NCERT Class 12 Business Studies Chapter 2 Principles of Management PDF

PRINCIPLES OF MANAGEMENT Guiding Principles of Toyota Motor Corporation 2...

PRINCIPLES OF MANAGEMENT Guiding Principles of Toyota Motor Corporation 2 CHAPTER L E A R N I N G Toyota follows certain well-defined business principles guiding its functioning. These are: OBJECTIVES 1. Honour the language and spirit of law of every nation and After studying this undertake open and fair corporate activities to be a good corporate citizen around the world. chapter, you should 2. Respect the culture and customs of every nation and be able to: contribute to economic and social development through corporate activities in local communities. n State the 3. To provide clean and safe products and to enhance the meaning, nature quality of life everywhere. and significance 4. Create and develop advanced technologies and provide outstanding products and services that fulfil the needs of of principles of customers worldwide. management; 5. Foster a corporate culture that enhances individual creativity and teamwork value, while honouring mutual trust and n Explain Taylor’s respect between management and labour. principles and 6. Pursue growth and harmony with global community through techniques innovative management. 7. Work with business partners in research and creativity to of Scientific achieve stable, long-term growth and mutual benefits and be Management; and open to new partnerships. These principles, will guide the company in its global vision 2010. This global vision envisages n Explain Fayol’s continuous innovations in future, use of environment friendly principles of technologies, respecting and working with different sections of management. society and establishing an interactive relationship with society. http://www.toyotaglobal.com/company/history of toyota/ 75years/data/conditions/philosophy/guiding principles.html/ It is clear from the foregoing case that stating the vision as well as the ways managerial pursuits at Toyota Motor to achieve it. Similarly, many other Corporation are driven by principles business enterprises have followed that serve as broad guidelines for various principles in their working 2020-21 Ch_02.indd 30 24-09-2019 12:05:00 PM  Principles of Management 31 over a period of time. A number of fascinating. In this chapter we will management thinkers, and writers study the contributions of Fredrick have also studied principles of Winslow Taylor and Henri Fayol who management from time-to-time. as you have read are associated with In fact, there is a long history of the classical management theory. management thought. Management Both of them contributed immensely principles have evolved and are in towards the study of management as the continuous process of evolution. a discipline. Whereas F.W. Taylor was (see box.) an American mechanical engineer, You can see that the evolution of Henri Fayol was a French mining management thought has been very engineer. Taylor gave the concept Evolution of Management Principles In tracing the history of management, one comes across various schools of thought that have outlined principles to guide management practices. These schools of thought may be divided into 6 distinctive phases: 1. Early Perspectives; 2. Classical Management Theory; 3. Neo Classical Theory — Human Relations Approach; 4. Behavioural Science Approach — Organisational Humanism; 5. Management Science/Operational Research; 6. Modern Management. EARLY PERSPECTIVES The first known management ideas were recorded in 3000-4000 B.C. One Pyramid built by Egyptian ruler Cheops required work to be done by 100,000 men for over twenty years in 2900 B.C. It covered 13 acres of land and measured 481 meters in height. The stone slabs had to be moved thousands of kilometres of distance. As folklore goes, even the sound of a hammer was not heard in the villages in the vicinity of the site of these pyramids. Such monumental work could not be completed without adherence to principles of sound management. CLASSICAL MANAGEMENT THEORY Rational economic view, scientific management, administrative principles, and bureaucratic organisation characterise this phase. While the rational economic view assumed that people are motivated by economic gains primarily; scientific management of F.W. Taylor and others emphasised one best way of production etc; administrative theorists personified by Henri Fayol etc looked at the best way to combine jobs and people into an efficient organisation; bureaucratic organisation theorists led by Max Weber looked at ways to eliminate managerial inconsistencies due to abuse of power which contributed to ineffectiveness. This was the era of the industrial revolution and factory system of production. Large scale production would not have been possible without adherence to the principles governing organising production based on division of labour and specialisation, relationship between man and the machine, managing people and so on. 2020-21 Ch_02.indd 31 24-09-2019 12:05:00 PM  32 Business Studies NEO CLASSICAL THEORY — HUMAN RELATIONS APPROACH This school of thought developed between 1920s to 1950s felt that employees simply do not respond rationally to rules, chains of authority and economic incentives alone but are also guided by social needs, drives and attitudes. Hawthorne Studies at GEC etc., were conducted then. It was quite natural that in the early phases of the industrial revolution, the emphasis was on development of techniques and technology. The attention to the human factor was the salient aspect of this school of thought. This attention was to serve as a precursor to the development of behavioural sciences. BEHAVIOURAL SCIENCE APPROACH — ORGANISATIONAL HUMANISM Organisational behaviourists like Chris Argyris; Douglas McGregor, Abraham Maslow and Fredrick Herzberg used the knowledge of psychology, sociology and anthropology to develop this approach. The underlying philosophy of organisational humanism is that individuals need to use all of their capacities and creative skills at work as well as at home. MANAGEMENT SCIENCE/OPERATIONAL RESEARCH It emphasises research on operations and use of quantitative techniques to aid managers to take decisions. MODERN MANAGEMENT It sees modern organisations as complex systems and underlies contingency approach and use of modern techniques to solve organisational and human problems. Source: Adapted from Internet modern history source book on www.fordham.edu of ‘Scientific Management’ whereas seniority, whereas the other may Fayol emphasised ‘Administrative follow the principle of merit. Principles’. One may distinguish principles But before we go into the details of management from those of pure of their contributions let us study science. Management principles are the meaning of the principles of not as rigid as principles of pure management. science. They deal with human behaviour and, thus, are to be Principles of Management: applied creatively given the demands The Concept of the situation. Human behaviour is A managerial principle is a broad never static and so also technology, and general guideline for decision- which affects business. Hence all making and behaviour. For example the principles have to keep pace while deciding about promotion of an with these changes. For example, employee one manager may consider in the absence of Information and 2020-21 Ch_02.indd 32 24-09-2019 12:05:00 PM  Principles of Management 33 Communications Technology (ICT), a cannot be neglected, as businesses manager could oversee only a small have to fulfil social and ethical work force that too within a narrow responsibilities towards society. geographical space. The advent of ICT has expanded the capability of Nature of Principles of the managers to preside over large Management business empires spread across By nature is meant qualities and the globe. Infosys headquarters in characteristics of anything. Principles Bangalore boast of the Asia’s largest are general propositions, which are flat screen in their conference room from where their managers can applicable when certain conditions interact with their employees and are present. These have been customers in all parts of the world. developed on the basis of observation In developing an understanding and experimentation as well as of the meaning of principles of personal experiences of the managers. management, it is also useful to Depending upon how they are know what these are not. The derived and how effective they are in principles of management should explaining and predicting managerial be distinguished from techniques behaviour, they contribute towards of management. Techniques are the development of management both procedures or methods, which as a science and as an art. Derivation involve a series of steps to be taken to of these principles may be said to be accomplish desired goals. Principles a matter of science and their creative are guidelines to take decisions or application may be regarded as an actions while practicing techniques. art. These principles lend credibility Likewise, principles should also be of a learnable and teachable discipline understood as being distinct from to the practice of management. As values. Values are something, which such, ascent to managerial position are acceptable or desirable. They may not be a matter of birth, but a have moral connotations. Principles matter of requisite qualifications. are basic truths or guidelines for Clearly, management principles have behaviour. Values are general rules gained importance with increasing for behaviour of individuals in society professionalisation of management. formed through common practice These principles are guidelines whereas principles of management to action. They denote a cause and are formed after research in work effect relationship. While functions situations, which are technical in of management viz., Planning, nature. However, while practicing Organising, Staffing, Directing and principles of management values Controlling are the actions to be 2020-21 Ch_02.indd 33 24-09-2019 12:05:00 PM  34 Business Studies taken while practising management, but do not provide readymade, Principles help managers to take straitjacket solutions to all decisions while performing these managerial problems. This functions. The following points is so because real business summarise the nature of principles situations are very complex of management. and dynamic and are a result (i) Universal applicability: The of many factors. However, the principles of management are importance of principles cannot intended to apply to all types of be underestimated because even organisations, business as well as a small guideline helps to solve non-business, small as well large, a given problem. For example, public sector as well as private in dealing with a situation sector, manufacturing as well as of conflict between two the services sectors. However, departments, a manager may the extent of their applicability emphasise the primacy of the would vary with the nature of the overall goals of the organisation. organisation, business activity, (iii) Formed by practice and experi­ scale of operations and the like. For mentation: The principles example, for greater productivity, of management are formed work should be divided into small by experience and collective tasks and each employee should wisdom of managers as well as be trained to perform his/her experimentation. For example, it specialised job. This principle is is a matter of common experience applicable to a government office that discipline is indispensable where there is a diary/despatch for accomplishing any purpose. clerk whose job is to receive and This principle finds mention send mail or documents, a data in management theory. On the entry operator whose task is to other hand, in order to remedy input data on the computer, a peon the problem of fatigue of workers and an officer etc. This principle in the factory, an experiment is also applicable to a limited may be conducted to see the company where there are separate effect of improvement of physical departments like Production, conditions to reduce stress. Finance, Marketing and Research (iv) Flexibile: The principles of and Development etc. Extent of management are not rigid division of work, however, may prescriptions, which have to be vary from case to case. followed absolutely. They are (ii) General guidelines: The prin­ flexible and can be modified by ciples are guidelines to action the manager when the situation 2020-21 Ch_02.indd 34 24-09-2019 12:05:00 PM  Principles of Management 35 so demands. They give the number of cases. As such, they manager enough discretion to tell us if a particular principle do so. For example, the degree was applied in a particular of concentration of authority situation, what would be its (centralisation) or its dispersal likely effect. The principles (decentralisation) will depend of management are less than upon the situations and perfect since they mainly apply circumstances of each enterprise. to human behaviour. In real Moreover individual principles life, situations are not identical. are like different tools serving So, accurate cause and effect different purposes, the manager relationships may be difficult has to decide which tool to use to establish. However,principles under what circumstances. of management assist (v) Mainly behavioural: Manage­ managers in establishing ment principles aim at these relationships to some influencing behaviour of human extent and are therefore useful. beings. Therefore, principles In situations of emergencies, of management are mainly it is desirable that someone behavioural in nature. It is takes charge and others not that these principles do just follow. But in situations not pertain to things and requiring cross-functional phenomenon at all, it is just a expertise, such as setting up of matter of emphasis. Moreover, a new factory, more participative principles enable a better approach to decision-making understanding of the relationship would be advisable. between human and material (vii) Contingent: The application resources in accomplishing of principles of management is organisational purposes. For contingent or dependent upon example, while planning the the prevailing situation at a layout of a factory, orderliness particular point of time. The would require that workflows are application of principles has to matched by flow of materials and be changed as per requirements. movement of men. For example, employees deserve (vi) Cause and effect relationships: fair and just remuneration. The principles of management But what is just and fair is are intended to establish determined by multiple factors. relationship between cause and They include contribution of the effect so that they can be used employee, paying capacity of the in similar situations in a large employer and also prevailing 2020-21 Ch_02.indd 35 24-09-2019 12:05:00 PM  36 Business Studies wage rate for the occupation in the accompanying box. You should under consideration. be able to see how she was able to Having described the inherent transform a little known sector of qualities and characteristics of biotechnology into a very profitable management principles, it should company and earn titles which any be easy for you to appreciate the one would dream of. significance of these principles in From the foregoing story it is managerial decision-making. But clear that success of Biocon due to before that you can read the following the efforts of Dr. Kiran Mazumdar case study of ‘Kiran Mazumdar Shaw was not a mere chance. It Shaw’ a highly successful Indian was a sincere effort, which involved businesswoman and CEO of ‘Biocon’ application of qualities, which are The story of Dr. Kiran Mazumdar Shaw is very inspiring. She foresaw the tremendous potential of bio technology when no one dared to think about it. She started her own company Biocon India in her garage with a meagre capital of ` 10,000 in collaboration with Biocon Bio Chemical’s Limited of Ireland. The Company is a pioneer in bringing the benefit of high quality, yet affordable, novel biologics and biosimilars to patients in India and other emerging markets. Today, it is India’s largest and fully-integrated biopharmaceutical company that develops, manufactures and supplies advanced, life-saving biopharmaceuticals for diabetes, cancer and autoimmune conditions at price points that make them affordable and thus accessible. As an innovation-led organization focused on providing affordable access, we have leveraged our inherent strengths in advanced science to develop, manufacture and deliver a rich portfolio of Small Molecules APIs & Formulations and Complex Biologics - both Novels and Biosimilars – including Monoclonal Antibodies (MAbs), rh-insulin and Insulin Analogs. The company’s global scale capacities for manufacturing high quality, affordable biologics have positioned the company as the world’s fourth largest insulins producer, enabling us to address the growing needs of diabetes patients across the globe. As one of the leading oncology companies in India, the company has brought safe, efficacious and affordable medicines for cancer to cater to the needs of patients, caregivers and medical practitioners in the country. http://biocon.com/https://www.biocon.com/biocon_aboutus_people_bod.asp 2020-21 Ch_02.indd 36 24-09-2019 12:05:00 PM  Principles of Management 37 a part of management principles such management principles directly or indirectly. Now you can see increase managerial efficiency. the significance of these principles. For example, a manager can leave routine decision-making Significance of Principles to his subordinates and deal of Management with exceptional situations The principles of management derive which require her/his expertise their significance from their utility. They by following the principles of provide useful insights to managerial delegation. behaviour and influence managerial (ii) Optimum utilisation of resources practices. Managers may apply these and effective administration: principles to fulfil their tasks and Resources both human and responsibilities. Principles guide material available with the managers in taking and implementing company are limited. They have decisions. It may be appreciated that to be put to optimum use. By everything worthwhile is governed by optimum use we mean that the an underlying principle. The quest resources should be put to use of the management theorists has in such a manner that they been and should be to unearth the should give maximum benefit underlying principles with a view to with minimum cost. Principles using these under repetitive circums­ equip the managers to foresee tances as a matter of management the cause and effect relationships habit. The significance of principles of their decisions and actions. of management can be discussed in As such the wastages associated terms of the following points: with a trial-and-error approach (i) Providing managers with useful can be overcome. Effective insights into reality: The principles administration necessitates of management provide the impersonalisation of managerial managers with useful insights conduct so that managerial into real world situations. power is used with due discretion. Adherence to these principles will Principles of management limit add to their knowledge, ability the boundary of managerial and understanding of managerial discretion so that their decisions situations and circumstances. may be free from personal It will also enable managers prejudices and biases. For to learn from past mistakes example, in deciding the annual and conserve time by solving budgets for different departments, recurring problems quickly. As rather than personal preferences, 2020-21 Ch_02.indd 37 24-09-2019 12:05:01 PM  38 Business Studies managerial discretion is bounded Limited in divesting non-core by the principle of contribution businesses of chemicals and to organisational objectives. seeds. Some companies are (iii) Scientific decisions: Decisions outsourcing their non-core must be based on facts, thoughtful activities like share-transfer and justifiable in terms of the management and advertising to intended purposes. They must outside agencies. So much so, that be timely, realistic and subject even core processes such as R&D, to measurement and evaluation. manufacturing and marketing Management principles help in are being outsourced today. thoughtful decision-making. Haven’t you heard of proliferation They emphasise logic rather of ‘Business Process Outsourcing’ than blind faith. Management (BPO) and ‘Knowledge Process decisions taken on the basis of Outsourcing’ (KPO)? principles are free from bias and (v) Fulfilling social responsibility: prejudice. They are based on The increased awareness of the objective assessment of the the public, forces businesses situation. especially limited companies to (iv) Meeting changing environment fulfill their social responsibilities. requirements: Although the Management theory and principles are in the nature management principles have of general guidelines but they also evolved in response to are modified and as such help these demands. Moreover, the managers to meet changing interpretation of the principles requirements of the environment. also assumes newer and You have already studied that contemporary meanings with management principles are the change in time. So, if one flexible to adapt to dynamic were to talk of ‘equity’ today, it business environment. For does not apply to wages alone. example, management principles Value to the customer, care for emphasise division of work and the environment, dealings with specialisation. In modern times business associates would all this principle has been extended come under the purview of this to the entire business whereby principle. As an application companies are specialising in of this principle, we find that their core competency and Public Sector Undertakings divesting non-core businesses. have developed entire townships In this context, one may cite as, for example, BHEL has the decision of Hindustan Lever developed Ranipur in Hardwar 2020-21 Ch_02.indd 38 24-09-2019 12:05:01 PM  Principles of Management 39 (Uttaranchal). One may also cite These principles enable the story of Shri Mahila Griha refinement of management Udyog Lijjat Papad as can be practices as well by facilitating the seen in the accompanying box development of new management on page 41. techniques. Thus, we see that (vi) Management training, education techniques like Operations and research: Principles of Research (OR), cost accounting, management are at the core of ‘Just in Time’, ‘Kanban’ and ‘Kaizen’ management theory. As such have developed due to further these are used as a basis for research on these principles. management training, education In conclusion it can be said that and research. You must be aware understanding the meaning, nature that entrance to management and significance of principles institutes is preceded by of management will help us to management aptitude tests. Do appreciate their applicability in real you think that these tests could life situations. have been developed without an As stated at the beginning of the understanding of management chapter, management principles have principles and how they may be undergone a long history of evolution. applied in different situations? And, they continue to evolve. What These principles provide basic follows is a description of the groundwork for the development management principles pertaining to of management as a discipline. the classical school; more precisely, Professional courses such those propounded by F.W. Taylor and as MBA (Master of Business Henri Fayol. Administration), BBA (Bachelor of Business Administration) also Taylor’s Scientific teach these principles as part Management of their curriculum at the Scientific management refers to an beginner’s level. important stream of one of the earlier Test Your Understanding 1. Do you think innovativeness evident from the examples of Toyota and Kiran Mazumdar Shaw can be linked to the nature of management principles? 2. To what aspects of the significance of management principles would you attribute the endeavours of BHEL and Shri Mahila Griha Udyog Lijjat Papad? 2020-21 Ch_02.indd 39 24-09-2019 12:05:01 PM  40 Business Studies Shri Mahila Griha Udyog Lijjat Papad- Combining business with social responsibility (An organization of the women, by the women and for the women) The story of Shri Mahila Griha Udyog lijjat Papad is very inspiring for would-be managers. It shows how an organisation can combine business with social responsibility and make its stakeholders self-reliant. The stakeholders are various women who, numbering over 45,000, are given the task of making lijjat papads, which are famous for their quality throughout the world. The organisation started with a modest loan of Rs 80 and is now worth around Rs 650 crores. Its exports exceed Rs 60 crores. Their exports are made through Merchant Exporters to countries like UK, USA, Middle East Countries, Thailand, Singapore, Hongkong, Holland, Japan, Australia and other Countries. One of the main reasons for their success can be attributed to their core values to which they have stuck to since its inception in 1959. It has shown how it is possible to combine Gandhian values with business. Shri Mahila Griha Udyog Lijjat Papad is a synthesis of three different concepts (core values) namely: 1. The concept of business 2. The concept of family 3. The concept of devotion All these concepts are uniformly followed in this institution. As a result of this synthesis, a peculiar Lijjat way of thinking has developed therein. Besides the concept of business, the institution along with all its member sisters has adopted the concept of mutual family affection, concern and trust. All the affairs of the institution are dealt with in a manner similar to that of a family carrying out its own daily household chores. But the most important concept adopted by the institution is the concept of devotion. For the member- sisters, employees and well-wishers, the institution is never merely a place to earn one’s livelihood — it is a place of worship to devote one’s energy not for his or her own benefits but for the benefit of all. Lijjat’ provides scholarships to the children of the papad roller sister members who pass out in 10th and 12th standard every year so as to enable the Lady Members to encourage their children for education. Source: Adapted from http/www.lijjat.com 2020-21 Ch_02.indd 40 24-09-2019 12:05:01 PM  Principles of Management 41 schools of thought of management who sought to improve industrial referred to as the ‘Classical’ school. efficiency. In 1874, he became an The other two streams belonging apprentice mechanist, learning to the classical school are Fayol’s factory conditions at the grass Administrative Theory and Max roots level. He earned a degree in Weber’s Bureaucracy. We will not mechanical engineering. He was be describing bureaucracy here. one of the intellectual leaders of A discussion of Fayol’s principles, the efficiency movement and was however, will follow the discussion of highly influential in reshaping the scientific management. factory system of production. You Fredrick Winslow Taylor (March must appreciate that he belonged to 20,1856 – March 21, 1915) was the era of the industrial revolution an American mechanical engineer characterised by mass production. Fredrick Winslow Taylor – Founder of Scientific Management Movement LIFE TIME: March 20,1856 to March 21, 1915 PROFESSION: American mechanical engineer EDUCATION: Degree in Mechanical Engineering from Stevens Institute of Technology in 1883. POSITIONS HELD— 1. Apprentice Machinist in 1874. 2. Executive at Midville Steel Company in 1884. 3. At Bethlehem Iron Company in 1898, which later became Bethlehem Steel Company. 4. Professor at ‘Tuck School of Business’ founded in 1900. 5. President of ‘American Society of Mechanical Engineers’ from 1906 to 1907. WRITINGS:1. ‘The Principles of Scientific Management’ series of articles published in ‘The American Magazine’ During march-may 1911, later published in book form. 1. ‘Concrete, Plain and Reinforced’ in 1906. 2. ‘Notes on Belting’ in 1893 3. ‘On the Art of Cutting Metals’ December 1906. 4. ‘A Piece Rate System’ in June 1895. 5. ‘The making of a putting green’ a series of articles published in 1915. 6. ‘Not for the genius but for the average man’ published in ‘The American Magazine’ in March 1918. Adapted from www.wikipedia.org and www.stevens.edu/library 2020-21 Ch_02.indd 41 24-09-2019 12:05:01 PM  42 Business Studies You must also appreciate that every abilities. He instructed his fellow new development takes some time to workers to work in phases. He joined be perfected. Taylor’s contribution the Bethlehem Iron Company in must be seen in the light of the efforts 1898, which later became Bethlehem made to perfect the factory system of Steel Company. He was originally production. employed to introduce piece rate Taylor thought that by scientifically wage system. After setting up analysing work, it would be possible the wage system, he was given to find ‘one best way’ to do it. authority and more responsibilities He is most remembered for his time in the company. Using his newfound and motion studies. He would break resources he increased the staff and a job into its component parts and made Bethlehem a show place for measure each to the second. inventive work. Unfortunately, the Taylor believed that contemporary company was sold to another group management was amateurish and and he was discharged. should be studied as a discipline. In 1910 his health started to fall. He also wanted that workers should He died in 1915 due to pneumonia. A cooperate with the management and synoptic view of his contribution can thus there would be no need of trade be had from the accompanying box unions. The best results would come on the next page. from the partnership between a trained and qualified management and a Principles of Scientific cooperative and innovative workforce. Management Each side needed the other. In the earlier days of the Industrial He is known for coinage of the Revolution, in the absence of term ‘Scientific Management’ in his an established theory of factory article ‘The Principles of Scientific organisation, factory owners or Management’ published in 1911. managers relied on personal judgment After being fired from Bethlehem Steel in attending to the problems they Company he wrote a book ‘Shop floor’ confronted in the course of managing which sold well. He was selected to be their work. This is what is referred to the president of the American Society as ‘rule of thumb’. Managing factories of Mechanical Engineers (ASME) from by rule of thumb enabled them to 1906 to 1907. He was a professor at handle the situations as they arose Tuck School of Business at Dartmouth but suffered from the limitation of a College founded in 1900. trial and error approach. For their In 1884 he became an executive experiences to be emulated, it was at Midvale Steel Company by important to know what works and demonstrating his leadership why does it work. For this, there was 2020-21 Ch_02.indd 42 24-09-2019 12:05:01 PM  Principles of Management 43 Taylor’s Contribution to Scientific Management The following extracts are taken from Taylor’s testimony before the U.S. House of Representatives Special Committee in 1912 and also from his most important work “THE PRINCIPLES OF SCIENTIFIC MANAGEMENT” published in 1911. “Scientific management requires first, a careful investigation of each of the many modifications of the same implement, developed under rule of thumb; and second, after time and motion study has been made of the speed attainable with each of these implements, that the good points of several of them shall be unified in a single standard implementation, which will enable the workman to work faster and with greater ease than he could before. This one implement, then is adopted as standard in place of the many different kinds before in use and it remains standard for all workmen to use until superseded by an implement which has been shown, through motion and time study, to be still better.” (Scientific management, page 119) The main elements of the Scientific Management are: (page 129-130 sci-mgt) “Time Studies” Functional or specialised supervision Standardisation of tools and implements Standardisation of work methods Separate Planning function Management by exception principle The use of ‘slide-rules and similar time-saving devices’ Instruction cards for workmen Task allocation and large bonus for successful performance The use of the ‘differential rate’ Mnemonic systems for classifying products and implements A routing system A modern costing system etc. etc. Taylor called these elements “merely the elements or details of the mechanisms of management” He saw them as extensions of the four principles of management. (Page 130, scientific management) 1. The development of a true science. 2. The scientific selection of the workman. 3. The scientific education and development of the workman. 4. Intimate and friendly cooperation between the management and the employees. Adapted from Taylorism (F.W. Taylor & Scientific Management) at http://www.quality.org/TQM-MSI/taylor.html 2020-21 Ch_02.indd 43 24-09-2019 12:05:01 PM  44 Business Studies a need to follow an approach that indigenous rules of thumb, it is was based on the method of science- but a statement of the obvious defining a problem, developing that all would not be equally alternative solutions, anticipating effective. Taylor believed that consequences, measuring progress there was only one best method and drawing conclusions. to maximise efficiency. This In this scenario, Taylor emerged as method can be developed through the ‘Father of Scientific Management’. study and analysis. The method He proposed scientific management so developed should substitute as opposed to rule of thumb. He ‘Rule of Thumb’ throughout broke up human activity into small the organisation. Scientific parts and found out how it could be method involved investigation done effectively, in less time and with of traditional methods through increased productivity. It implies work-study, unifying the best conducting business activities practices and developing a according to standardised tools, standard method, which would methods and trained personnel in be followed throughout the order to increase the output, improve organisation. According to its quality and reduce costs and Taylor, even a small production wastes. activity like loading pigs of iron In the words of Taylor, “Scientific into boxcars can be scientifically management means knowing exactly planned and managed. This can what you want men to do and seeing result in tremendous saving of that they do it in the best and cheapest human energy as well as wastage way. The Bethlehem Steel company of time and materials. The more where Taylor himself worked achieved sophisticated the processes, three-fold increase in productivity by greater would be the savings. application of scientific management In the present context, the principles. Therefore, it would be in use of Internet has brought order to discuss these principles. about dramatic improvements (i) Science not Rule of Thumb: in internal efficiencies and Taylor pioneered the introduction customer satisfaction. of the method of scientific (ii) Harmony, Not Discord: Factory inquiry into the domain of system of production implied that management practice. We have managers served as a link between already referred to the limitations the owners and the workers. of the rule of thumb approach Since as managers they had the of management. As different mandate to ‘get work done’ from managers would follow their the workers, it should not be 2020-21 Ch_02.indd 44 24-09-2019 12:05:01 PM  Principles of Management 45 difficult for you to appreciate that state, Taylor called for complete there always existed the possibility mental revolution on the part of of a kind of class-conflict, the both management and workers. mangers versus workers. Taylor It means that management and recognised that this conflict workers should transform their helped none, the workers, the thinking. In such a situation managers or the factory owners. even trade unions will not think He emphasised that there should of going on strike etc. be complete harmony between Management should share the the management and workers. gains of the company, if any, with Both should realise that each the workers. At the same time one is important. To achieve this workers should work hard and Sharing of gains between management and workers leading to complete harmony 2020-21 Ch_02.indd 45 24-09-2019 12:05:02 PM  46 Business Studies be willing to embrace change for their suggestions which results the good of the company. Both in substantial reduction in should be part of the family. costs. They should be part According to Taylor, ‘Scientific of management and, if any management has for its important decisions are taken, foundation the firm conviction workers should be taken into that the true interests of the confidence. two are one and the same; that At the same time workers prosperity for the employer should desist from going on cannot exist for a long time unless strike and making unreasonable it is accompanied by prosperity demands on the management. for the employees and vice In fact when there will be open versa’. communication system and Japanese work culture is a goodwill there will be no need for classic example of such a even a trade union. Paternalistic situation. In Japanese companies, style of management, whereby paternalistic style of management the employer takes care of the is in practice. There is complete needs of employees, would openness between the manage­ prevail as in the case of Japanese ment and workers. If at all companies. workers go to strike they wear a According to Taylor, there black badge but work more than should be an almost equal division normal working hours to gain the of work and responsibility between sympathy of the management. workers and management. All the (iii) Cooperation, Not Individualism: day long the management should There should be complete work almost side by side with the cooperation between the labour workers helping, encouraging and and the management instead smoothing the way for them. of individualism. This principle is (iv) Development of Each and Every an extension of principle of Person to His or Her Greatest ‘Harmony not discord’. Competition Efficiency and Prosperity: should be replaced by cooperation. Industrial efficiency depends Both should realise that they need to a large extent on personnel each other. competencies. As such, For this, management should scientific management also not close its ears to any stood for worker development. constructive suggestions Worker training was essential made by the employees. also to learn the ‘best method’ They should be rewarded for developed as a consequence of 2020-21 Ch_02.indd 46 24-09-2019 12:05:02 PM  Principles of Management 47 the scientific approach. Taylor planning, implementation and was of the view that the concern control. Thus, Taylor concentrated for efficiency could be built on improving the performance of this in right from the process of role in the factory set-up. In fact, he employee selection. Each person identified a list of qualities of a good should be scientifically selected. foreman/supervisor and found that no Then work assigned should single person could fit them all. This suit her/his physical, mental prompted him to suggest functional and intellectual capabilities. To foremanship through eight persons. increase efficiency, they should Taylor advocated separation of be given the required training. planning and execution functions. Efficient employees would This concept was extended to the produce more and earn more. lowest level of the shop floor. It was This will ensure their greatest known as functional foremanship. efficiency and prosperity for both Under the factory manager there was company and workers. a planning incharge and a production From the foregoing discussion it incharge. Under planning incharge is clear that Taylor was an ardent four personnel namely instruction supporter of use of scientific method card clerk, route clerk, time and cost of production in business. clerk and a disciplinarian worked. These four personnel would draft Techniques of Scientific instructions for the workers, specify Management the route of production, prepare time and cost sheet and ensure Let us now discuss techniques as discipline respectively. specified by him. These are based on Under Production incharge, the various experiments he conducted personnel who would work were during his career. speed boss, gang boss, repair boss, and inspector. These respectively Functional Foremanship were responsible for timely and In the factory system, the foreman accurate completion of job, keeping represents the managerial figure with machines and tools etc., ready for whom the workers are in face-to-face operation by workers, ensure proper contact on a daily basis. In the first working condition of machines and chapter of the book, you have seen tools and check the quality of work. that the foreman is the lowest ranking Functional foremanship is an manager and the highest ranking extension of the principle of division worker. He is the pivot around of work and specialisation to the whom revolves the entire production shop floor. Each worker will have to 2020-21 Ch_02.indd 47 24-09-2019 12:05:02 PM  48 Business Studies Factory Manager Planning Incharge Production Incharge Instruction Route Time and Speed Gang Repairs Inspector Card Clerk Clerk Cost Clerk Boss Boss Boss Disciplinarian Workman take orders from these eight foremen prevalent under the rule of thumb. in the related process or function of The best practices can be kept and production. Foremen should have further refined to develop a standard intelligence, education, tact, grit, which should be followed throughout judgment, special knowledge, manual the organisation. This can be done dexterity, and energy, honesty and through work-study techniques which good health. Since all these qualities include time study, motion study, could not be found in a single person fatigue study and method study, and so Taylor proposed eight specialists. which are discussed further in this Each specialist is to be assigned chapter. It may be pointed out that work according to her/his qualities. even the contemporary techniques For example, those with technical of business process including mastery, intelligence and grit may reengineering, kaizen (continuous be given planning work. Those with improvement) and benchmarking are energy and good health may be aimed at standardising the work. assigned execution work. Standardisation refers to the process of setting standards for every business Standardisation and activity; it can be standardisation of process, raw material, time, product, Simplification of Work machinery, methods or working Taylor was an ardent supporter of conditions. These standards are the standardisation. According to him benchmarks, which must be adhered scientific method should be used to during production. The objectives of to analyse methods of production standardisation are: 2020-21 Ch_02.indd 48 24-09-2019 12:05:02 PM  Principles of Management 49 (i) To reduce a given line or Company used this concept very product to fixed types, sizes and successfully. Even now auto characteristics. companies are using it. (ii) To establish interchange ability The objective of the whole exercise is of manufactured parts and to minimise the cost of production and products. maximise the quality and satisfaction (iii) To establish standards of exce­ of the customer. For this purpose llence and quality in materials. many techniques like process charts (iv) To establish standards of perfor­ and operations research etc are used. mance of men and machines. For designing a car, the assembly Simplification aims at eliminating line production would entail deciding superfluous varieties, sizes and dim­ the sequence of operations, place for ensions while standardisation implies men, machines and raw materials devising new varieties instead of the etc. All this is part of method study. existing ones. Simplification aims at eliminating unnecessary diversity of Motion Study products. It results in savings of cost of Motion study refers to the study of labour, machines and tools. It implies movements like lifting, putting objects, reduced inventories, fuller utilisation of sitting and changing positions, etc., equipment and increasing turnover. which are undertaken while doing a Most large companies like Nokia, typical job. Unnecessary movements Toyota and Microsoft, etc. have are sought to be eliminated so that successfully implemented standardi­ it takes less time to complete the job sation and simplification. This is efficiently. For example, Taylor and his evident from their large share in their associate Frank Gailberth were able to respective markets. reduce motions in brick layering from 18 to just 5. Taylor demonstrated that Method Study productivity increased to about four The objective of method study is to times by this process. find out one best way of doing the job. On close examination of body There are various methods of doing motions, for example, it is possible to the job. To determine the best way find out: there are several parameters. Right (i) Motions which are productive from procurement of raw materials (ii) Motions which are incidental till the final product is delivered to (e.g., going to stores) the customer every activity is part (iii) Motions which are unproductive. of method study. Taylor devised Taylor used stopwatches and various the concept of assembly line by symbols and colours to identify using method study. Ford Motor different motions. Through motion 2020-21 Ch_02.indd 49 31-10-2019 10:08:20 AM  50 Business Studies studies, Taylor was able to design rest intervals will help one to regain suitable equipment and tools to stamina and work again with the same educate workers on their use. The capacity. This will result in increased results achieved by him were truly productivity. Fatigue study seeks to remarkable. determine the amount and frequency of rest intervals in completing a task. Time Study For example, normally in a plant, It determines the standard time taken work takes place in three shifts of to perform a well-defined job. Time eight hours each. Even in a single measuring devices are used for each shift a worker has to be given some element of task. The standard time rest interval to take her/his lunch is fixed for the whole of the task by etc. If the work involves heavy manual taking several readings. The method labour then small pauses have to be of time study will depend upon frequently given to the worker so that volume and frequency of the task, the she/he can recharge her/his energy cycle time of the operation and time level for optimum contribution. measurement costs. The objective There can be many causes for of time study is to determine the fatigue like long working hours, number of workers to be employed; doing unsuitable work, having frame suitable incentive schemes uncordial relations with the boss or and determine labour costs. bad working conditions etc. Such For example, on the basis of hindrances in good performance several observations it is determined should be removed. that standard time taken by the worker to make one cardboard box is Differential Piece Wage 20 minutes. So in one hour she/he will make 3 boxes. Assuming that a System worker has to put in 8 hours of work Taylor was a strong advocate of in a shift and deducting one hour for piece wage system. He wanted to rest and lunch, it is determined that differentiate between efficient and in 7 hours a worker makes 21 boxes inefficient workers. The standard @ 3 boxes per hour. Now this is the time and other parameters should be standard task a worker has to do. determined on the basis of the work- Wages can be decided accordingly. study discussed above. The workers can then be classified as efficient Fatigue Study or inefficient on the basis of these A person is bound to feel tired standards. He wanted to reward physically and mentally if she/he efficient workers. So he introduced does not rest while working. The different rate of wage payment for 2020-21 Ch_02.indd 50 24-09-2019 12:05:02 PM  Principles of Management 51 those who performed above standard rather than quarrelling over the and for those who performed share in the resultant surplus, the below standard. For example, it is workers and managers should work determined that standard output per in harmony for maximising the output worker per day is 10 units and those rather than restricting it. Clearly the who made standard or more than sum and substance of Taylor’s ideas standard will get Rs. 50 per unit and lies not in the disjointed description of those below will get Rs. 40 per unit. principles and techniques of scientific Now an efficient worker making 11 management, but in the change of units will get 11 50= Rs. 550 per day the mindset, which he referred to as whereas a worker who makes 9 units mental revolution. Mental revolution will get 9×× 40 = Rs. 360 per day. involves a change in the attitude of According to Taylor, the difference workers and management towards of Rs. 190 should be enough for the one another from competition to inefficient worker to be motivated cooperation. Both should realise that to perform better. From his own they require one another. Both should experience, Taylor gives the example of aim to increase the size of surplus. a worker named Schmidt who was able This would eliminate the need for any to earn 60% more wages from $1.15 to agitation. Management should share a $1.85 on increasing pig iron loading part of surplus with workers. Workers from 12.5 tons per man per day to 47 should also contribute their might tons per man per day in box cars at so that the company makes profits. Bethlehem Steel works by following This attitude will be good for both of scientific management techniques. them and also for the company. In the It is important to have a relook at the long run only worker’s well-being will techniques of scientific management ensure prosperity of the business. as comprising a unified whole of Now, having studied the elements, Taylor’s prescription of efficiency. principles and techniques of scientific Search for efficiency requires the management we can consider the search for one best method and the practical applications of the same at the chosen method must lead to the time of F.W. Taylor and in the present. determination of a fair day’s work. We can also examine the present There must be a compensation system status of scientific management. that differentiates those who are able Today, many new techniques have to accomplish/exceed the fair day’s been developed as a sequel to scientific work. This differential system must be management. Operations research based on the premise that efficiency was developed in the second World is the result of the joint efforts of the War to optimise the deployment of war managers and the workers. Thus, material. Similarly assembly line was 2020-21 Ch_02.indd 51 24-09-2019 12:05:02 PM  52 Business Studies also discovered by F.W. Taylor, which Fayol’s Principles of was used very successfully by Ford motor company for manufacturing Management ‘Model T’ car for the masses. This In the development of classical school concept is much used now. The latest of management thought, Fayol’s development in scientific management administrative theory provides is ‘LEAN MANUFACTURING’. Now an important link. While Taylor a days robotics and computers are succeeded in revolutionising the being used in production and other working of factory shop-floor in terms business activities. This is part of devising the best method, fair day’s of scientific management of these work, differential piece-rate system activities. It has increased productivity and functional foremanship; Henri levels. The techniques of operation Fayol explained what amounts to a research have also been developed managers work and what principles and are being used as a result of should be followed in doing this work. scientific management. The box below If workers’ efficiency mattered in the gives meanings of some terms used in factory system, so does the managerial modern manufacturing. efficiency. Fayol’s contribution must Applications of Scientific Management by Taylor and his Contemporaries 1. Taylor found out the optimum-shovelling load of 21 pounds per shovel per worker through a series of experiments in work-study at Bethlehem Steel Company. The implementation saved the company $ 75000 to $80000 per year. 2. Pig iron handling per person per day was increased from 12.5 tons to 47 tons. This also resulted in the wages increase to labourers by 60% but also savings to the company on account of less number of labourers from 500 to 140. 3. He had published a paper “The Art of cutting metals” which turned it into a science. 4. He designed a Piece Rate Wage System including incentives for Bethlehem Steel Company. 5. Taylor’s associate Frank Gilbreth applied scientific management to the art of ‘brick layering’ and through motion study was able to eliminate certain motions which were considered by the brick layers to be necessary (reduced motions from 18 to 5), designed simple apparatus like adjustable scaffold and its packets to hold the bricks and finally also taught brick layers to use both the hands at the same time. This is a classic example of application of Scientific Management to the simple art of brick layering. 2020-21 Ch_02.indd 52 24-09-2019 12:05:02 PM  Principles of Management 53 be interpreted in terms of the impact theories concer ning scientific that his writings had and continue organisation of labour were widely to have improvement in managerial influential in the beginning of efficiencies. twentieth century. He graduated from Henri Fayol (1841-1925) was a the mining academy of St. Etienne French management theorist whose in 1860 in mining engineering. The Glossary of Some Terms of Modern Production/Scientific Management 1. Just In Time Manufacturing: It is an inventory management strategy to improve return on investment by reducing in process inventory and its associated costs. The system is implemented by the use of visual signals or KANBAN, which tells whether the replenishment is required at any level of production process, or not. 2. Lean Manufacturing: It is a management philosophy focusing on reduction of seven wastes of overproduction, waiting time, transportation, processing, motion, inventory and scrap in any type of manufacturing process or any type of business. By eliminating waste, quality is improved, production time is reduced and cost is reduced. 3. Kaizen: It is a Japanese word, which means ‘change for better’ or ‘improvement’. It is an approach to improvement of productivity through application of works of American experts such as F.W. Taylor by Japanese after World War II. The goals of kaizen include elimination of waste (which is defined as those activities which add cost but not value to the product or service), just in time delivery, production load levelling of amount and types, standardised work, paced moving lines, right sized equipment and others. A closer Japanese use of the word means ‘to take apart and put it in a better way’. What is taken apart is usually a process, system, product or service. It is a daily activity which humanizes the workplace, eliminates hard work both physical and mental, teaches people how to do rapid experiments using scientific method and how to learn to see and eliminate waste in business processes. 4. Six Sigma: It is a data driven approach that can help any organisation- whatever sector or field it might be operating in, to bring down inefficiencies and save time and money by reducing ‘quality variations’. It has a strong customer oriented approach that relies on data to create more efficient processes or refine existing processes. There should not be more than 3-4 defects per million opportunities according to prescribed norms. It can be applied to any process but needs unstilted organisational support. 2020-21 Ch_02.indd 53 24-09-2019 12:05:02 PM  54 Business Studies 19 year old engineer started at English as ‘General and Industrial the mining company ‘Compagnie Management’ in 1949 and is widely de commentary-Fourchambean- considered a foundational work in Decazeville, ultimately acting classical management theory. For his as its managing director from contribution he is also known as the 1888 to 1918. ‘Father of General Management’ His theories deal with The 14 principles of management organisation of production in the given by him are: context of a competitive enterprise (i) Division of Work: Work is that has to control its production divided into small tasks/ costs. Fayol was the first to identify jobs. A trained specialist who four functions of management – is competent is required to Planning, Organising, Directing and perform each job. Thus, division Controlling although his version of work leads to specialisation. was a bit different – Plan, Organise, According to Fayol, “The intent Command, Coordinate and Control. of division of work is to produce According to Fayol, all activities more and better work for the of an industrial undertaking same effort. Specialisation is could be divided into: Technical; the most efficient way to use Commercial; Financial; Security; human effort.” Accounting and Managerial. He In business work can be also suggested that qualities a performed more efficiently if it manager must possess should is divided into specialised tasks; be — Physical, Moral, Education, each performed by a specialist Knowledge and experience. He or trained employee. This believed that the number of results in efficient and effective management principles that might output. Thus, in a company we help to improve an organisation’s have separate departments operation is potentially limitless. for finance, marketing, Based largely on his own production and human resource experience, he developed his development etc. All of them have concept of administration. The specialised persons. Collectively 14 principles of management they achieve production and propounded by him were discussed sales targets of the company. in detail in his book published in Fayol applies this principle of 1917, ‘Administration industrielle division of work to all kinds et generale’. It was published in of work – technical as well as 2020-21 Ch_02.indd 54 24-09-2019 12:05:02 PM  Principles of Management 55 Henri Fayol 1. Life Time: 1841 TO 1925 2. Profession: Mining Engineer and Management Theorist (French national) 3. Education: Graduated from Mining Academy at St. Entinne. in 1880. 4. Positions Held: Founded the mining company ‘Cmpagnie de Commentry- Fourchambeau- Decazeville’ and became its Managing Director in 1888 and remained till 1918. 5. Writings: Administration industrielle et générale. It was published in English as General and Industrial Management in 1949 and is widely considered a foundational work in classical management theory. 6. Contributions: Mainly 14 Management Principles, which are referred to as administrative in nature in that they have Top-Down approach concerning top management and other manager’s conduct. Source: www.en.wikipedia.org Image source: www.image.google.com managerial. You can observe Authority is both formal and this principle at work in any informal. Managers require authority organisation like hospital or commensurate with their responsibility. even a government office. There should be a balance between (ii) Authority and Responsibility: authority and responsibility. An According to Fayol, “Authority organisation should build safeguards is the right to give orders against abuse of managerial power. At and obtain obedience, and the same time a manager should have responsibility is the corollary necessary authority to carry out his of authority. The two types of responsibility. For example, a sales authority are official authority, manager has to negotiate a deal with which is the authority to a buyer. She finds that if she can offer command, and personal credit period of 60 days she is likely to authority which is the authority clinch the deal which is supposed to of the individual manager.” fetch the company net margin of say 2020-21 Ch_02.indd 55 24-09-2019 12:05:02 PM  56 Business Studies ` 50 crores. Now the company gives without any prejudice towards power to the manager to offer a credit one another. period of only 40 days. This shows (iv) Unity of Command: According that there is an imbalance in authority to Fayol there should be one and and responsibility. In this case the only one boss for every individual manager should be granted authority employee. If an employee gets of offering credit period of 60 days in orders from two superiors at the the interest of the company. Similarly, same time the principle of unity in this example this manager should of command is violated. The not be given a power to offer a credit principle of unity of command period of say 100 days because it is states that each participant in not required. A manager should have a formal organisation should the right to punish a subordinate for receive orders from and be wilfully not obeying a legitimate order responsible to only one superior. but only after sufficient opportunity Fayol gave a lot of importance to has been given to a subordinate for this principle. He felt that if this presenting her/his case. principle is violated “authority (iii) Discipline: Discipline is the is undermined, discipline is obedience to organisational rules in jeopardy, order disturbed and employment agreement which and stability threatened”. The are necessary for the working of principle resembles military the organisation. According to organisation. Dual subordination Fayol, discipline requires good should be avoided. This is to superiors at all levels, clear and prevent confusion regarding fair agreements and judicious tasks to be done. Suppose a application of penalties. sales person is asked to clinch Suppose management and a deal with a buyer and is labour union have entered into allowed to give 10% discount an agreement whereby workers by the marketing manager. But have agreed to put in extra hours finance department tells her/ without any additional payment him not to offer more than 5% to revive the company out of discount. Now there is no unity loss. In return the management of command. This can be avoided has promised to increase wages if there is coordination between of the workers when this mission various departments. is accomplished. Here discipline (v) Unity of Direction: All the when applied would mean that units of an organisation should the workers and management be moving towards the same both honour their commitments objectives through coordinated 2020-21 Ch_02.indd 56 24-09-2019 12:05:03 PM  Principles of Management 57 and focussed efforts. Each group its own objectives. For example, of activities having the same the company would want to objective must have one head get maximum output from its and one plan. This ensures employees at a competitive cost unity of action and coordination. (salary). On the other hand, For example, if a company is an employee may want to get manufacturing motorcycles as maximum salary while working well as cars then it should have the least. In another situation an two separate divisions for both individual employee may demand of them. Each division should some concession, which is not have its own incharge, plans admissible to any other employee and execution resources. On no like working for less time. account should the working of In all the situations the two divisions overlap. Now let interests of the group/company us differentiate between the two will supersede the interest of principles of unity of command any one individual. This is and unity of direction. so because larger interests of (vi) Subordination of Individual the workers and stakeholders Interest to General Interest: are more important than the The interests of an organisation interest of any one person. For should take priority over the example, interests of various interests of any one individual stakeholders, i.e., owners, employee according to Fayol. shareholders, creditors, debtors, Every worker has some financers, tax authorities, individual interest for working in customers and the society at a company. The company has got large cannot be sacrificed for Difference betweeen Unity of Command and Unity of Direction Basis Unity of Command Unity of Direction One subordinate should Each group of activities receive orders from and having same objective must 1. Meaning should be responsible to have one head and one only one superior. plan. It prevents dual It prevents overlapping of 2. Aim subordination. activities. It affects an individual It affects the entire 3. Implications employee. organisation. 2020-21 Ch_02.indd 57 28-10-2019 4:51:30 PM  58 Business Studies one individual or a small group subordinate involvement through of individuals who want to exert decentra­lisation with managers’ pressure on the company. A retention of final authority manager can ensure this by through centralisation.” The her/his exemplary behaviour. degree of centralisation will For example, she/he should not depend upon the circumstances fall into temptation of misusing in which the company is working. her/his powers for individual/ In general large organisations family benefit at the cost of larger have more decentralisation than general interest of the workers/ small organisations. For example, company. This will