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HSMG601-PRINCIPLES OF ENGINEERING MANAGEMENT REFERENCE MATERIEL Dr.V. DHAYALAN M.B.A., M.COM, M.A.(ECO)M.HRM, M.PHIL,Ph.D, (ICMA),(ACS) ASSOCIATE PROFESSOR, DEPARTMENT OF MANAGEMENT STUDIES, SRI SAIRAM ENG...

HSMG601-PRINCIPLES OF ENGINEERING MANAGEMENT REFERENCE MATERIEL Dr.V. DHAYALAN M.B.A., M.COM, M.A.(ECO)M.HRM, M.PHIL,Ph.D, (ICMA),(ACS) ASSOCIATE PROFESSOR, DEPARTMENT OF MANAGEMENT STUDIES, SRI SAIRAM ENGINEERING COLLEGE, CHENNAI  Unit – I Overview of Management Organisation A deliberate arrangement of people to accomplish some specific purpose. Common Characteristics of Organization  Have a distinct purpose (goal)  Composed of people  Have a deliberate structure Manager “Someone who coordinates and oversees the work of other people so that organizational goals can be accomplished”. – Robbins & Coulter Nonmanagerial employees Organizational members who worked directly on a job or a task and had no one reporting to them. First-line Managers  Managers at the lowest level of the organization who manage the work of non managerial employees who are involved with the production or creation of the organization‟s products.  Often called as Supervisors but may also be called Line Managers, Office Managers or even Foremen. Middle Managers   Managers between the first-line level and the top level of the organization who manage the work of first-line managers.  Often called as Department Head, Project Leader, Plant Manager or Division Manager. Top Managers  Managers at or near the top level of the organization who are responsible for making organization-wide decisions and establishing the goals and plans that affect the entire organization.  Have titles such as Executive Vice President, President, Managing Director, Chief Operating Officer, Chief Executive Officer or Chairman of the Board. Management “Management involves coordinating and overseeing the work activities of others so that their activities are completed efficiently and effectively”. - Robbins & Coulter Effectiveness and Efficiency in Management Efficiency  Getting the most output from the least amount of inputs  Referred to as “doing things right”. Effectiveness  Completing activities so that organizational goals are attained.  Referred to as “doing the right things”. Management Process The set of ongoing decisions and work activities in which managers engage as they plan, organize, lead and control. Management Functions Management The process of designing and maintaining an environment in which individuals, working together in groups, efficiently accomplish selected aims. Functions  Planning  Organizing  Leading  Controlling Planning  Management function that involves the process of defining goals, establishing strategies for achieving those goals and developing plans to integrate and coordinate activities.  Selecting missions and objectives as well as the actions to achieve them, which requires decision-making.  Eg., Ordering a special stainless steel bolt for an instrument or hiring and training workers for an assembly line. Organising Management function that involves the process of determining  What tasks are to be done  Who is to do them  How the tasks are to be grouped  Who reports to whom  Where decisions are to be made Staffing  Filling and keeping filled, the positions in the organization structure.  Eg., Work-force requirements Leading  Management function influencing people so that they will contribute to organizational and group goals.  Involves motivating subordinates, influencing individuals or teams as they work, selecting the most effective communication channels or dealing in any way with employee behavior issues. Controlling  Management function measuring and correcting individual and organizational performance to ensure that events conform to plans.   Involves monitoring actual performance, comparing actual to standard and taking action if necessary.  Eg., Inspection records. Role of Managers Management Roles: Refers to specific categories of managerial behavior. Henry Mintzberg’s Ten Managerial Roles Interpersonal Roles Managerial roles that involve people (subordinates and persons outside the organization) and other duties that are ceremonial and symbolic in nature. Figurehead – symbolic head; obliged to perform a number of routine duties of a legal or social nature. Eg., Greeting visitors, signing legal documents. Leader – Responsible for the motivation of subordinates; responsible for staffing, training and associated duties. Eg., Performing virtually all activities that involve subordinates. Liaison – Maintains self-developed network of outside contacts and informers who provide favours and information. Eg., Acknowledging mail; doing external board work, performing other activities that involve outsiders. Informational Roles Managerial roles that involve receiving, collecting and disseminating information. Monitor – Seeks and receives wide variety of internal and external information to develop thorough understanding of organization and environment. Eg., Reading periodicals and reports; maintaining personal contacts. Disseminator – Transmits information received from outsiders or from subordinates to members of the organization. Eg., Holding informational meetings, making phone calls to relay information. Spokesperson – Transmits information to outsiders on organisation‟s plans, policies, actions, results, etc. Eg., Holding board meetings, giving information to the media. Decisional Roles Managerial roles that revolve around making choices. Entrepreneur – Searches organization and its environment for opportunities and initiates “improvement projects” to bring about changes. Eg., Organising strategy and review sessions to develop new programs. Disturbance Handler – Responsible for the allocation of organizational resources of all kinds – making or approving all significant organizational decisions. Eg., Scheduling, requesting authorization, performing any activity that involves budgeting and the programming of subordinates‟ work. Negotiator – Responsible for representing the organization at major negotiations. Eg., Participating in union contract negotiations. Management Skills Managers need certain skills to perform the duties and activities with being a manager. Three essential skills – Robert L.Katz Technical Skills – Knowledge of and proficiency in a specialized field. Eg., Engineering, Comuters, Accounting or Manufacturing. Human Skills – The ability to work well with other people individually and in a group. Eg., Managers with good human skills know how to communicate, motivate, lead and inspire enthusiasm and trust. Conceptual Skills  The ability to think and to conceptualise about abstract and complex situations.  Managers must be able to see the organization as a whole, understand the relationships among various subunits and visualize how the organization fits into its broader environment. Distinction between Administration and Management S.No Administration Management 1 Administration lays down corporate Management executes the objectives and objectives and policies policies set by the administration 2 Administration resembles legislative Management resembles executive 3 Administration is associated with Management is associated with middle and top level management lower-level activities. 4 The term administration is used in The term management is used in profit governmental, military and making business organizations. educational organizations. 5 Administration is needed in long- Management is needed in short-term  term finance to make decisions on finance decisions. how to collect capital needed to start or expand business. 6 Administration determines the size Management makes use of organizational of the organization structure resources to achieve organizational objectives. 7 Administration exercises control Management is accountable to over management administration. Management – Science or Art? Management as a Science  Science is a systematized body of knowledge based on general principles, truths or laws.  Mere knowledge cannot become science. Knowledge should be verifiable.  The development of science depends on the following factors: o Constant thinking o Discovery of facts or principle o Verification o Prediction o Measurement o Expression Management fulfills all the above characteristics of science. So, management may be called as a science. Management as an applied science Engineering Sociology Anthropology Mathematics Psychology Economics Management Others Management is a body of knowledge that has been gathered over years, borrowing scientific inquiries in the fields of economics, mathematics, sociology, engineering, anthropology and other scientific disciplines. Therefore, management is an applied science. Management as an exact science Taylor contributes more to the development of management as a science. Management researchers have accepted management as a science on the following grounds:  Laws of management holds good under accepted conditions.  Like scientists, managers make decisions using scientific technology.  Management is a systematic body of knowledge and it is based on theories and principles. Management as an inexact science  Management phenomena cannot be measured with accuracy.  The laboratory for testing the management phenomena is the human beings whose behaviour cannot be easily predicted.  The testing will not provide uniform and accurate results at all times. Therefore management is considered as an inexact science. Management as a social science  Management can be regarded as a social or behavioural science because it deals with human behaviour at work. Scientific Management  F.Taylor used the term scientific management. Taylor insisted that management itself would have to change and the manner of change could be determined only by scientific study. Management as an Art  Art is the technique of applying the principles into actual practice so as to achieve the desired results.  Management has many qualities of an art. The management is essentially an art because of the following: o Use of know-how and skill – Art requires the use of knowledge. Management uses knowledge and know how to make decisions. o Application of principles – Art applies the principles in actual practices. Likewise, principles and techniques of management are applied in the organizations to achieve results such as increasing production, reducing cost and improving quality. Therefore, management is an art. o Personlisation – The art is a highly personalized skill. Management is also personalized in the sense that every manager has his own approach to solve the problems of the enterprise. o Creative in nature – Managementis creative like any other art. Management combines human and material resources in an effective way so as to achieve results. o Constant practice – Managers learn from mistakes and develop their skills through constant practice like artists. Hence management is regarded as an art. Management is a Science and an Art Management is both science and art. It is a science as it is a systematized body ofknowledge and it is an art as it is applied into actual practice. Evolution of Management Thought 1. Scientific Management 2. Modern Operational Management Theory 3. Behavioural Sciences 4. Systems Theory 5. Modern Management Thought 1. Scientific Management  Frederick W.Taylor o Shop Management (1903) o Principles of Scientific Management (1911) o Testimony before the special house committee (1912) o Acknowledged as the father of scientific management o To raise productivity through greater efficiency in production and increased pay for workers, by applying the scientific method. o His principles emphasize using science, creating goup harmony and cooperation, achieving maximum output and developing workers.  Henry L.Gantt (1901) o Called for scientific selection of workers and „harmonious cooperation‟ between labour and management. o Developed the Gantt Chart, stressed the need for training. o  Frank and Lillian Gilbreth (1900) o Frank is known primarily for his time and motion studies. o Lillian, an industrial psychologist focused on the human aspects of work and the understanding of workers‟ personalities and needs. 2. Modern Operational Management Theory  Henry Fayol o Administration Industrielle et Generale (1916) o Referred to as the father of modern management theory o Divided industrial activities into six groups o Technical, Commercial, Financial, Security, Accounting and Managerial o Recognized the need for teaching management o Formulated fourteen principles of management 3. Behavioural Sciences  Hugo Munsterberg (1912) o Application of psychology to industry and management   Walter Dill Scott (1910, 1911) o Application of psychology to advertising, marketing and personnel.  Max Weber o Theory of bureaucracy  Vilfredo Pareto (1896-1917) o Referred to as the father of the social systems approach to organization and management.  Elton Mayo and F.J Roethlisberger (1933) o Famous studies at the Hawthorne plant of the Western Electric Company on the influence of social attitudes and relationships of wok groups on performance. 4. Systems Theory  Chester Bernard o The functions of the Executive (1938) o The task of managers is to maintain a system of cooperative effort in a formal organization. o Suggested a comprehensive social systems approach to managing. 5. Modern Management Thought o Peter F.Drucker – Very prolific writer on many general management topics o W.Edwards Deming (after World War II) – Introduced quality control in Japan. o Lawrence Peter (1969) – Observed that eventually people get promoted to a level where they are incompetent. o William Ouchi (1981) – Discussed selected Japanese managerial practices adopted in the U.S environment. o Thomas Peters and Robert Waterman (1982) – Identified characteristics of companies they considered excellent. Contribution of Taylor Taylor's Scientific Management Frederick Winslow Taylor well-known as the father of scientific management was the first to recognize and emphasis the need for adopting a scientific approach to the task of managing an enterprise. He tried to diagnose the causes of low efficiency in industry and came to the conclusion that much of waste and inefficiency is due to the lack of order and system in the methods of management. He therefore, suggested that those responsible for management should adopt a scientific approach in their work, and make use of "scientific method" for achieving higher efficiency. The scientific method consists essentially of (a) Observation (b) Measurement (c) Experimentation and (d) Inference. He advocated a thorough planning of the job by the management and emphasized the necessity of perfect understanding and co-operation between the management and the workers both for the enlargement of profits and the use of scientific investigation and knowledge in industrial work. He summed up his approach in these words: Principles of Scientific Management Replacing Rule of Thumb with science Harmony, not discord Co-operation, not individualism Maximum output, in place of restricted output The development of each man to his greatest efficiency and prosperity. Elements of Scientific Management: The techniques which Taylor regarded as its essential elements or features may be classified as under: 1. Scientific Task and Rate-setting, work improvement, etc. 2. Planning the Task. 3. Vocational Selection and Training 4. Standardization (of working conditions, material equipment etc.) 5. Specialization 6. Mental Revolution. 1. Scientific Task and Rate-Setting (work study): Work study may be defined as the systematic, objective and critical examination of all the factors governing the operational efficiency of any specified activity in order to effect improvement. Work study includes.  Methods Study: The management should try to ensure that the plant is laid out in the best manner and is equipped with the best tools and machinery. The possibilities of eliminating or combining certain operations may be studied.  Motion Study: It is a study of the movement, of an operator (or even of a machine) in performing an operation with the purpose of eliminating useless motions.   Time Study (work measurement): The basic purpose of time study is to determine the proper time for performing the operation. Such study may be conducted after the motion study. Both time study and motion study help in determining the best method of doing a job and the standard time allowed for it.  Fatigue Study: If, a standard task is set without providing for measures to eliminate fatigue, it may either be beyond the workers or the workers may over strain themselves to attain it. It is necessary, therefore, to regulate the working hours and provide for rest pauses at scientifically determined intervals.  Rate-setting: Taylor recommended the differential piece wage system, under which workers performing the standard task within prescribed time are paid a much higher rate per unit than inefficient workers who are not able to come up to the standard set. 2. Planning the Task: Having set the task which an average worker must strive to perform to get wages at the higher piece-rate, necessary steps have to be taken to plan the production thoroughly so that there is no bottlenecks and the work goes on systematically. 3. Selection and Training: Scientific Management requires a radical change in the methods and procedures of selecting workers. It is therefore necessary to entrust the task of selection to a central personnel department. The procedure of selection will also have to be systematised. Proper attention has also to be devoted to the training of the workers in the correct methods of work. 4. Standardization: Standardization may be introduced in respect of the following.  Tools and equipment: By standardization is meant the process of bringing about uniformity. The management must select and store standard tools and implements which will be nearly the best or the best of their kind.  Speed: There is usually an optimum speed for every machine. If it is exceeded, it is likely to result in damage to machinery.  Conditions of Work: To attain standard performance, the maintenance of standard conditions of ventilation, heating, cooling, humidity, floor space, safety etc., is very essential.  Materials: The efficiency of a worker depends on the quality of materials and the method of handling materials. 5. Specialization: Scientific management will not be complete without the introduction of specialization. Under this plan, the two functions of 'planning' and 'doing' are separated in the organization of the plant. The `functional foremen' are specialists who join their heads to give thought to the planning of the performance of operations in the workshop. Taylor  suggested eight functional foremen under his scheme of functional foremanship.  The Route Clerk: To lay down the sequence of operations and instruct the workers concerned about it.  The Instruction Card Clerk: To prepare detailed instructions regarding different aspects of work.  The Time and Cost Clerk: To send all information relating to their pay to the workers and to secure proper returns of work from them.  The Shop Disciplinarian: To deal with cases of breach of discipline and absenteeism.  The Gang Boss: To assemble and set up tools and machines and to teach the workers to make all their personal motions in the quickest and best way.  The Speed Boss: To ensure that machines are run at their best speeds and proper tools are used by the workers.  The Repair Boss: To ensure that each worker keeps his machine in good order and maintains cleanliness around him and his machines.  The Inspector: To show to the worker how to do the work. 6. Mental Revolution: At present, industry is divided into two groups – management and labour. The major problem between these two groups is the division of surplus. The management wants the maximum possible share of the surplus as profit; the workers want, as large share in the form of wages. Taylor has in mind the enormous gain that arises from higher productivity. Such gains can be shared both by the management and workers in the form of increased profits and increased wages. Contribution by Henri Fayol Henri Fayol – Father of Modern Management Theory Fourteen Principles of Management 1. Division of Work  Work should be divided into small parts and assigned to a number of workers.  Division of work represents the reduction in number of tasks for any person or a group.  Division of work take the advantage of specialization. Specialization leads to better efficiency and maximum output bacouse it permits a person to work in a limited area.  Objective: To produce more and better work with the same effort.  Can be applied at all levels of the organization. 2. Authority and Responsibility  Authority is the right to give orders and responsibility is its essential counterpart.  Authority should not be considered without responsibility. i.e., whenever authority is exercised, responsibility arises.   Fayol suggested that authority and responsibility should be related. He said that authority is a combination of many factors deriving from manager‟s position, intelligence, experience, moral worth, past service etc. 3. Discipline  Discipline implies obedience and respect for the formal or informal agreements between the firm and its employees.  These agreements are established by superiors and should be clearly defined and understood.  Fayol considered discipline as the chief strength of organization.  Discipline may be of two types: Self-imposed discipline and Command discipline. 4. Unity of Command  Reporting relationships  Employees should receive orders from one superior only 5. Unity of Direction  Functioning of organization  There is one head and one plan for a group of activities with the same objective  Eg., The marketing department should have only one manager with a specified plan for sales policies, advertising and promotion. 6. Subordination of individual interests to general interests  The interest of one individual or one group should not prevail over the general interest.  Individual interests should be integrated with organizational interests. 7. Remuneration  Remuneration of employees should be fair and provide maximum possible satisfaction to employees and employers.  He was also in favour of non-financial incentives. 8. Centralization  Everything which goes to increase the importance of subordinate‟s role is decentralization; everything which goes to reduce it is centralization.  Centralization is present in an organization depending on the size of the company and quality of its managers. 9. Scalar Chain   This refers to a „Chain of Superiors‟ ranging from the highest to the lowest ranks.  The line of authority must flow from top of the organization to bottom.  The line of authority should be very clear and this must be clearly indicated in the organization chart.  Fayol suggested the use of “gang planks” between two people at the same level working in different departments instead of communicating from top to bottom. 10. Order  An organization should have a place for everything and everything in its place; the right man in the right place.  The order demands precise knowledge of the human requirements and resources of the organization and a constant balance between these requirements and resources. 11. Equity  Equity is the combination of justice and kindness.  Equity in treatment and behaviour is liked by everyone and it brings loyalty in the organization.  The application of equity requires good sense, experience and good nature for soliciting loyalty and devotion from subordinates. 12. Stability of Tenure  No employee should be removed within short time  There should be reasonable security of jobs.  High turnover increases inefficiency  Stability of tenure is essential to get an employee accustomed to new work and succeeding in doing it well. 13. Initiative  Employees sould be encouraged and they should be given freedom to function in the organization with creativity and innovation. 14. Espirit de Corps  This is the principle of „union is Strength‟ and extension of unity of command for establishing team work.  The manager should encourage spirit de corps among his employees. Types of Business Organizations When organizing a new business, one of the most important decisions to be made is choosing the structure of a business. a) Sole Proprietorships  The vast majority of small business starts out as sole proprietorships.  These firms are owned by one person, usually the individual who has day-to-day responsibility for running the business.  Sole proprietors own all the assets of the business and the profits generated by it.  They also assume "complete personal" responsibility for all of its liabilities or debts. Merits  Easiest and least expensive form of ownership to organize.  Sole proprietors are in complete control, within the law, to make all decisions.  Sole proprietors receive all income generated by the business to keep or reinvest.  Profits from the business flow-through directly to the owner's personal tax return.  The business is easy to dissolve, if desired. Demerits  Unlimited liability and are legally responsible for all debts against the business.  Their business and personal assets are 100% at risk.  Has almost been ability to raise investment funds.  Are limited to using funds from personal savings or consumer loans.  Have a hard time attracting high-caliber employees, or those that are motivated by the opportunity to own a part of the business.  Employee benefits such as owner's medical insurance premiums are not directly deductible from business income (partially deductible as an adjustment to income). b) Partnerships  In a Partnership, two or more people share ownership of a single business. Like proprietorships, the law does not distinguish between the business and its owners.  The Partners should have a legal agreement that sets forth how decisions will be made, profits will be shared, disputes will be resolved, how future partners will be admitted to the partnership, how partners can be bought out, or what steps will be taken to dissolve the partnership when needed.  They also must decide up front how much time and capital each will contribute, etc. Merits  Partnerships are relatively easy to establish; however time should be invested in developing the partnership agreement.  With more than one owner, the ability to raise funds may be increased.  The profits from the business flow directly to the partners' personal taxes.  Prospective employees may be attracted to the business if given the incentive to become a partner. Demerits  Partners are jointly and individually liable for the actions of the other partners.  Profits must be shared with others.  Since decisions are shared, disagreements can occur.  Some employee benefits are not deductible from business income on tax returns.  The partnerships have a limited life; it may end upon a partner withdrawal or death. c) Corporations  A corporation, chartered by the state in which it is headquartered, is considered by law to be a unique "entity", separate and apart from those who own it.  A corporation can be taxed; it can be sued; it can enter into contractual agreements. The owners of a corporation are its shareholders. The shareholders elect a board of directors to oversee the major policies and decisions.  The corporation has a life of its own and does not dissolve when ownership changes. Merits  Shareholders have limited liability for the corporation's debts or judgments against the corporations.  Generally, shareholders can only be held accountable for their investment in stock of the company.  Corporations can raise additional funds through the sale of stock.  A corporation may deduct the cost of benefits it provides to officers and employees. Demerits  The process of incorporation requires more time and money than other forms of organization.  Corporations are monitored by federal, state and some local agencies, and as a result may have more paperwork to comply with regulations.  Incorporating may result in higher overall taxes. Dividends paid to shareholders are not deductible from business income, thus this income can be taxed twice. d) Joint Stock Company Limited financial resources & heavy burden of risk involved in both of the previous forms of organization has led to the formation of joint stock companies these have limited dilutives. The capital is raised by selling shares of different values. Persons who purchase the shares are called shareholder. The managing body known as Board of Directors is responsible for policy making and important financial & technical decisions. There are two main types of joint stock Companies. (i) Private limited company. (ii) Public limited company (i) Private limited company: This type company can be formed by two or more persons. The maximum number of membership is limited to 50. In this transfer of shares is limited to members only. The government also does not interfere in the working of the company. (ii) Public Limited Company: It is one whose membership is open to general public. The minimum number required to form such company is seven, but there is no upper limit. Such company‟s can advertise to offer its share to general public through a prospectus. These public limited companies are subjected to greater control & supervision of control. Merits  The liability being limited the shareholder bear no risk and therefore more persons are encouraged to invest.  Because of large numbers of investors, the risk of loss is divided.  Joint stock companies are not affected by the death or the retirement of the shareholders. Disadvantages  It is difficult to preserve secrecy in these companies.  It requires a large number of legal formalities to be observed.  Lack of personal interest. e) Public Corporations A public corporation is wholly owned by the Government centre to state. It is established usually by a Special Act of the parliament. Though the total capital is provided by the Government, they have separate entity & enjoy independence in matters related to appointments, promotions etc. Merits  These are expected to provide better working conditions to the employees & supported to be better managed.  Quick decisions can be possible, because of absence of bureaucratic control.  More flexibility as compared to departmental organization.  Since the management is in the hands of experienced & capable directors & managers, these are managed more efficiently than that of government departments. Demerits  Any alteration in the power & Constitution of Corporation requires an amendment in the particular Act, which is difficult & time consuming.  Public Corporations possess monopoly & in the absence of competition, these are not interested in adopting new techniques & in making improvement in their working. f) Government Companies  A state enterprise can also be organized in the form of a Joint stock company;  A government company is any company in which of the share capital is held by the central government or partly by central government & partly by one to more state governments.   It is managed by the elected board of directors which may include private individuals.  These are accountable for its working to the concerned ministry or department & its annual report is required to be placed every year on the table of the parliament or state legislatures along with the comments of the government to concerned department. Merits  It is easy to form.  The directors of a government company are free to take decisions & are not bound by certain rigid rules & regulations. Demerits  Misuse of excessive freedom cannot be ruled out.  The directors are appointed by the government so they spend more time in pleasing their political masters & top government officials, which results in inefficient management. Organization and the environmental factors Organization is an open system that interacts with its environment as it takes in inputs and distributes outputs. There are forces in the environment that play a major role in shaping manager‟s actions. Internal Environment Environment Specific Environment External Environment General Environment Internal Environment The internal environment is the environment that has a direct impact on the business. The internal factors are generally controllable because the company has control over these factors. It can alter or modify these factors. The internal environmental factors are resources, capabilities and culture. i) Resources:  A good starting point to identify company resources is to look at tangible, intangible and human resources.  Tangible resources are the easiest to identify and evaluate: financial resources and physical assets are identifies and valued in the firm‟s financial statements.  Intangible resources are largely invisible, but over time become more important to the  firm than tangible assets because they can be a main source for a competitive advantage. Such intangible recourses include reputational assets (brands, image, etc.) and technological assets (proprietary technology and know-how).  Human resources or human capital are the productive services human beings offer the firm in terms of their skills, knowledge, reasoning, and decision-making abilities. ii) Capabilities: The term organizational capabilities are used to refer to a firm‟s capacity for undertaking a particular productive activity. A functional classification identifies organizational capabilities in relation to each of the principal functional areas. iii) Culture: It is the specific collection of values and norms that are shared by people and groups in an organization and that helps in achieving the organizational goals. External Environment Outside institutions or forces that potentially affect an organization‟s performance.  The specific environment o The part of the environment that is directly relevant to the achievement of an organization‟s goals. o Customers  Organizations exist to meet the needs of customers. It‟s the customer or client who absorbs the organization‟s output.  Customers obviously represent potential uncertainty to an organization. Their tastes can change; they can become dissatisfied with the organization‟s product or service. o Suppliers   Managers seek to ensure a steady flow of needed inouts at the lowest price available.  These inputs represent uncertainities – i.e., their unavailability or delay can significantly reduce the organization‟s effectiveness – managers typically go to great efforts to ensure a steady, reliable flow. o Competitors  All organizations have one or more competitors. Managers cannot ignore the competition.  Competitors in terms of pricing, new products developed, services offered and the like represent an environmental force that managers must monitor and to which they must be prepared to respond. o Pressure Groups  Managers must recognize the special-interest groups that attempt to influence the actions of organizations.  As social and political attitudes change, so too does the power of pressure groups. The General Environment  Broad external conditions that may affect the organization. o Economic conditions  Interest rates, inflation, changes in disposable income, stock market fluctuations and the stage of the general business cycle are some of the economic factors in the general environment that can affect management practices in an organization. o Political/Legal Conditions  Organizations spend a great deal of time and money to meet governmental regulations, but the effects of these regulations go beyond time and money.  They also reduce managerial discretion by limiting the choices available to managers  Other aspects of the political/legal sector are political conditions and the general stability of a country in which an organization operates and the attitudes that elected governmental officials hold toward business. o Socio-cultural Conditions  Managers must adapt their practices to the changing expectations of the society in which they operate.  As societal values, customs and tastes change managers must also change.  If an organization does business in other countries, managers need to be familiar with those countries‟ values and cultures and manage in ways that recognize and embrace those specific socio cultural aspects.  o Demographic Conditions  The demographic conditions encompass trends in the physical characteristics of a population such as gender, age, level of education, geographic location, income, family composition and so forth.  The members of the present generation are thinking, learning, creating, shopping and playing in fundamentally different ways that are likely to greatly impact organizations and managers. o Technological Conditions  The whole area of technology is radically changing the fundamental ways that organizations are structured and the way that managers manage. o Global conditions  Globalization is one of the major factors affecting managers and organizations   Managers of both large and small organizations are challenged by an increasing number of global competitors and consumer markets as part of  the external environment. Managing globally Any manager who finds himself or herself in a foreign country faces new challenges  The legal-political environment  The economic environment  The cultural environment The legal-political environment  Managers in a global organization must stay informed of the specific laws in countries where they do business.  The legal-political environment doesn‟t have to be unstable or revolutionary to be a concern to managers.  Managers must recognize the differences among countries if they hope to understand the constraints under which they operate and the opportunities that exist. The Economic Environment Three of the most obvious economic concerns that the global manager should have one  Exchange rates o The strength of a foreign nation‟s currency can also affect manager‟s decisions o A global firm‟s profits can vary widely in different regions of the world. o The inflation rate influences prices paid for raw materials, labour and other supplies. o In addition, it affects the price that a company can change for its goods and services.  Diverse tax policies o Tax rules differ from country to country.  o Managers need exact information on the various tax rules in countries in which they operate to minimize their business‟s overall tax obligation.  The Cultural Environment o The final global area of concern to managers is the cultural differences between nations. o National culture is the values and attitudes shared by individuals from specific country that shape their behavior and their beliefs about what is important. o Hofstede’s four dimensions of national culture  Individualism – A cultural dimension that describes when people are supposed to look after their own interests and those of their immediate family.  Collectivism – A cultural dimension that describes when people expect others in their group to look after them and to protect them when they are in trouble.  Power Distance – A cultural measure of the extent to which a society accepts the unequal distribution of power in institutions and organizations.  Uncertainty Avoidance – A cultural measure of the degree to which people tolerate risk and unconventional behavior.  Culture Shock – The feeling of confusion, disorientation and emotional upheaval caused by being immersed in a new culture. Strategies for International Business International Management  Focuses on the operations of international firms in host countries.  International businesses engage in transactional across national boundaries. Multinational Corporation (MNC) Multinational Corporations have their headquarters in one country but operate in many countries. Orientations  Ethnocentric Orientation – The style of the foreign operations is based on that of the parent company.  Polycentric Orientation – The foreign subsidiaries are given a great deal of managerial freedom.  Regiocentric Orientation – The foreign operations are staffed on a regional basis.  Geocentric Orientation – The entire organization is viewed as an interdependent system operating in many countries. Strategies Multinational corporations must give weightage to two important factors  The need to make optimum economic decisions on a global basis  Responsive to host country differences  In order to fulfill the above two criteria the MNCs may opt for any of the four strategy  Worldwide integration / Globalisation Strategy  National responsiveness strategy  Regional responsiveness strategy  Multifocal strategy Forms of International Business  Exportation – Exportation of goods and services from parent country to host country.  Licensing agreement – Licensing agreement for producing goods in another country.  Management contracts – The company can engage in management contracts for operating in foreign companies.  Joint Venture and Strategic Alliances o One form of interaction is a joint venture with the firm in the host country. o One form of Joint Venture is the strategic alliance that is often formed in order to expand geographically or to expand the market for products or services.  Wholly Owned Subsidiaries o A wholly owned subsidiary is an operation on foreign soil that is totally owned and controlled by a company with headquarters outside the host country. o In wholly owned subsidiary, the production facilities are totally owned by one company. Challenges of Management in Global Scenario  Language barriers  Selling and Marketing in foreign markets  Attitudes of host governments  Communication and coordination between subsidiaries  Unit – II Planning A process that involves defining the organization‘s goals, establishing an overall strategy for achieving those goals and developing a comprehensive set of plans to integrate and coordinate organizational work. – Stephen P.Robbins & Mary Coulter. Nature of Planning  Planning is goal-oriented: Every plan must contribute in some positive way towards the accomplishment of group objectives. Planning has no meaning without being related to goals.  Primacy of Planning: Planning is the first of the managerial functions. It precedes all other management functions.  Pervasiveness of Planning: Planning is found at all levels of management. Top management looks after strategic planning. Middle management is in charge of administrative planning. Lower management has to concentrate on operational planning.  Efficiency, Economy and Accuracy: Efficiency of plan is measured by its contribution to the objectives as economically as possible. Planning also focuses on accurate forecasts.  Co-ordination: Planning co-ordinates the what, who, how, where and why of planning.Without co-ordination of all activities, we cannot have united efforts.  Limiting Factors: A planner must recognize the limiting factors (money, manpower etc) and formulate plans in the light of these critical factors.  Flexibility: The process of planning should be adaptable to changing environmental conditions.  Planning is an intellectual process: The quality of planning will vary according to the quality of the mind of the manager. Purpose of Planning  Planning gives direction  Reduces the impact of change  Minimizes waste and redundancy  Sets the standards used in controlling Planning Process (or) Steps in Planning Being Aware of Opportunities Setting Objectives or Goals Considering Planning Premises Identifying Alternatives Comparing Alternatives in light of goals sought Choosing an Alternative Formulating Supporting Plans Quantifying plans by making Budgets Being aware of opportunities Managers should take a preliminary look at possible future opportunities and see them clearly and completely, know where their company stands in light of its strengths and weaknesses, understand what problems it has to solve and why and know what it can expect to gain. Planning requires a realistic diagnosis of the opportunity situation. Establishing Objectives The second step in planning is to establish objectives for the entire enterprise and then for each subordinate work unit. Objectives specify the expected results and indicate the endpoints of what is to be done, where the primary emphasis is to be placed and what is to be accomplished by the network of strategies, policies, procedures, rules, budgets and programs. Enterprise objectives give direction to the major plans, which by reflecting these objectives, define the objective of every major department. Major departmental objectives in turn control the objectives of subordinate departments and so on down the line. In other words, objectives form a hierarchy.   Managers should also have the opportunity to contribute ideas for setting their own goals and those of the enterprise. 3. Developing Premises  The next logical step in planning is to establish, circulate and obtain agreement to utilize critical planning premises such as forecasts, applicable basic policies and existing company plans.  In what environment – internal or external – will our plans operate?  Premises – Assumptions about the environment in which the plan is to be carried out.  It is important for all the managers involved in planning to agree on the premises.  Principle of Planning Premises o The more thoroughly individuals charged with planning understand and agree to utilize consistent planning premises, the more coordinated enterprise planning will be.  Forecasting is important in premising. 4. Determining Alternative Courses  The fourth step in planning is to search for and examine alternative courses of action.  The more common problem is not finding alternatives but reducing the number of alternatives so that the most promising may be analysed. 5. Evaluating Alternative Courses  After seeking out alternative courses and examining their strong and weak points, the next step is to evaluate the alternatives by weighing them in light of premises and goals. 6. Selecting a Course  This is the point at which the plan is adopted. i.e., the real point of decision making.  Occasionally, an analysis and evaluation of alternative courses will disclose that two or more are advisable and the manager may decide to follow several courses rather than the one best course. 7. Formulating Derivative Plans  Derivative plans are almost invariably required to support the basic plan. 8. Quantifying Plans by Budgeting  After decisions are made and plans are set, the final step is to quantify them by converting them into budgets.   The overall budget of an enterprise represents the sum total of income and expenses, with resultant profit or surplus and the budgets of major balance sheet items such as cash and capital expenditures.  If done well, budgets become a means of adding the various plans and set important standards against which planned progress can be measured. Types of Plan Plans – Documents that outline how goals are going to be met including resource allocations, schedules and other necessary actions to accomplish the goals. Types I. Strategic Plans - Plans that apply to the entire organization, establish the organization‘s overall goals and seek to position the organization in terms of its environment. Operational Plans - Plans that specify the details of how the overall goals are to be achieved. Long-term plans - Plans within a time frame beyond three years Short-term plans - Plans covering one year or less. Directional Plans - Plans that are flexible and that set out general principles. Specific Plans - Plans that are clearly defined and that leave no room for interpretation Single-use plan - A one-time plan specifically designed to meet the needs of a unique situation. Standing Plans - Ongoing plans that provide guidance for activities performed repeatedly. II. Operational plans lead to the achievement of tactical plans, which in turn lead to the attainment of strategic plans. In addition to these three types of plans, managers should also develop a contingency plan in case their original plans fail. a) Strategic plans: A strategic plan is an outline of steps designed with the goals of the entire organization as a whole in mind, rather than with the goals of specific divisions or departments. It is further classified as i) Mission:. The mission is a statement that reflects the basic purpose and focus of the organization which normally remain unchanged. The mission of the company is the answer of the question : why does the organization exists? Mission of Ford: ―we are a global, diverse family with a proud inheritance, providing exceptional products and services‖. ii) Objectives or goals: Both goal and objective can be defined as statements that reflect the end towards which the organization is aiming to achieve. However, there are significant differences between the two. A goal is an abstract and general umbrella statement, under which specific objectives can be clustered. Objectives are statements that describe—in precise, measurable, and obtainable terms which reflect the desired organization‘s outcomes. iii) Strategies: Strategy is the determination of the basic long term objectives of an organization and the adoption of action and collection of action and allocation of resources necessary to achieve these goals. Strategic planning begins with an organization's mission. Strategic plans look ahead over the next two, three, five, or even more years to move the organization from where it is currently to where it wants to be. Requiring multilevel involvement, these plans demand harmony among all levels of management within the organization. Top-level management develops the directional objectives for the entire organization, while lower levels of management develop compatible objectives and plans to achieve them. Top management's strategic plan for the entire organization becomes the framework and sets dimensions for the lower level planning. b) Tactical plans: A tactical plan is concerned with what the lower level units within each division must do, how they must do it, and who is in charge at each level. Tactics are the means needed to activate a strategy and make it work. Tactical plans are concerned with shorter time frames and narrower scopes than are strategic plans. These plans usually span one year or less because they are considered short-term goals. Long-term goals, on the other hand, can take several years or more to accomplish. Normally, it is the middle manager's responsibility to take the broad strategic plan and identify specific tactical actions. c) Operational plans The specific results expected from departments, work groups, and individuals are the operational goals. These goals are precise and measurable. ―Process 150 sales applications each week‖ or ―Publish 20 books this quarter‖ are examples of operational goals. An operational plan is one that a manager uses to accomplish his or her job responsibilities. Supervisors, team leaders, and facilitators develop operational plans to support tactical plans (see the next section). Operational plans can be a single-use plan or a standing plan. i) Single-use plans apply to activities that do not recur or repeat. A one-time occurrence, such as a special sales program, is a single-use plan because it deals with the who, what, where, how, and how much of an activity. Programme: Programme consists of an ordered list of events to be followed to execute a project. Budget: A budget predicts sources and amounts of income and how much they are used for a specific project. ii) Standing plans are usually made once and retain their value over a period of years while undergoing periodic revisions and updates. The following are examples of ongoing plans: Ø Policy: Policies are general statements that explain how a manager should attempt to handle routine management responsibilities. Typical human resources policies, for example, address such matters as employee hiring, terminations, performance appraisals, pay increases, and discipline. Ø Procedure: A procedure is a set of step-by-step directions that explains how activities or tasks are to be carried out. Most organizations have procedures for purchasing supplies and equipment, for example. This procedure usually begins with a supervisor completing a purchasing requisition. The requisition is then sent to the next level of management for approval. The approved requisition is forwarded to the purchasing department. Depending on the amount of the request, the purchasing department may place an order, or they may need to secure quotations and/or bids for several vendors before placing the order. By defining the steps to be taken and the order in which they are to be done, procedures provide a standardized way of responding to a repetitive problem. Ø Rule: A rule is an explicit statement that tells an employee what he or she can and cannot do. Rules are ―do‖ and ―don't‖ statements put into place to promote the safety of employees and the uniform treatment and behavior of employees. For example, rules about tardiness and absenteeism permit supervisors to make discipline decisions rapidly and with a high degree of fairness. d) Contingency plans Intelligent and successful management depends upon a constant pursuit of adaptation, flexibility, and mastery of changing conditions. Strong management requires a ―keeping all options open‖ approach at all times — that's where contingency planning comes in. Contingency planning involves identifying alternative courses of action that can be implemented if and when the original plan proves inadequate because of changing circumstances. Unexpected problems and events frequently occur. When they do, managers may need to change their plans. Anticipating change during the planning process is best in case things don't go as expected. Management can then develop alternatives to the existing plan and ready them for use when and if circumstances make these alternatives appropriate. Objective  Objectives or goals are the ends toward which activity is aimed.  An objective is verifiable when at the end of the period one can determine whether or not it has been achieved. Nature of objectives  Objectives state end results  Overall objectives need to be supported by sub objectives.  Objectives form a hierarchy as well as network. Hierarchy of Objectives Key Result Area (KRA) – An area in which performance is essential for the success of the enterprise. Non-verifiable objective: Eg., To make a reasonable profit. Verifiable objective: Eg., To achieve a return on investment of 12% at the end of the current fiscal year. Management By Objectives(MBO) ―A management system in which specific performance goals are jointly determined by employees and their managers, progress toward accomplishing those goals is periodically reviewed and rewards are allocated on the basis of this progree‖. - Stephen P.Robbins and Mary Coulter Elements  Goal specificity  Participative decision-making  An explicit time period  Performance feedback Process of MBO  Setting of Organizational purpose and Objectives The first basic step in MBO is the definition of organizational purpose and objectives  Questions, such as ―why does the organization exist?‖, ―what business are we in?‖ and ―what should be our business?‖ provide guidelines for the statement of purpose. This, in interaction with external factors then determines the long-range strategic objectives.  Key Result Areas (KRAs) Organizational objectives and planning premises together provide the basis for the identification of key result areas. o It may be emphasized that KRAs are derived from the expectations of various stakeholders and indicate the priorities for organizational performance.  Setting subordinate’s objectives o The organizational objectives are achieved through individuals. Therefore, each individual manager must kow in advance what he is expected to achieve. o The process of objective setting begins with superior‘s proposed recommendations fro his subordinate‘s objectives. In turn, the subordinate states his own objectives as perceived by him. Thereafter, the final objectives for the subordinate are set by the mutual negotiation between superior and subordinate. Organizational Purpose and Planning Premises Objectives Key Result Areas Superior’s Objectives Superior’s recommendation for Subordinate’s statement of his subordinate’s objectives objectives 10 Matching Resources Subordinate’s agreed objectives Subordinate’s Performance   Matching resources with objectives o Resource availability becomes an important aspect of objective setting because it is the proper application of resources which ensures objective achievement. Therefore, there should be a matching between objectives and resources. o The allocation and movement of resources should be done in consultation with the subordinate manager.  Appraisal o Appraisal aspect of MBO tries to measure whether the subordinate is achieving his objective or not. If not, what are the problems and how these problems can be overcome. o It is taken as a matter of system to ensure that everything is going as planned and the organization is able to achieve its objectives.  Recycling o The outcome of appraisal at on level is recycled to see if the objectives have been set properly at the level concerned and also at the next higher level. o The three aspects involved in recycling process include setting of objectives at various levels, action planning in the context of those objectives and performance review. Each of these aspects gives base for others. Benefits of MBO  Improvement of managing through results-oriented planning  Clarification of organizational roles and structures as well as delegation of authority according to the results expected by the people occupying the roles.  Encouragement of commitment to personal and organizational goals.  Development of effective controls that measure results and lead to corrective actions. Problems and Limitations of MBO  Time and Cost  Failure to teach MBO philosophy  Problems in objective setting  Emphasis on short-term objectives  Inflexibility  Frustration Prerequisites for installing MBO Programme  Purpose of MBO  Top management support  Training for MBO  Participation  Feedback for self-direction and self-control. Strategy The determination of the mission or purpose and the basic long-term objectives of an enterprise, followed by the adoption of courses of action and allocation of resources necessary to achieve these aims. Strategic Management The set of managerial decisions and actions that determines the long-run performance of an organization. Strategic management process - a six-step process that encompasses strategic planning, implementation, and evaluation. Types of Organizational Strategies  Corporate-Level Strategy o An organizational strategy that seeks to determine what businesses a company should be in or wants to be in. Determines the direction that the organization is going and the roles that each business unit in the organization will play in pursuing that direction. o Grand Strategy  Stability strategy - A corporate-level strategy characterized by an absence of significant change.  Growth strategy  A corporate-level strategy that seeks to increase the level of the organization‘s operations.  Growth through direct expansion ( also called concentration) is achieved by internally increasing a firm‘s sales, production capacity or workforce.  Growth through vertical integration is an attempt to gain control of inputs, outputs or both.  In horizontal integration, a company grows by combining with other organizations in the same industry – that is, combining operations with competitors. Diversification   Related diversification is when a company grows by merging with or acquiring firms in different but related industries.  Unrelated diversification is when a company grows by merging with or acquiring firms in different and unrelated industries. Retrenchment strategy   A corporate-level strategy designed to address organizational weaknesses that are leading to performance declines. o Corporate Portfolio Analysis: BCG Matrix   A strategy tool that guides resource allocation decisions on the basis of market share and growth rate of SBUs.  Business-Level Strategy 2 An organizational strategy that seeks to determine how an organization should compete in each of its businesses. o Strategic Business Units (SBUs)  When an organization is in several different businesses, these single businesses that are independent and that formulate their own strategies.  Competitive Advantage: What sets an organization apart: its distinct edge. Competitive Strategies: Porter’s Five Forces Model  Three Generic Strategies 2 Cost Leadership Strategy – A business-level strategy in which the organization is the lowest-cost producer in its industry. o Differentiation Strategy – A business-level strategy in which a company offers unique products that are widely valued by customers.  o Focus Strategy – A business-level strategy in which a company pursues a cost or differentiation advantage in a narrow industry segment. Functional-level strategy An organizational strategy that seeks to determine how to support the business-level strategy. Policies  Policy is a statement and predetermined guideline that provides directions for decision making and taking action.  General statements or understandings that guide or channelize thinking in decision making. Types Policies On the basis On the basis On the basis of levels of functions of sources Production Originated Basic Policy Polic Policy y General Marketing Appealed Polic Policy Policy y Division Personnel External Polic Policy Policy y Accounting Policy  On the basis of levels o Basic policies are set by top level management o General policies are set by middle level management Division policies are set by division heads or first line supervisors.  On the basis of functions Separate policies are set by management for different managerial functions such as production policy, purchasing policy, pricing policy, dividend policy, quality policy, sales policy, personnel, financial etc.  On the basis of sources Originated policies are formulated by top level managers on their own intuition and experience. o Appealed policies are formulated by top level managers in response to appeals made by lower level mangers  o Imposed policies are those which are imposed upon the organization by external agencies such as government, trade union and trade associations. Policy Making Process (or) Steps in Policy Making  Policy formulation – Policies are formulated by top management. Such policies arise out of needs and purpose perceived and defined by top management. Policy Policy Policy Policy Review Formualtion Commuication Application and Appraisal  Policy communication – After framing the policy, the policy is communicated to those who are responsible for its applications. o Communication of policy may be in the form of policy manuals, written memorandums, board letters and announcements.  Policy Application – The policy should be strictly applied by subordinates. Some flexibility is also essential in day-to-day activities.  Policy Review and Appraisal – Policy become obsolete when it is not reviewed periodically. o Periodical review of policy is essential to avoid complacency in the future. o Management should analyse the existing policies and outdated policies must be scraped out. Decision Making Decision – A choice from two or more alternatives. Decision Making Process A set of eight steps including identifying a problem, selecting an alternative and evaluating the decision‘s effectiveness. 2 Identification of a problem  The decision making process begins with the existence of a problem.  Problem : A discrepancy between an existing and a desired state of affairs.  Problem identification is subjective.  Before something can be characterized as a problem, managers have to be aware of the problem, be under pressure to take action and have the resources needed to take action. 3 Identification of Decision Criteria  Once a manager has identified a problem that needs attention, the decision criteria important to resolving the problem must be identified.  Decision Criteria: Criteria that define what‘s relevant in a decision.   These might include criteria such as price, product model and manufacturer, standard features, optional equipment, service warranties, repair record and service support after purchase.  Whether they are explicitly stated or not, every decision maker has criteria that guide his or her decisions 3. Allocation of weights to criteria  The criteria identified in step 2 are not all equally important, so the decision maker must weight the items in order to give them correct priority in the decision.  A simple approach is to give the most important criterion a weight of 10 and then assign weights to the rest against that standard.  The idea is to use personal preferences to prioritize the criteria identified in step 2 by assigning a weight to each. 4. Development of alternatives  The fourth step requires the decision maker to list the viable alternatives that could resolve the problem.  No attempt is made in this step to evaluate the alternatives, only to list them. 5. Analyzing alternatives  Once the alternatives have been identified, the decision maker must critically analyze each one.  Each alternative is evaluated by appraising it against the criteria established in steps 2 and 3. From this comparison, the strengths and weaknesses of each alternative become evident. 6. Selection of an alternative  The sixth step is the important act of choosing the best alternative from among those considered. The decision makers have to choose the alternative that generated the highest score in step 5. p Implementation of the alternative Step 7 is concerned with putting the decision into action. Implementation involves conveying the decision to those affected by it and getting their commitment to it. q Evaluating decision effectiveness The last step in the decision-making process involves appraising the outcome of the decision to see if the problem has been resolved. Did the alternative chosen in step 6 and implemented in step 7 accomplish the desired result? Answer to this question might send the manager back to one of the earlier steps. Type of Decisions Programmed Decisions  A repetitive decision that can be handled by a routine approach  The programmed decision process is characterized by high levels of certainty for both the problem formulation and the problem solution phases.  Rules and procedures typically spell out exactly how to respond  Programmed decisions are used for structured or routine work. Eg., Promotion decisions Non-programmed decisions  Decisions that must be custom-made to solve unique and nonrecurring problems   Non-programmed decisions are made by upper-level managers, this is because upper- level managers have to deal with unstructured problems.  Non-programmed decisions are used for unstructured, novel and ill-defined situations of a non recurring nature. Eg., Introduction of the Macintosh Computer by Apple Computer. Comparison of Programmed and Non-Programmed Decisions Rational Decision Making Describes choices that are consistent and value maximizing within specified constraints. Bounded Rationality Behaviour that is rational within the parameters of a simplified decision-making process, which is limited (or bounded) by an individual‘s ability to process information. Satisficing Acceptance of solutions that are ‗good enough‘. Escalation of Commitment An increased commitment to a previous decision despite evidence that it may have been wrong. Intuitive decision-making A subconscious process of making decisions on the basis of experience and accumulated judgement. Rational Decision Making Process Recognise the need for a decision Definition of the problem Search and develop alternatives Evaluate alternatives Selecting an alternative among alternatives Implement chosen alternative Learn from feedback  Recognize the need for a decision o Manager recognize the need for a decision in the form of a problem or opportunity.  Definition of the problem o A problem is the gap between present and the desired state of affairs on the subject matter of the decision. o The definition and diagnosis of the problem involves three types of skills: noticing, interpreting and incorporating.  Search and develop alternatives o The alternative course of action can be developed by collecting more information, thinking creatively, consulting experts and undertaking research. o Limiting Factor: A limiting factor is something that stands in the way of accomplishing a desired objective.  o Principle of the Limiting Factor: By recognizing and overcoming factors that stand critically in the way of a goal, the best alternative course of action can be selected.  Evaluate Alternatives o After identifying alternative courses of action, they must be compared and evaluated. This step determines the relative cost of each alternative. o Managers have to determine the advantages and disadvantages of ach alternative. o Selecting an alternative course of action among alternatives Experimentation How to select from Reliance on the past amongst Choice made alternatives? Research and Analysis  Experience  o Experience on the part of managers greatly influence the decision making process. o Selecting a best alternative not only depends on the manager‘s past experience but also depends on the creative thinking and innovative skills of the manager.  Experimentation o Manager tests the alternatives under actual and prevailing conditions o The experimentation may be in the form of test marketing of a new product o This method of selecting an alternative is more expensive.  Research and Analysis o Research and analysis involves a search for relationships among the critical variables, constraints and premises. o This approach requires modeling of problems and to stimulate them o It is mainly a mathematical approach. The expenses required for this criterion is very less compared to experimentation. This is one of the effective criteria to choose the best alternative course of action. This method is more accurate one.   Implement chose alternative e) The decision taken by the management will not serve the purpose if it is not executed properly. o Manager has to take essential steps to implement the solution.  Learn from feedback o Feedback is important because decision making is a continuous and never ending process (iii) Feedback information is very much useful in taking the corrective measures and in taking right decisions in the future. Common decision making errors and biases Decision Making under different conditions   Decision making under certainty o A situation in which a manager can make accurate decisions because all outcomes are known. o It is more idealistic than realistic.  Decision making under Risk o Those conditions in which the decision maker is able to estimate the likelihood of certain outcomes. o The ability to assign probabilities to outcomes may be the result of personal experiences or secondary information.  Decision making under Uncertainty o A situation in which a decision maker has neither certainty nor reasonable probability estimates available. o Force managers to rely on intuition, hunches, and ―gut feelings‖. Approaches The optimistic manager will follow a maximax choice (maximizing the maximum possible payoff) The pessimist will follow a maximin choice (maximizing the minimum possible payoff) The manager who desires to minimize his maximum ―regret‖ will opt for a minimax choice.  UNIT – III ORGANIZING Organising “ The process of creating an organization‟s structure”. “Organising is the process of defining and grouping the activities of an enterprise and establishing the authority relationships among them”. – Theo Haimann. Nature of Organising Division of work Coordination Plurality of persons Common objectives Well-defined authority and responsibility Organization is a structure or relationship Organization is machine of management Organization is a universal process Purpose of organizing Divides work to be done into specific jobs and departments Assigns tasks and responsibilities associated with individual jobs Coordinates diverse organizational tasks Clusters jobs into units Establishes relationships among individuals, groups and departments Establishes formal lines of authority Allocates and deploys organizational resources ORGANIZING PROCESS Organization is the process of establishing relationship among the members of the enterprise. The relationships are created in terms of authority and responsibility. Determination Enumeration Classification Assignment of Delegation of of Objectives of Objectives of Activities Duties Authority a) Determination of Objectives: It is the first step in building up an organization. Organization is always related to certain objectives. Therefore, it is essential for the management to identify the objectives before starting any activity. Organization structure is built on the basis of the objectives of the enterprise. This step helps the management not only in framing the organization structure but also in achieving the enterprise objectives with minimum cost and efforts. Determination of objectives will consist in deciding as to why the proposed organization is to be set up and, therefore, what will be the nature of the work to be accomplished through the organization. b) Enumeration of Objectives: If the members of the group are to pool their efforts effectively, there must be proper division of the major activities. The first step in organizing group effort is the division of the total job into essential activities. Each job should be properly classified and grouped. This will enable the people to know what is expected of them as members of the group and will help in avoiding duplication of efforts. For example, the work of an industrial concern may be divided into the following major functions – production, financing, personnel, sales, purchase, etc. c) Classification of Activities: The next step will be to classify activities according to similarities and common purposes and functions and taking the human and material resources into account. Then, closely related and similar activities are grouped into divisions and departments and the departmental activities are further divided into sections. d) Assignment of Duties: Here, specific job assignments are made to different subordinates for ensuring a certainty of work performance. Each individual should be given a specific job to do according to his ability and made responsible for that. He should also be given the adequate authority to do the job assigned to him. e) Delegation of Authority: Everybody should clearly know to whom he is accountable; corresponding to the responsibility, authority is delegated to the subordinates for enabling them to show work performance. This will help in the smooth working of the enterprise by facilitating delegation of responsibility and authority. ORGANIZATIONAL STRUCTURE  The formal framework, by which job tasks are divided, grouped and coordinated. Formal and Informal Organization Formal Organization  The intentional structure of roles in a formally organized enterprise.  According to Classical Theorists, formal organization is built on four pillars: o Division of labour o Scalar and functional processes o Structure o Span of Control Characteristics  Organization structure is designed by the top management to fulfill certain requirements – performance of necessary activities thereby achieving organizational goals.  Organization structure is based on the principles of division of labour and efficiency in operations.  Organization concentrates more on the performance of jobs and not on the individuals performing the jobs  The authority and responsibility assigned to each job have to be adhered to by the job holders. Based on the concept of authority and responsibility people are placed in hierarchy and their status is determined accordingly.  Coordination among members and their control are well specified through processes, procedures, rules, etc. Informal Organization  A network of interpersonal relationships that arise when people associate with one another. Characteristics  Informal organization is a natural outcome at the workplace. It is not designed and planned.   Informal organization is created on the basis of some similarity among its members. The bases of similarity may be age, gender, place of origin, caste, religion, personality characteristics, likings/disliking, etc.  Membership in an informal organization is voluntary. A person may become member of several informal organizations at the same time.  Behavior of members of the informal organization is coordinated and controlled by group norms and not by the norms of the formal organization. Comparison of Formal and Informal Organization Basis of Comparison Formal Organization Informal Organization Formation Planned and deliberate Spontaneous Purpose Well-set goals Social interaction Structure Well structured Unstructured Nature Official Unofficial Focus Positions Persons Leadership Superior Anyone Source of Power Delegated Given by group Guidelines for behaviour Rules and Procedures Group norms Sources of control Reward/Punishment Sanctions LINE AND STAFF AUTHORITY Authority and Power Power: The ability of individuals or groups to induce or influence the beliefs or actions of other persons or groups. Authority: The right in a position to exercise discretion in making decisions affecting others Line/Staff Concepts Line Authority: The relationship in which a superior exercises direct supervision over a subordinate. Scalar Principle: The clearer the line of authority, the clearer will be the responsibility for decision making and the more effective will be organizational communication. Staff Relationship: The nature of staff relationship is advisory. The function of people in a pure staff capacity is to investigate, research and give advice to line managers. Functional Authority The right delegated to an individual or a department to control specified processes, practices, policies or other matters relating to activities undertaken by persons in other departments. Line Organization/Scaler Organization   Line organization structure is based on scaler or hierarchical principles ie., relative authority and responsibility.  Everyone has a well-defined manager and there is clear definition of the routes of authority and communication  The top-level management takes the major decisions and passes it to middle-level subordinates who implement them.  The middle-level management identifies the job and assigns the responsibility to different people according to their functions and ability. CEO/MD/GM Marketing Manager Personnel/ HRD Finance/Accounts Production Manager Manager Manager Assistant Manager Assistant Manager Superintendent Foreman Workers Advantages  Easy to establish and operate  It is economical and easy to understand  No confusion as authority and responsibilities of each employee are clearly defined.  Discipline and loyalty is ensured due to unified command  Line organization promotes staff discipline more easily than other forms Disadvantages  It is autocrative and dictorial in nature  Line organization is not suitable for large scale enterprise where high level of specialization is required.  Specialized variety of job is difficult to supervise by a supervisor  Limited opportunities for the members to acquire experience of the other functions of the enterprise.  The head of each department is afforded total control of his workforce and to this extent the effectiveness of his department depends upon his capabilities. Line and Staff Organization  In line and staff organization, the line executives are responsible for maintaining discipline, production and the staff division is responsible for research, planning, scheduling, establishing standards and recording of performance.  The line managers are supplied with services of staff for the basic functions like production, marketing, finance, accounting, personnel, R&D, etc.  The line managers are decision takers, taking decisions with the help of staff experts.  Staff experts can suggest their recommendations to the line managers  The implementation is the responsibility of line managers. Hence, the staff experts are called as „thinkers‟ while the line managers are called as „doers‟. Advantages  Operational efficiency is increased  Offer greater flexibility  Wastage of raw material, machine hours are reduced considerably.  Discipline and stability can be achieved  Better chances of advancement for both line and staff managers  Services of staff executives can be used to train line executives Disadvantages  Possibility of misunderstanding between line and staff employees if functions are not defined clearly  Line executives depend too much on staff executives, in such conditions line executive may lose their initiative and creativity  Line manager‟s approach to the problem is practical while the staff management approach being experts in their field is theoretical. ORGANIZATION CHART  An organization chart indicates how departments are tied together along the principal lines of authority.  An organizational chart shows formal authority relationships and omits the many significant informal relationships. Chief Manager Production Works Manager Quality Control Marketing Manager Manager Manager Foreman Foreman Foreman Machine-Shop Assembly-Shop Dispatch Workmen Workmen Workmen DEPARTMENTATION The basis by which jobs are grouped together. Forms (or) Types  Departmentation by Enterprise Function  Departmentation by Territory or Geography  Departmentation by Customer Group  Departmentation by Product  Departmentation by Process Departmentation by Enterprise Function Grouping of activities according to the functions of an enterprise such as production, sales and financing. Plant Manager Manager Manager Manager Manager Manager Engineering Accounting Manufacturing Human Purchasing Advantages  Efficiencies from putting together similar specialities and people with common skills, knowledge and orientations  Coordination within functional area  In-depth specialization Disadvantages  Poor communication across functional areas  Limited view of organizational goals Departmentaion by Geography or Territory Grouping of activities by area or territory is common in enterprises operating over wide geographic areas. Groups jobs on the basis of territory or geography.  Vice President for Sales Sales Director Sales Director Sales Director Sales Director Western Region Southern Region Midwestern Region Eastern Region Advantages  More effective and efficient handling of specific regional issues that arise  Serve needs of unique geographic markets better Disadvantages  Duplication of functions  Can feel isolated from other organizational areas Departmentation by Customer Group  Grouping of activities that reflects a primary interest in customers  Groups jobs on the basis of common customers Chief Executive Manager Manager Manager Manager Industrial Consumer Government Private Relations needs and Division by Consumers Consumers Disadvantages  Duplication of functions  Limited view of organizational