision will most likely involve human judgment. Most problems faced by higher‐level managers demand nonprogrammed decisions. This fact explains why the demands on a manager's conceptual skills increase as he or she moves into higher levels of managerial responsibility. A crisis problem is an unexpected problem that can lead to disaster if it's not resolved quickly and appropriately. No organization can avoid crises, and the public is well aware of the immensity of corporate crises in the modern world. The Chernobyl nuclear plant explosion in the former Soviet Union and the Exxon Valdez spill of years past are a couple of sensational examples. Managers in more progressive organizations now anticipate that crises, unfortunately, will occur. These managers are installing early‐warning crisis information systems and developing crisis management plans to deal with these situations in the best possible ways. Uncertainty When information is so poor that managers can't even assign probabilities to the likely outcomes of alternatives, the manager is making a decision in an uncertain environment. This condition is the most difficult for a manager. Decision making under conditions of uncertainty is like being a pioneer entering unexplored territory. Uncertainty forces managers to rely heavily on creativity in solving problems: It requires unique and often totally innovative alternatives to existing processes. Groups are frequently used for problem solving in such situations. In all cases, the responses to uncertainty depend greatly on intuition, educated guesses, and hunches — all of which leave considerable room for error. These unstructured problems involve ambiguities and information deficiencies and often occur as new or unexpected situations. These problems are most often unanticipated and are addressed reactively as they occur. Unstructured problems require novel solutions. Proactive managers are sometimes able to get a jump on unstructured problems by realizing that a situation is susceptible to problems and then making contingency plans. For example, at the Vanguard Group, executives are tireless in their preparations for a variety of events that could disrupt their mutual fund business. Their biggest fear is an investor panic that overloads their customer service system during a major plunge in the bond or stock markets. In anticipation of this occurrence, the firm has trained accountants, lawyers, and fund managers to staff the telephones if needed. Modern Approaches to Decision-making under Uncertainty: There are several modern techniques to improve the quality of decision-making under conditions of uncertainty. The most important among these are: (1) Risk analysis, (2) Decision trees and (3) preference theory. Risk Analysis: Managers who follow this approach analyze the size and nature of the risk involved in choosing a particular course of action. For instance, while launching a new product, a manager has to carefully analyze each of the following variables the cost of launching the product, its production cost, the capital investment required, the price that can be set for the product, the potential market size and what percent of the total market it will represent. Risk analysis involves quantitative and qualitative risk assessment, risk management and risk communication and provides managers with a better understanding of the risk and the benefits associated with a proposed course of action. The decision represents a trade-off between the risks and the benefits associated with a particular course of action under conditions of uncertainty. Decision Trees: These are considered to be one of the best ways to analyze a decision. A decision-tree approach involves a graphic representation of alternative courses of action and the possible outcomes and risks associated with each action. By means of a “tree” diagram depicting the decision points, chance events and probabilities involved in various courses of action, this technique of decision-making allows the decision-maker to trace the optimum path or course of action. Preference or Utility Theory: This is another approach to decision-making under conditions of uncertainty. This approach is based on the notion that individual attitudes towards risk vary. Some individuals are willing to take only smaller risks (“risk averters”), while others are willing to take greater risks (“gamblers”). Statistical probabilities associated with the various courses of action are based on the assumption that decision-makers will follow them. For instance, if there were a 60 percent chance of a decision being right, it might seem reasonable that a person would take the risk. This may not be necessarily true as the individual might not wish to take the risk, since the chances of the decision being wrong are 40 percent. The attitudes towards risk vary with events, with people and positions. Top-level managers usually take the largest amount of risk. However, the same managers who make a decision that risks millions of rupees of the company in a given program with a 75 percent chance of success are not likely to do the same with their own money. Moreover, a manager willing to take a 75 percent risk in one situation may not be willing to do so in another. Similarly, a top executive might launch an advertising campaign having a 70 percent chance of success but might decide against investing in plant and machinery unless it involves a higher probability of success. Though personal attitudes towards risk vary, two things are certain. Firstly, attitudes towards risk vary with situations, i.e. some people are risk averters in some situations and gamblers in others. Secondly, some people have a high aversion to risk, while others have a low aversion. Most managers prefer to be risk averters to a certain extent, and may thus also forego opportunities. When the stakes are high, most managers tend to be risk averters; when the stakes are small, they tend to be gamblers. Group Decision Making Group decision making is a type of participatory process in which multiple individuals acting collectively, analyze problems or situations, consider and evaluate alternative courses of action, and select from among the alternatives a solution or solutions. Several factors are associated in group decision making with increased conformity, including larger group size, unanimity, high group cohesion, and perceived higher status of the group. Other factors associated with conformity are culture, gender, age, and importance of stimuli. Group decision making provides two advantages over decisions made by individuals: synergy and sharing of information. Synergy is the idea that the whole is greater than the sum of its parts. When a group makes a decision collectively, its judgment can be keener than that of any of its members. Techniques for Group Decision Making Process Some of the techniques employed to make the group decision making process more effective and decision making more efficient in which creativity is encouraged, are as follows: i. Brainstorming: This technique involves a group of people, usually between five and ten, sitting around a table, generating ideas in the form of free association. The primary focus is on generation of ideas rather them on evaluation of ideas. If a large number of ideas can be generated, then it is likely that there will be a unique and creative idea among them. All these ideas are written on the black board with a piece of chalk so that everybody can see every idea and try to improve upon such ideas. Brainstorming technique is very effective when the problem is comparatively specific and can be simply defined. A complex problem can be broken up into parts and each part can be taken separately at a time. ii. Nominal Group Technique (NGT): Nominal group technique is similar to brainstorming except that the approach is more structured. Members form the group in name only and operate independently, generating ideas for solving the problem on their own, in silence and in writing. Members do not interact with each other so that strong personality domination is avoided. It encourages individual creativity. The group coordinator either collects these written ideas or writes then on a large black board for everyone to see or he asks each member to speak out and then he writes it on the black board as he receives it. These ideas are then discussed one by one in turn and each participant is encouraged to comment on these ideas for the purpose of clarification and improvement. After all ideas are discussed, they are evaluated for their merits and drawbacks and each participating member is required to vote on each idea and assign it a rank on the basis of priority of each alternative solution. The idea with the highest aggregate ranking is selected as the final solution to the problem. iii. Delphi Technique: This technique is the modification of the nominal group technique, except that it involves obtaining the opinions of experts physically separated from each other and unknown to each other. This insulates group members from the undue influence of others. Generally, the types of problems handled by this technique are not specific in nature or related to a particular situation at a given time. For example, the technique could be used to understand the problems that could be created in the event of a war. The steps in the Delphi technique are: 1. The problem is identified and a sample of experts is selected. These experts are asked to provide potential solutions through a series of carefully designed questionnaires. 2. Each expert completes and returns the initial questionnaire. 3. The results of the questionnaire are compiled at a central location and the central coordinator prepares a second questionnaire based on the previous answers. 4. Each member receives a copy of the results along with the second questionnaire. 5. Members are asked to review the results and respond to the second questionnaire. The results typically trigger new solutions or cause changes in the original position. 6. The process is repeated until a consensus is reached. The process is very time consuming and is primarily useful in illuminating broad range, long term complex issues such as future effects of energy shortages that might occur. iv. Didactic interaction: This technique is applicable only in certain situations, but is an excellent method when such a situation exists. The type of problem should be such that it results in a yes-no solution. For example, the decision may be to buy or not to buy, to merge or not to merge, to expand or not to expand and so on. Such a decision requires an extensive and exhaustive discussion and investigation since a wrong decision can have serious consequences. Since, in such a situation, there must be advantages as well as disadvantages of either of the two alternatives, the group required to make the decision is split into two sub-groups, one favouring the “go” decision and the other favouring the “no go” decision. The first group lists all the “pros” of the problem solution and the second group lists all the “cons”. These groups meet and discuss their findings and their reasons. After the exhaustive discussions, the groups switch sides and try to find weaknesses in their own original viewpoints. This interchange of ideas and understanding of opposing viewpoints results in mutual acceptance of the facts as they exist so that a solution can be built around these facts and opinions relating to these facts and thus a final decision is reached. Techniques of Decision-Making 1. Marginal Analysis: This technique is used in decision-making to figure out how much extra output will result if one more variable (e.g. raw material, machine, and worker) is added. In his book, ‘Economics’, Paul Samuelson defines marginal analysis as the extra output that will result by adding one extra unit of any input variable, other factors being held constant. Marginal analysis is particularly useful for evaluating alternatives in the decision-making process. 2. Financial Analysis: This decision-making tool is used to estimate the profitability of an investment, to calculate the payback period (the period taken for the cash benefits to account for the original cost of an investment), and to analyze cash inflows and cash outflows. Investment alternatives can be evaluated by discounting the cash inflows and cash outflows (discounting is the process of determining the present value of a future amount, assuming that the decision-maker has an opportunity to earn a certain return on his money). 3. Break-Even Analysis: This tool enables a decision-maker to evaluate the available alternatives based on price, fixed cost and variable cost per unit. Break-even analysis is a measure by which the level of sales necessary to cover all fixed costs can be determined. Using this technique, the decision-maker can determine the break-even point for the company as a whole, or for any of its products. At the break-even point, total revenue equals total cost and the profit is nil. 4. Ratio Analysis: It is an accounting tool for interpreting accounting information. Ratios define the relationship between two variables. The basic financial ratios compare costs and revenue for a particular period. The purpose of conducting a ratio analysis is to interpret financial statements to determine the strengths and weaknesses of a firm, as well as its historical performance and current financial condition. 5. Operations Research Techniques: One of the most significant sets of tools available for decision-makers is operations research. An operation research (OR) involves the practical application of quantitative methods in the process of decision-making. When using these techniques, the decision-maker makes use of scientific, logical or mathematical means to achieve realistic solutions to problems. Several OR techniques have been developed over the years. 6. Linear Programming: Linear programming is a quantitative technique used in decision-making. It involves making an optimum allocation of scarce or limited resources of an organization to achieve a particular objective. The word ‘linear’ implies that the relationship among different variables is proportionate. The term ‘programming’ implies developing a specific mathematical model to optimize outputs when the resources are scarce. In order to apply this technique, the situation must involve two or more activities competing for limited resources and all relationships in the situation must be linear. Some of the areas of managerial decision-making where linear programming technique can be applied are: i. Product mix decisions ii. Determining the optimal scale of operations iii. Inventory management problems iv. Allocation of scarce resources under conditions of uncertain demand v. Scheduling production facilities and maintenance. 7. Waiting-line Method: This is an operations research method that uses a mathematical technique for balancing services provided and waiting lines. Waiting lines (or queuing) occur whenever the demand for the service exceeds the service facilities. Since a perfect balance between demand and supply cannot be achieved, either customers will have to wait for the service (excess demand) or there may be no customers for the organization to serve (excess supply). When the queue is long and the customers have to wait for a long duration, they may get frustrated. This may cost the firm its customers. On the other hand, it may not be feasible for the firm to maintain facilities to provide quick service all the time since the cost of idle service facilities have to be borne by the company. The firm, therefore, has to strike a balance between the two. The queuing technique helps to optimize customer service on the basis of quantitative criteria. However, it only provides vital information for decision-making and does not by itself solve the problem. Developing queuing models often requires advanced mathematical and statistical knowledge. 8. Game Theory: This is a systematic and sophisticated technique that enables competitors to select rational strategies for attainment of goals. Game theory provides many useful insights into situations involving competition. This decision-making technique involves selecting the best strategy, taking into consideration one’s own actions and those of one’s competitors. The primary aim of game theory is to develop rational criteria for selecting a strategy. It is based on the assumption that every player (a competitor) in the game (decision situation) is perfectly rational and seeks to win the game. In other words, the theory assumes that the opponent will carefully consider what the decision-maker may do before he selects his own strategy. Minimizing the maximum loss (minimax) and maximizing the minimum gain (maximin) are the two concepts used in game theory. 9. Simulation: This technique involves building a model that represents a real or an existing system. Simulation is useful for solving complex problems that cannot be readily solved by other techniques. In recent years, computers have been used extensively for simulation. The different variables and their inter- relationships are put into the model. When the model is programmed through the computer, a set of outputs is obtained. Simulation techniques are useful in evaluating various alternatives and selecting the best one. Simulation can be used to develop price strategies, distribution strategies, determining resource allocation, logistics, etc. 10. Decision Tree: This is an interesting technique used for analysis of a decision. A decision tree is a sophisticated mathematical tool that enables a decision-maker to consider various alternative courses of action and select the best alternative. A decision tree is a graphical representation of alternative courses of action and the possible outcomes and risks associated with each action. In this technique, the decision-maker traces the optimum path through the tree diagram. In the tree diagram the base, known as the ‘decision point,’ is represented by a square. Two or more chance events follow from the decision point. A chance event is represented by a circle and constitutes a branch of the decision tree. Every chance event produces two or more possible outcomes leading to subsequent decision points. STRATEGY Strategy can often be confused with tactics, goals and even actions. The Oxford Dictionary defines strategy as: “A plan of action designed to achieve a long-term or overall aim” “The art of planning and dir