UNIT 1- GLOBAL MANAGEMENT- THEORY AND PRACTICE

DEFINITIONS OF MANAGEMENT

"Management is the art of getting things done through others and with formally organized
groups." -Harold Koontz-
“Management is what manger does.” -Harold Koontz-

Management is the "art of getting things done through people."-Mary Parker Follett.

"Management is the art of knowing what you want to do and then seeing that they do it in the
best and the cheapest way."- F.W. Taylor-

''Management Is a distinct process consisting of planning, organizing, actuating and

controlling; utilizing in each both science and art, and followed in order to accomplish pre-
determined objectives." - George R. Terry -

“Management is the process of planning, organizing, leading and controlling the efforts of
organization members and using all other organizational resources to achieve stated
organizational goals. -James A.E. Stone-

It is the coordination of all resources through the process of planning, organizing, directing
and controlling in order to attain stated objectives. Sisk-

“Management is the fundamental integrating and operating mechanism underlying organized

efforts” -Dalton E. McFarland-

Management is a multipurpose organ that manages a business and manages managers and
manages Workers and work. -Peter Druker-

"Management may be defined as the process by means of which the purpose and objectives of a
particular human group are determined, clarified and effectuated" -Peterson and Plowman-

“Management is an executive function which is primarily concerned with carrying out the board
policies laid down by the administration. It is that function of an enterprise which concerns itself
with the direction and control of various activities to attain the business objectives”.-Dr.
William R.spriegel

Manager is to forecast and to plan, to organize, to command, to coordinate and to control -Henry
Fayol-
According to Theo Haimenn management has three different meaning namely:

1. Management as a noun: refers to a group of managers eg: sales managers, HR manager

2. Management as a process : refers to the functions of management that is planning ,
organising, directing, controlling, etc.,
3. Management as a discipline: refers to the subject of management

* refer page number 4 of chapter VSP RAAO text book for different ways of looking at
management

CHARACTERISTICS OF MANAGEMENT

1. Management is an intangible
2. Management is a goal oriented
3. Management is universal
4. Management is social process
5. Management is group activity
6. Management is system of authority
7. Management is activity
8. Management is dynamic
9. Management is art as well as science
10. Management is multidisciplinary /multidimensional
11. Management is all pervasive
12. Management is continuous process

NATURE OF MANAGEMENT

1. Goal oriented
2. Economic resources
3. Distinct process
4. Integrative force
5. Intangible force
6. Result though others
7. A science and an art
8. System of authority
9. Multi-disciplinary nature and subjects
10. Universal application
11. Getting things done through people.
12. Follows established principles or rules.
13. Aided but not replaced by computers.
14. Need not be an ownership.
 15. Management is all pervasive.

OBJECTIVE OF MANAGEMENT

1. Efficient use of resources

2. Satisfaction of customers
3. Adequate return on capital
4. Satisfied workforce
5. Good working conditions
6. Good relations with suppliers
7. Contribution to national goals
8. Organizational objectives
9. Social objectives
10. Personal objectives

IMPORTANCE OF MANGEMENT

1. Optimum use of resources

2. Effective leadership and motivation
3. Sound industrial relations
4. Achievement of goals
5. Change and growth
6. Improvement in standard of living
7. Management increases efficiency
8. Management creates a dynamic organisation
9. Management helps in achieving personal objectives
10. Management helps in development of society

PURPOSE OF MANAGEMENT

Formulate objectives and goals

Management determines the objectives and main goals for the organization.
Innovation:
Management encourages to using new technology and ideas. Innovation makes the
organization more efficient.
Guidance:
Management provides guidance to the workers to work properly and efficiently.
Motivation:
Management motivates the workers to work hard by providing them various incentives. They
also solve their personal problems. In this way they can boost the productivity and profitability
of the organization.
Reducing cost by increasing output:
Management does work through planning, organizing and controlling; thus, it reducing the cost
and increasing the output.
Optimum utilization of resources:
Management utilizes all the physical and human resource effectively; this leads to efficiency in
organization. Management provides maximum utilization of scare resources by selecting its best
possible alternate. It avoids wastage to utilize proper resources.
Selection of well qualified human power:
Management selects well qualified and expert human power for different works.
Establishes Equilibrium:
Management helps in serving an organization in its dynamic environment. It enables the
organization to survive in changing environment. The environment of organization changes due
to external complexities and hence management has to deal with it. To establish sound
organizational structure is one of the objectives of management.
Useful for society:
Management provided good standard of living to his workers. And management provides useful
and quality products to the consumers.
LEVELS OF MANAGEMENT

Top Level Management

Middle Level Management

Lower Level Management

Management has various activities in an
organization. These activities are controlled by different people at different level. The term
“level” of management refers to a lines of demarcation between various managerial position is an
organization. The levels of management can be classified in these broad categories.-

Top level:

Top management also called administrative level management. It is a central management. Top
management of a company is constituted by its board of directors and the chief executive.

Functions:

 Top management formulates objectives and establishes goals and policies of company.
 It determines the basic pattern of the organization structure.
 It prepares strategic plans and policies for organization.
  It prepares overall budgets and programs for short terms and long terms operations.
 It is responsible for the success or failure of the organization.
 It is responsible for maintain public relations with the outside world.
 It provides guidance and direction to all department of organization.

Middle Level:

In large organization is bifurcated into two parts upper middle or intermediate management.

Middle management is constituted by branch managers, departmental and sectional managers.

Function:

 They receive orders from top level management anddevelop derivative objectives and
policies.
 They are responsible for co-coordinating the activities within the branch and department.
 They interpret policies and direction from top level management to lower level.
 They motivate the day to day function of the management.
 They affect co-ordination between top management and supervisory management.
 They linked the top level management to lower level management.
 They send progress report of their work to top level management.

Lower level:

Lower level is also known as supervisory or operative level. It is constituted by superintendents,

foreman and inspectors.

Function:

 They guide and direct the worker for daily activities.

 They arrange material required by the workers.
 They are responsible for the performance of workers.
 They supervise and guide the sub-ordinates.
 They ensure the quality of work completed in a given time.
 They are planning and completing day to day work.
 They direct contact with the workers

SKILLS REQUIRED BY THE MANAGER AT EACH LEVEL

These management functions are common to all managers at different levels in organizational
hierarchy. However, the importance and of each of these function and the effort managers need
to put in, is influenced significantly by the hierarchical level of managers. Accordingly, the skill
requirements of managers also change with their level in management hierarchy.

For examining the relationship between hierarchical level of managers and the skill required by
them we can group managers in any organization in three broad groups.

1. Top-management: This refers to the top one or two hierarchical levels in the organization
structure. Managers at these levels have responsibilities for the total organizational performance
covering multiple business activities.

2. Middle-management: These are the managers between the top- and first-level management.
They generally do not have the responsibility for more than one type of business activity, and
even within that may be responsible for only a segment of the total work in the organization.

3. First-level-management: They are at the lowest one or two levels of management hierarchy.
They are the people responsible for directly supervising the work of operational staff, and form a
link between them and the management.

Top Level Management – Conceptual Skills

Middle Level Management- Human Skills

Lower Level Management- Technical Skills

Mintzberg highlighted that each manger has to play three key roles in an organization.
 He described these roles as ‘organized set of behaviours identified with the position. They are
namely inter personal role, informational role, decisional role

Interpersonal Information role Decisional role

Figure head Monitor Entrepreneur
Leader Disseminator Disturbance handler
Liaison Spokesmen Resource allocator

FUNCTIONS OF MANAGEMENT

The functions of management are broadly divided in two namely managerial function &
operational function.

Luther Gulick coined the word “PODSCoRB” to describe the functions of management

MANAGERIAL FUNCTIONS:
Planning

Planning is the first tool of the functions in the management process. The difference between a
successful and unsuccessful manager lies within the planning procedure. Planning is the logical
thinking through goals and making the decision as to what needs to be accomplished in order to
reach the organizations’ objectives. Managers use this process to plan for the future, like a
blueprint to foresee problems, decide on the actions to evade difficult issues and to beat the
competition.

Organizing

The next function of the management is getting prepared, getting organized. Management must
organize all its resources well before in hand to put into practice the course of action to decide
that has been planned in the base function. Through this process, management will now
determine the inside directorial configuration; establish and maintain relationships, and also
assign required resources.

Staffing

It is the process of acquiring, deploying, developing, maintaining and retaining a workforce of

sufficient quantity and quality to create positive impacts on the organization’s effectiveness
towards achieving of organizational goals

Directing

It involves the implementation of plans by mobilizing individuals and group efforts through
motivation, communication, leadership and supervision. Directing may be defined as the process
of activating the efforts of employees towards the achievement of organizational objectives.

Controlling

It is the process of regulating the on-going activities of the organization to ensure that they are in
conformity with the established plans and produce the desired results. Through the controlling
function, management can keep the organization on its chosen track. It involves:

 Establishing standards of performance

 Measuring current performance
 Comparing actual results with the established standards
 Detecting deviations from the standards
 Taking corrective actions for significant deviations.
Coordinating

Coordination is balancing and keeping together the team by ensuring suitable allocation of task
to the various members and seeing the task and performed with harmony among the members
themselves.

It is the process of achieving unity of actions among interdependent activities and departments of
an organization

Motivation

Communication

ADMINISTRATION VS MANAGEMENT

According to Theo Haimann, “Administration means overall determination of policies, setting of

major objectives, the identification of general purposes and lying down of broad programmes
and projects”. It refers to the activities of higher level. It lays down basic principles of the
enterprise.

According to Newman, “Administration means guidance, leadership & control of the efforts of
the groups towards some common goals”.

Whereas, management involves conceiving, initiating and bringing together the various elements;
coordinating, actuating, integrating the diverse organizational components while sustaining the
viability of the organization towards some pre-determined goals. In other words, it is an art of
getting things done through & with the people in formally organized groups.

 Administration is broader than management

 Administration is part of management
 Management and administration are identical

Point of distinction Administration Management

Nature Thinking function(what is to Doing function (who should
be done and when) do it and how)
Scope Determine broad objectives Implements plans and
and policies. achieves goals through people.
Level Top level function. Middle and lower level
function.
Skill needed Conceptual and human skills Technical and human skills
Represents Owners who invest capital and Paid individuals who work for
receive profit. remuneration
Usage Mostly in govt., military, Mostly in business
 educational, social, and organization
cultural organisations.

The difference between Management and Administration can be summarized under 2 categories:
-

1. Functions
2. Usage / Applicability

On the Basis of Functions: -

Basis Management Administration

Meaning Management is an art of It is concerned with formulation of broad

getting things done through objectives, plans & policies.
others by directing their
efforts towards achievement
of pre-determined goals.

Nature Management is an executing Administration is a decision-making function.

function.

Process Management decides who Administration decides what is to be done &

should as it & how should he when it is to be done.
dot it.

Function Management is a doing Administration is a thinking function because

function because managers get plans & policies are determined under it.
work done under their
supervision.
Skills Technical and Human skills Conceptual and Human skills

Level Middle & lower level function Top level function

On the Basis of Usage: -

Basis Management Administration

Applicability It is applicable to business concerns It is applicable to non-business

i.e. profit-making organization. concerns i.e. clubs, schools, hospitals
etc.

Influence The management decisions are The administration is influenced by

influenced by the values, opinions, public opinion, govt. policies, religious
beliefs & decisions of the managers. organizations, customs etc.

Status Management constitutes the Administration represents owners of

employees of the organization who the enterprise who earn return on their
are paid remuneration (in the form capital invested & profits in the form of
of salaries & wages). dividend.

MANAGEMENT AS A SCIENCE, AN ART AND PROFESSION

MANAGEMENT: SCIENCE OR ART?

The question whether management is a science, art or profession is put to debate quite frequently.
There are arguments on both sides.
Definition of science

“A systematic body of knowledge pertaining to area of study and contains some general truths
explaining past event or phenomena.”

PROPERTIES OF SCIENCES

1. Systematic body of knowledge

2. Scientific enquiry and observation
3. Experimentation
4. Universal truths

MANAGEMENT AS A SCIENCE
 Systematic body of knowledge
 Management is a social science
 Management is an inexact science ( don’t have absolute principles)
 Manager vs. scientist
 Scientific management
Definition of art
“The way of doings specific things, it indicates how an object is to be achieved”
PROPERTIES OF ART
Art is the application of knowledge and personal skill to achieve results. It is based on the
knowledge of principles offered by the science.

MANAGEMENT AS AN ART

 Use of knowledge
 Creative art
 Personalised
 Constant practice

MANAGEMENT Is SCIENCE AS WELL AS AN ART

MANAGEMENT AS A PROFESSION

CHARACTERISTICS OF A PROFESSION

1. Well-defined body of knowledge

2. Formal education and training
 3. Minimum qualification
4. Representative body
5. Service above self
6. Ethical code of conduct

IS MANAGEMENT A PROFESSION?

 Well defined body of knowledge

 Formal education and training
 Representative body
 Code of conduct
 Service motto

Evolution of Management Thought

Management has been progressively evaluated through the following three stages.

The Classification theory of management

It has three streams:-

 Bureaucracy : 1900
 Scientific management: 1900-1930
 Administrative / Operational management: 1916-1940

The Neo-classical Theory of management

It has two streams:-

 Human Relations: 1930-1950

 Behavioural Approach: 1940-1950

Modern Theory of management

It has three streams:-

 Quantitative Approach: 1950-1960

 Systems Approach: 1960s onwards
 Contingency Approach: 1970s onwards

Classical theory

Principles of management - Henry Fayol

• Division of work

• Authority

• Discipline

• Unity of command

• Unity of direction

• Subordination of individual interests to the general interest

• Remuneration

• Centralization

• Scalar chain (line of authority)

• Order

• Equity

• Stability of tenure of personnel

• Initiative

• Espritde corps

Neo- Classical Theory

Neo- classical theory is also referred to as behavioural science approach to modifying and
improving the classical theory. While classical theories focused more on structure and physical
aspects of the worker and Neo-classical theory gives importance to human and social aspects of
the worker and his relations in the organization.

The neo-classical theory is based on the Hawthrone experiments. Elton Mayo conducted the
Hawthrone experiments at Hawthorne plant of General Electronic Company (GEC) between
1927 and 1993 at Chicago with 30,000 workers. The Hawthorne plant was manufacturing
telephone system bell. The objective of the experiment was to find out the behaviour and attitude
of workers at workplace under better working conditions. In the company, when management
provide the benefits of medical allowance and pension with recreational facilities. Even though
workers get all facilities but the productivity was not up to expectation. So, in 1924, the
professor Elton Mayo and his research team investigate the reasons for dissatisfaction of
employees and decrease in productivity.
Four Phase of Hawthrone experiments:

Prof. Elton Mayo and his team conducted researches in four phases.

 Illumination experiments (1924 – 1927)

 Relay assembly room experiments (1927 – 1928)
 Mass interviewing programme (1928 -1930)
 Bank wiring room study (1931 – 1932)

Result of Hawthrone Experiments:

Motivation: Employees are not motivated by only money (bonus scheme and incentive).

Communication: communication helps the management and employees to have better mutual
understanding. Through proper communication, management can easily identified the problem
faced by its employees and can easily solve out

Social factors: Social factors are responsible for deciding the level of output.

Behaviour of workers: workers are not as individual identity but as members of a group in an
organization and they have their own norms and beliefs. Workers behaviour depends upon his
mental level and emotions. Workers began to influence their group behaviour towards
management.

Relationship: Employees do not like order and command. They preferred to maintain amicable
relationship with their co-workers. They want co-operative attitude from their superiors.

Production level: Teamwork and Group psychology increases productivity.

Modern Management Theory

Modern management theories started after 1950s. Modern management theory focuses the
development of each factor of workers and organization. Modern management theory refers to
emphasizing the use of systematic mathematical techniques in the system with analysing and
understanding the inter-relationship of management and workers in all aspect.

It has following three Streams-

 Quantitative Approach
 System Approach
 Contingency Approach
Quantitative Approach:

Quantitative approach also called Operation Research. Quantitative approach is a scientific

method. It emphasizes the use of statistical model and systematic mathematical techniques to
solving complex management problems. Its helps the management to making decisions in
operations. It can only suggest the alternatives based on statistical data. It cannot take final
decision.

It helps the management for improving their decision making by increasing the number of
alternatives and giving faster decisions on any problem. Management can easily calculate the
risk and benefit of various actions.

System approach:

System approach was developed inlate1960s. Herbert A. Simon is the father of system theory. A
System is defined as a set of regularly interacting or inter-dependent components that create as a
whole unit. The system concept enables us to see the critical variables and constraints and their
interactions with one another.

Contingency Approach:

Contingency Approach also knows as situational approach. In 1980s, it is recognized as a key to

effective management. This approach accepts the dynamics and complexities of the organization
structure. An organization is affected by its environment and environment is composed by
physical resources, climate, persons, culture, economic and market conditions and their laws.

This approach argues that there is no one universally applicable set of rules by which to manage
organization.
 EVOLUTION OF MANAGEMENT

The development of management thought has been evolutionary in nature under the following
four parts:
1. Pre-Scientific Management Era (Before 1880)
2. Classical Management Era (1880-1930)
a. Scientific management theory
b. Administrative management theory
3. Neo-Classical Management Era (1930-1950)
a. Behavioural science theory
b. Human relation theory
4. Modern Management Era (1950 onwards)
a. Systems theory
b. Contingency theory

During the history of management a number of more or less separate schools of management
thought have emerged, and each sees management from its own viewpoint. Thus there are many
ways of classifying management theories. Koontz’s has classified the management theories into
the following six groups:
 The management process school
 The empirical school
 The human behavioural school
 The social systems school
 The decision theory school
 The mathematical school.

PRE-SCIENTIFIC MANAGEMENT PERIOD.

 Management principle are found in organization of public life in ancient Greek

The Roman Catholic Church and the military forces.
 But they were not much used business affairs till second half of 19th century.

(A) Professor Charles Babbage (UK 1729 -1871)

- He is a professor of mathematics in Cambridge University.
- He advocated the use of accurate observations, measurements and precise knowledge
for taking decisions in business concerns.
- In his essay, “The Economy of Machines and Manufacture”, he perceived that the
methods (science and mathematics could be applied to the solutions of the problems
of the factories.)

(B) James Watt Junior (UK 1796 - 1848) and Mathew Robinson Boulton (1770 - 1842)
- Both contributed certain management techniques in their engineering factory Soho in
Birmingham
 - Techniques which they contributed were on - Production Planning, Standardization of
Components, Maintenance, Planned machine layout, Provision of welfare for
personnel, Scheme for executive development, Marketing Research and forecasting,
Elaborate statistical records

(C) Robert Owens (UK 1771 - 1858)

- He managed a group of textile mills in Lanark, Scotland from 1800 to 1828, where he
used his ideas of human relations.
- He made some remarkable observations concerning on the factors which influence the
productivity of the personnel in his plants.
- He believed and practiced the idea that workers should be treated as human beings.
- He the promoter of co-operative and trade union movement in England, emphasized the
recognition of human element in industry.
- He firmly believed that workers' performance in industry was influenced by the working
conditions and treatment of workers.
- He introduced new ideas of human relations - shorter working hours, housing facilities,
training of workers in hygiene, education of their children, provision of canteen etc.
- Though his approach was paternalistic, he came to be regarded as the father of Personnel
Management.

(D) Henry Robinson Towne (USA 1844 -1924)

- He was the president of the famous lock manufacturing company "Yale and Town".
-He urged the combination of engineers and economists as industrial managers.
-These combination of qualities, together with at least some skill as an accountant, is
essential to the successful management of industrial workers.
-He favoured organized exchange of experience among managers and pleaded for an
organized effort to pool the great fund of accumulated knowledge in the art of workshop
management.

(E) Seebohm Rowntree (UK 1871- 1954)

-
- He created a public opinion on the need of labour welfare scheme and improvement in
industrial relations.
- His zeal and interest was well supported by -The Industrial Welfare Society, The
Management Research Groups and the Oxford Lecture Conferences in the U.K.

CLASSICAL THEORIES

Though the above said contributors were the pioneers of management thought, the real beginning
of the science of management did not occurred until the last decade of 19thcentury.During this
period, stalwarts like F.W. Taylor, H.L. Gantt, Emerson, Frank and Lillian Gilberth etc., laid the
foundation of management, which in due course, came to be known as scientific management.

Features of Management in the Classical Period:

 (A) It was closely associated with the industrial revolution and the rise of large-scale
Enterprise.
(B) Classical organization and management theory is based on contributions from a number
of sources. They are scientific management, Administrative management theory,
bureaucratic model, and micro-economics and public administration.
(C) Management thought focussed on job content division of labour, standardization,
Simplification and specialization and scientific approach towards organization.

A. TAYLOR'S SCIENTIFIC MANAGEMENT

(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:
 Science, not rule of thumb
 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

1. Scientific Task and Rate-setting, work improvement, etc.

a. Methods Study:
b. Motion Study:
c. Time Study (work measurement):
d. Fatigue Study:
e. Rate-setting:

2. Planning the Task.

3. Vocational Selection and Training
4. Standardization (of working conditions, material equipment etc.)
a) Tools and equipment
b) Speed
c) Conditions of Work
d) Materials

5. Specialization
a) The Route Clerk
b) The Instruction Card Clerk
c) The Time and Cost Clerk
d) The Gang Boss
 e) The Speed Boss
f) The Repair Boss
g) The Inspector

6. Mental Revolution.

Benefits of Scientific Management

(a) Replacement of traditional rule of thumb method by scientific techniques.

(b) Proper selection and training of workers.
(c) Incentive wages to the workers for higher production.
(d) Elimination of wastes and rationalization of system of control.
(e) Standardization of tools, equipment, materials and work methods.
(f) Detailed instructions and constant guidance of the workers.
(g) Establishment of harmonious relationship between the workers.
(h) Better utilization of various resources.
(i) Satisfaction of the needs of the customers by providing higher quality products at
lower prices.

Criticism
1. Worker's Criticism
a. Speeding up of workers
b. Loss of individual worker's initiative
c. Problem of monotony
d. Reduction of Employment
e. Weakening of Trade Unions
f. Exploitation of workers

2. Employer's Criticism
A. Heavy Investment:
B. Loss due to re-organization:
C. Unsuitable for small scale firms:

Contributions of Scientific Management:

1. Emphasis on rational thinking on the part of management

2. Focus on the need for better methods of industrial work through systematic study and research.
3. Emphasis on planning and control of production.
4. Development of Cost Accounting.
5. Development of incentive plans of wage payment based on systematic study of work.
6. Focus on need for a separate Personnel Department.
7. Focus on the problem of fatigue and rest in industrial work
Frank Gilbreth (1868- 1924), Lillian Gilbreth (1878-1972)
Frank and Lillian Gilbreth were a husband-wife team if industrial engineers. They produced
significant contributions in motion study and work simplification. With the use of motion picture
cameras, the Gilbreth's found the most efficient and economical motions for each task, thus
reducing and upgrading production. Working individually and together, Frank and Lillian
Gilbreth developed numerous techniques and strategies for eliminating inefficiency.
Henry L. Gantt (1861-1919)
Contributions toward work scheduling and control were made by Harry L. Gantt. He tried to
improve systems or organizations through task scheduling and reward innovation. Essentially,
Gantt's most famous contribution was the Gannt chart, a system of control and scheduling we
still use today.
Harrington Emerson (1853-1931)
The principles of efficiency were further developed by Harrington Emerson, an American
engineer. He was also a strong advocate of making a strict distinction between line and staff
roles in organizations. Moreover, Emerson urged on the use of statements of goals and objectives
for the total organization. He was the first to use the term 'efficiency engineering' to describe
his brand of consulting. He called his philosophy "The Gospel of Efficiency". According to him,
"efficiency means that the right thing is done in the right manner, by the right man, at the right
place, in the right time".

B. ADMINISTRATIVE MANAGEMENT THEORY:

Henry Fayol (France, 1841 - 1925):

- Henry Fayol was born in 1941 at Constantinople in France.

- He graduated as a mining engineer in 1860 from the National School of Mining.
- After his graduation, he joined a French Coal Mining Company as an Engineer.
- After a couple of years, he was promoted as manager. He was appointed as General
Manager of his company in 1888.
- At that time, the company suffered heavy losses and was nearly bankrupt.
- Henry Fayol succeeded in converting his company from near bankruptcy to a strong
financial position and a record of profits and dividends over a long period.
- He was the most important exponent of this theory.
- The pyramidal form, scalar principle, unity of command, exception principle, span of
control and departmentalisation are some of the important concepts set forth by Fayol and
his followers like Mooney and Reiley, Simon, Urwick, Gullicketc

Concept of Management: Henry Fayol is considered the father of modern theory of

general and industrial management. He divided general and industrial management into
six groups:

1. Technical activities - Production, manufacture, adaptation.

2. Commercial activities - buying, selling and exchange.
3. Financial activities - search for and optimum use of capital.
4. Security activities - protection of property and persons.
5. Accounting activities - stock-taking, balance sheet, cost, and statistics.
6. Managerial activities - planning, organization, command, co- ordination and control.

Fayol's Principles of Management:

1) Division of work
2) Authority and Responsibility
3) Discipline
4) Unity of Command
5) Unity of Direction
6) Emphasis on Subordination of Personal Interest to General or Common Interest
7) Remuneration
8) Centralization
9) Scalar Chain
10) Order
11) Equity
12) Initiative
13) Stability of Tenure
14) Esprit de corps - of Co-operation

Chester I. Barnard (1886-1961)

Chester Barnard made significant contributions to management in his book, The Functions of
the Executive. One of his contributions was the concept of the informal organization. Another
significant contribution was the acceptance theory of authority, which states that people have
free will and can choose whether to follow management orders. An order is accepted if the
subordinate understands it, is able to comply with it, and views it as appropriate given the goals
of the organization.

C. Bureaucratic Model

Max Weber, a German Sociologist developed the bureaucratic model. His model of bureaucracy
includes:

(i) Hierarchy of authority.

(ii)Division of labour based upon functional
specialization.
(iii) A system of rules.
(iv)Impersonality of interpersonal relationships.
(v) A system of work procedures.
(vi)Placement of employees based upon technical
competence.
(vii) Legal authority and power.
Bureaucracy provides a rigid model of an organization. It does not account for important
human elements. The features of Bureaucracy are:-

1. Rigidity, impersonality and higher cost of controls.

2. Anxiety due to pressure of conformity to rules and procedure.
3. Dependence on superior.
4. Tendency to forget ultimate goals of the organization.

NEO-CLASSICAL THEORY

- Neo-classical Theory is built on the base of classical theory.

- He modified, improved and extended the classical theory.
- Classical theory concentrated on job content and management of physical resources
whereas, neoclassical theory gave greater emphasis to individual and group relationship
in the workplace.
- The neo- classical theory pointed out the role of psychology and sociology in the
understanding of individual and group behaviour in an organization.

BEHAVIOURALTHEORY
Elements of Behavioural Theory:
1) The Individual
2) Work Groups
3) Participative Management
George Elton Mayo (Australia, 1880 - 1949)
- He was born in Australia.
- He was educated in Philosophy and Psychology at St. Peter's College, Adelaide.
- He led a team of researchers from Harvard University, which carried out investigation in
human problems at the Hawthorne Plant of Western Electrical Company at Chicago.
- They conducted some experiments (known as Hawthorne Experiments) and investigated
informal groupings, informal relationships, patterns of communication, patterns of
informal leadership etc.
- He is generally recognized as the father of Human Relations School. Other prominent
contributors to this school include Roethlisberger, Dickson, Dewey, Lewin etc.
Hawthorne Experiment:

- In 1927, a group of researchers led by Elton Mayo and Fritz Roethlisberger of the
Harvard Business School were invited to join in the studies at the Hawthorne Works of
Western Electric Company, Chicago.
- The experiment lasted up to 1932. The Hawthorne Experiments brought out that the
productivity of the employees is not the function of only physical conditions of work and
money wages paid to them.
- Productivity of employees depends heavily upon the satisfaction of the employees in their
work situation.
- Mayo's idea was that logical factors were far less important than emotional factors in
determining productivity efficiency. Furthermore, of all the human factors influencing
employee behaviour, the most powerful were those emanating from the worker's
participation in social groups.
- Thus, Mayo concluded that work arrangements in addition to meeting the objective
requirements of production must at the same time satisfy the employee's subjective
requirement of social satisfaction at his work place.
The Hawthorne experiment consists of four parts.
1. Illumination Experiment,
2. Relay Assembly Test Room Experiment,
3. Interviewing Programme,
4. Bank Wiring Test Room Experiment.

The findings of the bank wiring study are:-

(i) Each individual was restricting output.
(ii) The group had its own "unofficial" standards of performance.
(iii)Individual output remained fairly constant over a period of time.
(iv)Informal groups play an important role in the working of an organization.

Contributions of the Hawthorne Experiment: Elton Mayo and his associates conducted their
studies in the Hawthorne plant of the western electrical company, U.S.A., between 1927 and
1930. According to them, behavioural science methods have many areas of application in
management. The important features of the Hawthorne Experiment are:-

1. A business organization is basically a social system. It is not just a techno-economic

system.

2. The employer can be motivated by psychological and social wants because his
behaviour is also influenced by feelings, emotions and attitudes. Thus economic
incentives are not the only method to motivate people.

3. Management must learn to develop co-operative attitudes and not rely merely on
command.

4. Participation becomes an important instrument in human relations movement. In

order to achieve participation, effective two-way communication network is essential.

5. Productivity is linked with employee satisfaction in any business organization.

Therefore management must take greater interest in employee satisfaction.

6. Group psychology plays an important role in any business organization. We must

therefore rely more on informal group effort.

7. The neo-classical theory emphasizes that man is a living machine and he is far
more important than the inanimate machine. Hence, the key to higher productivity
lies in employee morale. High morale results in higher output.
 HUMANRELATIONSTHEORY

Abraham Maslow (1908-1970s), a practicing psychologist, observed that his patients are
motivated by a sequence of needs, including monetary incentives, social acceptance, and others.
He generalized his work and suggested a hierarchy of needs. Maslow's theory of "hierarchical
needs" was a primary factor in the increased attention that managers began to give to the work of
academic theorists.

Douglas McGregor (1906-1970)

In the 1960s, social psychologist Douglas McGregor developed two contrasting theories that
explained how managers' beliefs about what motivates their people can affect their management
style. He labelled these Theory X and Theory Y. Theory X and Theory Y were first explained by
McGregor in his book, "The Human Side of Enterprise," and they refer to two styles of
management – authoritarian (Theory X) and participative (Theory Y).
Theory X managers tend to take a pessimistic view of their people, and assume that they are
naturally unmotivated and dislike work. As a result, they think that team members need to be
prompted, rewarded or punished constantly to make sure that they complete their tasks.
Theory Y managers have an optimistic, positive opinion of their people, and they use a
decentralized, participative management style. This encourages a more collaborative , trust-
based relationship between managers and their team members.
Limitations of Human Relations Approach:-

1. The human relationists drew conclusions from Hawthorne studies. These conclusions
are based on clinical insight rather than on scientific evidence.

2. The study tends to overemphasize the psychological aspects at the cost of the
structural and technical aspects.

3. It is assumed that all organizational problems are amenable to solutions through

human relations. This assumption does not hold good in practice.

4. The human relationists saw only the human variables as critical and ignored other
variables.

5. The human relationists overemphasize the group and group decision-making. But
in practice, groups may create problems and collective decision-making may not
be possible.

Modern Theory (System Approach)

Meaning of "System": The word system is derived from the Greek word meaning to bring
together or to combine. A system is a set of interconnected and inter-related elements or
component parts to achieve certain goals. A system has three significant parts:

1. Every system is goal-oriented and it must have a purpose or objective to be attained.

2. In designing the system we must establish the necessary arrangement of components.

3. Inputs of information, material and energy are allocated for processing as per plan
so that the outputs can achieve the objective of the system.

Systems Approach Applied to an Organization:

1. It is a sub-system of its broader environment.

2. It is a goal-oriented – people with a purpose
3. It is a technical subsystem – using knowledge, techniques, equipment and facilities.
4. It is a structural subsystem – people working together on interrelated activities.
5. It is a psychosocial system – people in social relationships.
6. It is co-ordinate by a managerial sub system, creating, planning, organizing, motivating,
communicating and controlling the overall efforts directed towards set goals.

Characteristics of Modern Management Thought:

1. The Systems Approach: An organization as a system has five basic parts -

(1) Input
(2) Process
(3) Output
(4) Feedback and
(5) Environment.

2. Dynamic
3. Multilevel and Multidimensional
(1) Production subsystem
(2) Finance subsystem
(3) Marketing subsystem
(4) Personnel subsystem

4. Multi-motivated
5. Multidisciplinary
6. Multivariable
7. Adaptive
8. Probabilistic

THE SYSTEMS APPROACH

The systems approach to management is more a perspective for viewing problems than a school
of management thought.
Karl Ludwig von Bertalanffy is recognized as the founder of general system theory. The system
approach is based on the concept that an organization is a system. A system is defined as a
number of interdependent parts functioning as a whole for some purpose. Here there are five
components: inputs, a transformation process, outputs, feedback, and the environment.
The systems approach is very important in general management analysis. Four especially ideas
that have had substantial impact on management thinking are the concepts of open versus closed
systems, subsystems, subsystems and interdependencies, synergy and entropy.

Open versus closed systems. According to Ludwig von Bertlanffy, there are two basic types of
systems: closed systems and open systems. Closed system are not influenced by and do not
interact with their environments. Open systems interact with their environment. All organizations
are open systems, although the degree of interaction may vary.
Entropy: Entropy is a universal property of systems and refers to their tendency to run down and
die. A primary objective of management, form systems perspective, is to avoid entropy.
Synergy: Synergy means that the whole is greater the sum of its parts. Synergy is an important
concept for managers in that it reinforces the need to work together in a cooperative fashion.
Subsystems: A subsystem is a system within a system. From another perspective, subsystems
are parts of a system that depend on one another.
THE CONTINGENCY APPROACH
One pioneer who was instrumental in moving organization theory to the contingency approach
was Joan Woodward, who studies the effect of technology on the organization. Woodward found
that many variations in organization structure were associated with differences in manufacturing
techniques. As Woodward pointed out:
"Different technologies imposed different kinds of demands, and these demands had to meet
through an appropriate structure. Commercially successful firms seemed to be those in which
function and form were complementary.
Several authors have further developed some ides of contingency thinking. One of these
important contributors is James D. Thompson, whose work in the area of technology's effect on
organization is already a classic.
Thompson argued that organizations that experience similar technological problems will engage
in similar behaviour.
The contingency view approaches management from a totally different perspective than do the
formal schools of management. The classical, behavioural, and management science schools
assumed a universal approach. They proposed the discovery of "one-best-way" management
principles that applied the same techniques to every organization. However, experienced
managers know that not all people and situations should be handled identically. Therefore, the
contingency approach holds that universal solutions and principles cannot be applied to
organizations. In simple terms, the contingency theory suggests that what managers do in
practice depends on, or is contingent upon, a given set of circumstances - a situation.
The contingency perspective tells us that the effectiveness of various managerial practices, styles,
techniques, and functions will vary according to the particular circumstances of the situation.
Management's task is to search for important contingencies. The main determinants of the
contingency view relate to the external and internal environments of the organization. However,
the contingency approach is not without its critics. Its major problem is that it often is used as an
excuse for not acquiring formal knowledge about management. This formal study of
management helps managers decide which factors are relevant in what situations and its certain
elements should serve as a foundation for continued growth and developments.
RECENT TRENDS
In recent years, two management trends that seem significant in response to international
competition are the adoption of Japanese management practice and the renewed efforts to
achieve excellence in product and service quality.
Theory Z management. Given the recent success of Japanese companies, management writers
have been carefully analysing Japanese organizations. The most notable publication in this area
is Ouchis Theory Z. Ouchi showed that American and Japanese firms are essentially different
along seven important dimensions:

1. length of employment
2. mode of decision making,
3. locations of responsibility,
4. speed of evaluation and promotion,
5. mechanism of control,
6. specialization of career path
7. And nature of concern of the employee.

Ouchi’s theory Z proposes a hybrid form of management that incorporates techniques from both
Japanese and North American management practices. In a very short time, his ideas have been
well received by practicing managers.
Achieving excellence in their best seller on America’s best-run companies, In Search of
Excellence, Peter and Waterman found eight basic principles that reflected these companies,
management value and corporate culture. The eight principles of excellent companies are:
CURRENT TRENDS AND ISSUES
The following are the current concepts and practices are changing the way managers do
their jobs today.

Globalization: Organizational operations are no longer limited by national borders.

Managers throughout the world must deal with new opportunities and challenges
inherent in the globalization of business.

Ethics: Cases of corporate lying, misrepresentations, and financial manipulations have

been widespread in recent years. Managers of firms such as Enron, ImClone, Global
Crossing and Tyco International have placed their own self-interest ahead of other
Stakeholders’ welfare. While most managers continue to behave in a highly ethical
manner, abuses suggest a need to “upgrade” ethical standards. Ethics education is
increasingly emphasized in college curricula today. Organizations are taking a more
active role in creating and using codes of ethics, ethics training programs, and ethical
hiring procedures.

Workforce diversity: It refers to a workforce that is heterogeneous in terms of gender,

race, ethnicity, age, and other characteristics that reflect differences. Accommodating
diverse groups of people by addressing different lifestyles, family needs, and work
styles is a major challenge for today’s managers.
.

Entrepreneurship: It is the process whereby an individual or group of individuals use

organized efforts to pursue opportunities to create value and grow by fulfilling wants
and needs through innovation and uniqueness, no matter what resources the
entrepreneur currently has.
Three important themes stand out in this definition:
a. The pursuit of opportunities
b. Innovation
c. Growth
Entrepreneurship will continue to be important to societies around the world.
.
Managing in an E-Business World: E-business (electronic business) is a
comprehensive term describing the way an organization does its work by using
electronic (Internet-based) linkages with its key constituencies in order to efficiently
and effectively achieve its goals.

Knowledge Management and Learning Organizations: Change is occurring at an

unprecedented rate. To be successful, today’s organization must become learning
organization—one that has developed the capacity to continuously learn, adapt, and
change. Knowledge management involves cultivating a learning culture where
organizational members systematically gather knowledge and share it with others in the
organization so as to achieve better performance.

Quality Management: Quality management is a philosophy of management that is driven

by continual improvement and response to customer needs and expectations. The
objective of quality management is to create an organization committed to continuous
improvement in work

SOCIAL RESPONSIBILITY

TYPES OF ENVIRONMENT: INTERNAL, EXTERNAL

MEANING

Social responsibility is an ethical framework which suggests that an entity, be it an organization

or individual, has an obligation to act for the benefit of society at large. Social responsibility is a
duty every individual has to perform so as to maintain a balance between the economy and the
ecosystems.

Definition of social responsibility:

According to H. R. BOWEN “Obligation of business to pursue those decisions or to follow

those line of action which are desirable in terms of objectives and values of society.
STAKEHOLDERS OF CORPORATE SOCIAL RESPONSIBILITIES

OBLIGATION OF BUSINESS TOWADS DIFFERENT SEGMENTS OF SOCIETY

1. Obligations towards owners or shareholders

(A) Reasonable Dividend:
(B) Protection of assets:
(C) Information:
2. Obligations towards Customers
(a) Provide qualitative goods at reasonable price
(b) Fare practices of business
(c) Provide prompt service to customers.
(d) Handle customers grievances carefully.
(e) Proper distribution of goods
(f) Produce goods to meet the needs of the customer

3. Obligations towards Employees

(a) Fair wages: lead a good life and satisfy their needs.
(b) Adequate benefits: cover, medical facilities and retirement benefits.
 (c) Good Working Conditions:
(d) Opportunity for Growth:
(e) Recognition of Worker's Rights:
(f) Co-operation:

4. Responsibility towards Suppliers

5. Obligations towards Government

6. Obligation towards Society

(a) Socio-Economic Objectives:
(b) Employment Opportunities:
(c) Efficient use of Resources:
(d) Business Morality:
(e) Improving local environment:

ARGUMENTS AGAINST SOCIAL RESPONSIBILITY:

The main arguments against social responsibility include:

1. A competitive business cannot be genuinely selfless. Management cannot commit funds

irrationally just to satisfy public expectations in areas where there are no direct or indirect
benefits. If an enterprise spends lavishly on social action programmes and its competitors do not
emulate the example, it will significantly increase the cost of the socially responsible institution
and hence, its prices will be higher and it will certainly lose business. Managers, as employees of
shareholders, have no discretion to indulge in this type of extravagance. According to Milton
Friedman, the Nobel Laureate, social responsibility is a 'theft'; managers are trying to distribute
what is not theirs, strictly speaking. It is an illegitimate exercise of power.

2. The corporation is basically an economic institution. It is not a charitable agency or a

community service institution. Outlays for general socially responsible activities will distort the
allocation of scarce funds available to a firm and will turn the firm into a vast wasteland in the
long run. Actually, social responsibility should be the function of government, civic
organisations and other social institutions. Social problems can be successfully solved only by
those institutions best fitted to deal with them.' In the case of a firm, it has neither the necessary
freedom nor the appropriate standards of selection for pursuing many of the socially desirable
activities blessed by society. Social responsibility is clearly anti-business rhetoric smuggled into
the economic scene just to mollify an angry public.

3. Managers are not trained to pursue social goals. They do not have an appropriate apparatus to
destroy the public "bads' and concentrate on public 'goods'. They are not competent to
orchestrate the non-economic objectives successfully and decide the issue of turning corporate
'bad guys' into corporate good guys' by applying their value judgments. If these pious intentions
were to be turned down by the society, they may find themselves suddenly in a no-win position.
Since there is considerable disagreement among the public as to what should be done, corporate
managers hence will be criticised no matter what is attempted.

4. Managers are not magicians. Society cannot expect the corporation managers to perform
miracles. They cannot offer goods at fair prices, satisfy working groups, fatten the coffers of
shareholders, keep the inflation monster under check, pay exorbitant taxes and also bless the
numerous unrelated social projects in a selfless manner. "Business corporations are not
bottomless cornucopia able to solve all of society's ills.' Attempts to soft-pedal profit
maximisation policies would prove to be disastrous for the firm in the long run. Profit implies
socially preferred behaviour. It means placement of funds to the best advantage: loss means
impoverishment of society. Profit is the dynamic element and motivating force behind economic
development and all round progress. Further, social responsibility is a fair weathered concept;
management cannot dream of philanthropy unless profits are sufficient.
Emphasis upon the profit objective tends to obscure the existence of other goals of the enterprise.
Every business has another objective that it must accomplish, however, in order to make its sales
and realise its profits. The social responsibility of business, as it is often termed, implies a sense
of obligation on the part of the business towards the general public.

Arguments for Social Responsibility:

The issue of social responsibility is a complex one since it deals with an institution that is at the
heart of society. Business employs a vast majority of the workforce in India and is in control of
vast human and financial resources. Any modification or decision about how these resources are
put to use has obvious consequences for the balance of society. It is this resource power base that
generates many of the arguments favouring greater social involvement of business:
1. The assumption of social responsibility balances corporate power with corporate
responsibilities.

2. The voluntary assumption of social responsibility discourages the creation and imposition of
government regulations.

3. Social initiatives taken by organisations tend to promote goodwill, public favour, corporate
trust which may contribute to the long-term success of the organisations.

4. Socially responsible acts enhance an organisation's image and business in general.

5. Socially responsible acts help society deal with problems, changing needs and expectations.

6. Social initiatives taken by organisations help correct the problems such as air and water
pollution that organisations create.

7. Organisations often possess the resources such as money and expertise needed to tackle social
problems.
8. Organisations, as members of society have a moral obligation to help society deal with its
problems and to contribute to its welfare.

BUSINESS ETHICS

DEFINITION OF ETHICS

The term ethics refers to principles, values, and beliefs that define what right and wrong
behaviour is.
Ethics may be defined as per the term of set of moral principles about what humans conduct
ought to be. In other words, ethics specify what is good or bad, fair or unfair, right or wrong.

DETERMINANTS OF BUSINESS ETHICS

Family , school and religion; Peers, colleagues an superiors; Experiences in life; Values and
morals ; Threatening situations ; Organisational demand; Legislations; Government rules and
regulations; Industry’s and company’s ethical codes of behaviour; Social pressures.

UNETHICAL BUSINESS PRACTICE

1. Against the employees

 Paying salaries lower than those fixed by the government
 Poor working conditions
 Lack of safety measures for workers and lack of provision for welfare facilities
2. Against the government
 Evasion of excise duty, sales tax, income tax.
 Smuggling of goods
 Offering bribes to government officials and politicians for getting favors.
3. Against the consumers and society
 Adulteration of goods
 Sale of spurious products
 Sale of duplicate products under popular brands
 Sale of products injurious to public health.
 Deceptive advertisements and false claims in advertisements
 Pollution of environment
IMPACT OF ETHICS ON BUSINESS

Business area Ethical practice

Plant Location No adverse impact on local community and environment.
Production Treatment of polluting elements.
Purchasing and No hoarding of material and finished products.
storage
Marketing Fair treatment to customers.
Advertising Truthful and realistic claims
Finance Proper utilisation of capital
Human resource Just and equitable treatment to all employees
Information Fair disclosure and credibility
General Concern for social responsibility
administration

MANAGERIAL ETHICS

DEFINITION OF MANAGERIAL ETHICS

Managerial ethics is a set of principles and rules dictated by upper management that define
what is right and wrong in an organization. It is the guideline that helps direct a lower manager's
decisions in the scope of his or her job when a conflict of values is presented.

TYPES OF MANAGEMENT ETHICS

1. Immoral Management—A style devoid of ethical principles and active opposition to what is
ethical.
2. Moral Management—Conforms to high standards of ethical behaviour.
3. Amoral Management- having or showing no concern about whether behaviour is morally right
or wrongs
a. Intentional - does not consider ethical factors
b .Unintentional - casual or careless about ethical considerations in business

Weber suggested the following activities for managerial ethics

1. develop ethical code of conduct
2. appoint an ethics committee to resolve ethical issues
3. teaching ethics in MDPs

FACTORS EFFECTING EMPLOYEE ETHICS

1. Stages of moral development
LEVEL Description of stage
Principled Stage 6: following self chosen ethical principles even they violet law
Stage 5: vaulting rights of others and upholding absolute and rights
regardless of majority opinion
Conventional Stage 4: maintain the conventional order by full filling obligation to
which you have agreed upon.
Stage 3: Living up to what expected by the people living close to you
Pre conventional Stage 2: following rules only when doing, so is in your immediate in
front.
Stage 1: sticky to rules to avoid physical punishment
2. Individual Characteristics: A person joins an organization with a relativelyentrenched set of
values.
a. Values are basic convictions about what is right and wrong. Values are broad and
cover a wide variety of issues.
b. Ego strength is a personality measure of the strength of a person’s convictions. An
individual who score high on ego strength are likely to resist impulses to act unethically and are
likely to do what they think is right.
c. Locus of control is a personality attribute that measures the degree to which people
believe they control their own fate. Individuals with an internal locus of control think that they
control their destiny, while persons with an external locus of control are less likely to take
personal responsibility for the consequences of their behaviour and are more likely to rely on
external forces. Externals believe that what happens to them is due to luck or chance.

3. A third factor influencing managerial ethics is structural variables. The existence of

structural variables such as formal rules and regulations, job descriptions, written codes of ethics,
performance appraisal systems, and reward systems can strongly influence ethical behaviour.

4. The content and strength of an organization’s culture influences ethical behaviour.

a. An organizational culture most likely to encourage high ethical standards is one that is
high in risk tolerance, control, and conflict tolerance.
b. A strong culture exerts more influence on managers than does a weak one.
c. However, in organizations with weak cultures, work groups and departmental
standards strongly influence ethical behaviour.

5. Finally, the intensity of an issue can affect ethical decisions. Six characteristics determine
issue intensity
a. Greatness of harm
b. Consensus of wrong
c. Probability of harm
d. Immediacy of consequences
e. Proximity to victim
f. Concentration of effect
ETHICAL GUIDELINES FOR MANAGERS

Obeying The Law; Telling The Truth; Uphold Human Dignity; Adhere To Golden Rule ;
Do No Harm , Allow Room For Participation ; Always Act When You Have Responsibility

IMPROVING ETHICAL BEHAVIOR

Organizations can take a number of actions to cultivate ethical behaviour among

members. Some of those are”

1) The selection process for bringing new employees into organizations should be viewed as an
opportunity to learn about an individual’s level of moral development, personal values, ego
strength, and locus of control.

2) A code of ethics is a formal statement of an organization’s primary values and the ethical
rules it expects employees to follow. In addition, decision rules can be developed to guide
managers in handling ethical dilemmas in decision making.

3) Top management’s leadership and commitment to ethical behaviour is extremely important

since the cultural tone for an organization is established by its top managers

4) Employees’ job goals should be tangible and realistic, because clear and realistic goals reduce
ambiguity and motivate rather than punish. Job goals are usually a key issue in the performance
appraisal process.

5) If an organization wants employees to uphold high ethical standards, this dimension must be
included in the appraisal process. Performance appraisals should include this dimension, rather
than focusing solely on economic outcomes.

6) Ethics training should be used to help teach ethical problem solving and to present simulations
of ethical situations that could arise. At the least, ethics training should increase awareness of
ethical issues. (ethical training)

7) Independent social audits evaluate decisions and management practices in terms of the
organization’s code of ethics and can be used to deter unethical behaviour.( ethical audit)

8) Organizations can provide formal protective mechanisms so that employees with ethical
dilemmas can do what is right without fear of reprisal. (ethical committee )

INTERNATIONAL MANAGEMENT
 Definition of International Management
1.The management of business operations for an organization that conducts business in more
than one country. International management requires knowledge and skills above and beyond
normal business expertise, such as familiarity with the business regulations of the nations in
which the organization operates, understanding of local customs and laws, and the capability to
conduct transactions that may involve multiple currencies.
 2. International Management deals with the maintenance and development of a multinational
operation across national borders, whose manager has the knowledge and the skills to manage
and handle cross-cultural processes, stakeholders and environments in a right way.

STAGES OF INTERNATIONALIZATION

An organization that goes international typically progresses following stages. Companies that go
international may begin by using global sourcing (also called global outsourcing). In this stage
of going international, companies purchase materials or labour from around the world, wherever
the materials or labour are least expensive. Beyond the stage of global sourcing, each successive
stage to become more international involves more investment and risk.

In the next stage, companies may go international by exporting (making productsdomestically

and selling them abroad) or importing (acquiring products made abroadand selling the products
domestically). Both exporting and importing require minimal investment and risk.

In the early stages of going international, managers may also use licensing (giving another
organization the right to make or sell its products using its technology or product specifications)
or franchising (giving another organization the right to use its name and operating methods

After an organization has done international business for a period of time, managers may decide
to make more of a direct investment in international markets by forming a strategic alliance,
which is a partnership between an organization and a foreign company partner(s). In a strategic
alliance, partners share resources and knowledge in developing new products or building
production facilities.

A joint venture (a specific type of strategic alliance) may be undertaken to allow partners to
form a separate, independent organization for some business purpose.

Managers may decide to make a direct investment in a foreign country by establishing a foreign
subsidiary, in which a company sets up a separate and independent production facility or office.
Establishing a foreign subsidiary involves the greatest commitment of resources and the greatest
risk of all of the stages in going international.

Expatriates, impetrates, repatriate

An expatriate is a person who is transferred from the corporation headquarters to a country where
the corporation has a subsidiary, while an impetrate is transferred from the foreign subsidiary to the
country where the corporation has its headquarters, whereas a repatriate is someone whom sent
back to their own country.

1. The ethnocentric approach - fill key management positions with parent-country nationals
2. The polycentric approach recruit host country nationals to manage subsidiaries in their
own country, and parent country nationals for positions at headquarters
3. The geocentric approach seek the best people, regardless of nationality for key jobs
Managing in a Global Environment

International Managers might have one of three perspectives or attitudes toward international
business

1. An ethnocentric attitude is the parochialistic belief that the best work approaches and
practices are those of the home country (the country in which the company’s headquarters are
located).

2. A polycentric attitude is the view that the managers in the host country (the foreign country
where the organization is doing business) know the best work approaches and practices for
running their business.

3. A geocentric attitude is a world-oriented view that focuses on using the best approaches and
people from around the globe. To be a successful global manager, an individual needs to be
sensitive to differences in national customs and practices.

Different Types of Global Organizations

Business has been conducted internationally for many years Multinational corporationsdid not
become popular until the mid-1960s. Global organizations can be classified inthe following
categories:

1. The term multinational corporation (MNC) is a broad term that refers to any and all types of
international companies that maintain operations in multiple countries.

2. A transnational corporation (TNC), sometimes called a borderless organization, is a type of

international company in which artificial geographical barriers are eliminated.

MANAGING IN AN INTERNATIONAL ENVIRONMENT ENTAILS THE

FOLLOWING CHALLENGES.

1. The Legal-Political Environment: The legal-political environment does not have to be

unstable or revolutionary to be a challenge to managers. The fact that a country’s political system
differs from that of the United States is important to recognize.

2. The Economic Environment: The economic environment also presents many challenges to
foreign-based managers, including fluctuations in currency rates, inflation, and diverse tax
policies. In a market economy, resources are primarily owned by the private sector. In a
command economy, all economic decisions are planned by a central government.

3. The Cultural Environment: Countries have different cultures, just as organizations do.
National culture is the values and attitudes shared by individuals from a specific country that
shape their behaviour and their beliefs about what is important.
 A framework developed by Geert Hofstede serves as a valuable framework for understanding
differences between national cultures.
Geert Hofstede dimensions national cultures

1. Hofstede studied individualism versus collectivism. Individualism is the degree to which

people in a country prefer to act as individuals rather than as members of groups. Collectivism is
characterized by a social framework in which people prefer to act as members of groups and
expect others in groups of which they are a part (such as a family or an organization) to look
after them and to protect them.

2. Another cultural dimension is power distance, which describes the extent to which a society
accepts the fact that power in institutions and organizations is distributed unequally.

3. Uncertainty avoidance describes a cultural measure of the degree to which people tolerate
risk and unconventional behaviour.

4. Masculinity and femininity (quantity vs quality of life or aggressive vs passive orientation):

The Masculinity side of this dimension represents a preference in society for achievement,
heroism, assertiveness, and material rewards for success. ... Its opposite, Femininity, stands for a
preference for cooperation, modesty, caring for the weak and quality of life. Society at large is
more consensus-oriented.

5. Long-term and short-term orientation. People in countries having long-term orientation

cultures look to the future and value thrift and persistence. Short-term orientation values the past
and present and emphasizes a respect for tradition and social obligations.

6. Indulgence versus restraint : The extent to which members of a society try to control their
desires and impulses. Whereas indulgent societies have a tendency to allow relatively free
gratification of basic and natural human desires related to enjoying life and having fun,
restrained societies have a conviction that such gratification needs to be curbed and regulated by
strict norms.

Troompenaar and Turner’s dimensions of national cultures

1. Universalism versus particularism.

2. Individualism versus communitarianism.
3. Specific versus diffuse.
4. Neutral versus emotional.
5. Achievement versus ascription.
6. Sequential time versus synchronous time.
7. Internal direction versus outer direction.
Reasons for going internationalisation
1. Exploring new market
2. Earning greater profit
3. Acquiring products for home market
4. Satisfying management desire expanding the business
5. Protecting domestic market
6. Acquiring technology
7. Protecting foreign market
8. Assuring the reliable supply of raw material
9. Diversifying geo graphically

International management functions?

Theory z and American style of management

Areas to concentrate in international management
1. International trade commerce
2. International management practices
3. International communication
4. Foreign currency markets
5. International marketing
6. Cross culture market (diversity)

COUNTRY ALLIANCES

Regional Trading Alliances

Regional trading alliances are reshaping global competition. Competition is no Longer limited to
country versus country, but region versus region.

1. The European Union (EU) is a union of 25 European nations created as a unified economic
and trade entity

a. The primary motivations for the creation of the EU in February1992 were to allow member
nations to reassert their position against the industrial strength of the United States and Japan.

b. All member states of the EU participate in the EMU (Economic and Monetary Union). The
EMU consists of three stages for coordinating economic policy. Twelve member states of the
European Union have entered the third stage of the EMU, in which participating countries share
a single currency, the euro.
c. In 2004 the EU added 10 new members (Cyprus, Malta, the Czech Republic, Estonia, Hungary,
Latvia, Lithuania, Poland, Slovakia, and Slovenia. Two additional counties may join the EU by
the year 2007.

2. The North American Free Trade Agreement (NAFTA) is an agreement among the Mexican,
Canadian, and U.S. governments in which barriers to trade have been eliminated.

a. NAFTA went into effect on January 1, 1994.

b. The signing of NAFTA was both criticized and supported.

c. Eliminating barriers to free trade (tariffs, import licensing requirements, customs user
fees) has resulted in a strengthening of the economic power of all three countries.

d. Colombia, Mexico, and Venezuela signed an economic pact eliminating import duties
and tariffs in 1994.

e. Thirty-four countries in the Western Hemisphere continue to negotiate a Free Trade

Area of the Americas (FTAA) agreement. FTAA was to have been in effect no later than
2005, but has not yet become operational; its future is still undetermined.

3. The Association of Southeast Asian Nations (ASEAN) is a trading alliance of 10 Asian

nations

a. In the future, the Southeast Asian region promises to beone of the fastest-growing and
increasingly influential economic regions of the world.

b. The future economic impact of the Southeast Asian region could rival that of both
NAFTA and the EU.

Other Trade Alliances- The 53-nation African Union came into existence in July
2002.Members plan to achieve greater economic development and unity among Africa’s nations.

The World Trade Organization (WTO)

Formed in 1995 and evolving from GATT, the WTO is the only global organization dealing with
the rules of trade among nations.

1. Membership consists of 149 countries and 32 observer governments as of January 2006.

2. The WTO appears to play an important role even though critics are vocal and highly visible.

MULTINATIONAL CORPORATIONS

Multinational Corporations no doubt, carryout business with the ultimate object of profit making
like any other domestic company. According to ILO report "for some, the multinational
companies are an invaluable dynamic force and instrument for wider distribution of capital,
technology and employment; for others they are monsters which our present institutions, national
or international, cannot adequately control, a law to themselves with no reasonable concept, the
public interest or social policy can accept. MNC's directly and indirectly help both the home
country and the host country.

Advantages of MNC's for the host country

MNC's help the host country in the following ways:
1. The investment level, employment level, and income level of the host country increases due to
the operation of MNC's.
2. The industries of host country get latest technology from foreign countries through MNC's.
3. The host country's business also gets management expertise from MNC's.
4. The domestic traders and market intermediaries of the host country gets increased business
from the operation of MNC's.
5. MNC's break protectionism, curb local monopolies, create competition among domestic
companies and thus enhance their competitiveness.
6. Domestic industries can make use of Research and Development outcomes of MNC's.
7. The host country can reduce imports and increase exports due to goods produced by MNC's in
the host country. This helps to improve balance of payment.
8. Level of industrial and economic development increases due to the growth of MNC's in the
host country.
Disadvantages of MNC's for the host country
1. MNC's may transfer technology which has become out dated in the home country.
2. As MNC's do not operate within the national autonomy, they may pose a threat to the
economic and political sovereignty of host countries.
3. MNC's may kill the domestic industry by monopolising the host country's market.
4. In order to make profit, MNC's may use natural resources of the host country indiscriminately
and cause depletion of the resources.
5. A large sums of money flows to foreign countries in terms of payments towards profits,
dividends and royalty.
Advantages of MNC's for the home country
MNC's home country has the following advantages.
1. MNC's create opportunities for marketing the products produced in the home country
throughout the world.
2. They create employment opportunities to the people of home country both at home and abroad.
3. It gives a boost to the industrial activities of home country.
4. MNC's help to maintain favourable balance of payment of the home country in the long run.
5. Home country can also get the benefit of foreign culture brought by MNC's.

Disadvantages of MNC's for the home country

1. MNC's transfer the capital from the home country to various host countries causing
unfavourable balance of payment.
2. MNC's may not create employment opportunities to the people of home country if it adopts
geocentric approach.
3. As investments in foreign countries is more profitable, MNC's may neglect the home countries
industrial and economic development.
Applicability to particular business
MNC's is suitable in the following cases.
1. Where the Government wants to avail of foreign technology and foreign capital e.g. Maruti
Udyog Limited, Hind lever, Philips, HP, Honeywell etc.
2. Where it is desirable in the national interest to increase employment opportunities in the
country e.g., Hindustan Lever.
3. Where foreign management expertise is needed e.g. Honeywell, Samsung, LG Electronics etc.
4. Where it is desirable to diversify activities into untapped and priority areas like core and
infrastructure industries, e.g. ITC is more acceptable to Indians L&T etc.
5. Pharmaceutical industries e.g. Glaxo, Bayer etc.

PROTER’S COMPETATIVE ADVANTAGE OF NATIONS

Porter’s Theory of Competitive Advantage

Michael Porter’s theory of the competitive advantage of nations provides a sophisticated

tool for analysing competitiveness with all its implications. Porter’s theory contributes to
understanding the competitive advantage of nations in international trade and production. Its core,
however, focuses upon individual industries, or clusters of industries, in which the principles of
competitive advantage are applied. His theory begins from individual industries and builds up to
the economy as a whole. Since firms, not nations compete in international markets,
understanding the way firms create and sustain competitive advantage is the key to explaining
what role the nation plays in the process. Therefore, the essence of his argument is that “the
home nation influences the ability of its firms to succeed in particular industries. Given this
interdependence, it appears that in order to draw conclusions on the competitiveness of the
particular industry, consideration of the different facets of the competitive diamond of the whole
nation is needed.

Michael Porter considers the competitiveness of a country as a function of four major

determinants:

 factor conditions;
 demand conditions;
 related and supporting industries; and,
 Firm strategy, structure, and rivalry.
Even though these determinants influence the existence of competitive advantage of an
entire nation, their nature suggests that they are more specific of a particular industry rather than
typical of a country. The reason for this is that in Porter’s theory the basic unit of analysis for
understanding competition is the industry. “The industry is the arena in which the competitive
advantage is won or lost. So, seeking to isolate the competitive advantage of a nation means to
explain the role played by national attributes such as a nation’s economic environment,
institutions, and policies for promoting firms’ ability to compete in a particular industry.
 1. Factor Conditions

Factor conditions being the inputs which affect competition in any industry comprise a
number of broad categories:

 Human resources: the quantity, skills, and cost of personnel (including

management);
 Physical resources: the abundance, quality, accessibility, and cost of the nation’s
land, water, mineral, or timber deposits, hydroelectric power sources, fishing grounds,
and other physical traits.
 Knowledge resources: the accumulated scientific, technical, and market knowledge
in a nation in the sphere of goods and services
 Capital resources: the stock of capital available in a country and the cost of its
deployment;
 Infrastructure resources: the characteristics (including type, quality) and the cost of
using the infrastructure available. While analysing these factors as a
prerequisite for building competitive advantage, it is relatively unimportant to
emphasize just their quantity or involvement in a particular industry. What
determines their influence on competitiveness is the degree of efficiency and
effectiveness of the way they are deployed within an industry.
This in turn affects directly their potential for influencing the establishment of
competitive advantage. Nevertheless, productivity in deployment does not automatically
translate into international success. This is achieved only under the condition that the other
determinants in the “diamond” are in a position to influence favorably the utilization of
production factors. With a view of isolating the factors which are most significant for the
creation of competitive advantage in the context of the whole “diamond”, a hierarchy among
factors has been established.

Depending on the degree of investment required for the possession of a particular factor, factors
of production are divided into two groups: basic and advanced. Basicfactors are passively
inherited, that is, their creation requires relatively modest or unsophisticated private and social
investment. They can include natural resources, climate, location, unskilled or semi-skilled labor,
and debt capital. Unlike them, advanced factors which can comprise highly educated personnel,
modern digital data communications infrastructure, etc. require large and often sustained
investments for their development. Factor development which has been achieved through
substantial investment, in turn, provides for the creation of a higher-order competitive advantage
and, therefore, assumes greater significance for competitiveness.

Distinguishing among factors for he purpose of isolating those which account for the
establishment of competitive advantage most, yields another division: generalized and
specialized factors. Generalized factors derive their name from the feature that they could be
deployed in a wide range of industries. Specialized factors, on the other hand, are characterized
by a narrow field of application due to a high degree of customization to the needs of a particular
industry. Compared to the generalized factors, specialized factors require more focused, and
often riskier, private and social investment. This, together with their specifically tailored
characteristics to the nature of the particular industry, determines their superiority over
generalized factors in terms of influencing the creation of competitive advantage. With respect to
the relation between advanced and specialized factors, the latter do not necessarily comprise the
former, but at any rate the more constantly upgrading and developing advanced and specialized
factors of production exist in an industry, the better is the basis for a significant and sustainable
advantage in a given field.

2. Demand Conditions

The importance of demand conditions as a factor influencing competitive advantage

stems from the fact that in a market economy the direction of production, that is, the kinds of
goods which are produced, is determined by the needs of buyers. What this means is that,
regardless of the state of the other determinants in the “diamond”, competitiveness in an industry
is impossible to be achieved unless demand conditions allow for the successful realization of
firms’ products. Underlying this dependence is the dynamic influence of home demand which
shapes the rate and character of improvement and innovation by a nation’s firms. The sources of
this influence within the context of home demand are divided into three broad attributes: the
composition of home demand, the size and pattern of growth of home demand, and the
mechanisms by which a nation’s domestic preferences are transmitted to foreign markets.

 Home Demand Composition: The composition of home demand determines the way
firms perceive, interpret, and respond to buyer needs. Three characteristics of the
composition of home demand play a particularly significant role for the achievement
of competitive advantage. One of them refers to the segment structure of demand. It is
quite favourable for enhancing competitiveness provided that the relevant segment of
the market represents a highly visible share of home demand but accounts for a less
significant share in other nations. An even more important feature of home demand
composition is the level of buyers’ sophistication. Its significance stems from the fact
that sophisticated and demanding buyers exert pressure on firms to excel in quality of
the product, features, and service and thus help for sustaining the acquired advantage.
A final attribute of home demand composition which could spur the establishment of
competitive advantage relates to anticipatory buyer needs. They give priority of firms
over their international competitors by indicating early what will become widespread
later.
 Demand Size and Pattern of Growth: In order for a clear relationship between this
attribute of home demand and competitive advantage to be established, a number of its
characteristics should be considered. One of them is the size of home demand. Its
importance is expressed in the fact that depending on the magnitude of the home
market a nation's firms could be encouraged, with a view of reaping economies of
scale and learning, to invest aggressively in large-scale facilities, technology
development, and productivity improvement. Another important factor which could
 spur activities intended to create or upgrade competitive advantage is the rate growth
of home demand. The latter could lead firms to adopt new technologies faster and to
make changes for increased efficiency without fearing that there would be no response
on the part of consumers. The effect of these two factors is further enhanced provided
that home demand is characterized by early saturation as well. The underlying logic is
that early saturation, like early penetration, directs a nation’s firms to products and
product features that are desired abroad.
 Internalization of Domestic Demand: While the source for creating national
advantage is rooted in the composition of home demand, its sustainability is accounted
for by the size and pattern of growth of home demand, the transfer of a nation’s
products and services abroad relates to a third attribute of home demand – its capacity
of becoming internalized. This attribute refers to the existence of mobile or
multinational local buyers which could create an advantage for a nation’s firms since
domestic buyers are also foreign buyers. It hints on the other aspect of this attribute:
the influence exerted on foreign needs. The latter presents another way through which
domestic demand conditions can pull through foreign sales and relates to the cases
when domestic needs and desires get transmitted to or inculcated in foreign buyers.

3. Related and Supporting Industries

When trying to determine the sources of competitive advantage in an industry, the latter
should not be considered separately but rather in the context of the whole economy. Special
account should be taken of the industries which are directly related or support the one whose
competitiveness is a subject of investigation. The reason for this requirement is that, provided
supplier industries possess an international advantage, downstream industries could benefit from
it in several ways. One of them refers to the access that competitive supplier industries provide
access to cost-effective inputs. Given the increasingly significant globalization process, which
makes inputs available on global markets, emphasis should be put not on the availability of the
inputs but on their effective utilization. Therefore, a more important aspect in which the presence
of competitive advantage in supplier industries could influence the creation of one in the
downstream industries is the provision of coordination on the part of the former in terms of
linkages with the value chains of the latter. Perhaps the most important benefit of home-based
suppliers, however, is expressed in the process of innovation and upgrading. It refers to a mutual
influence between firms and their suppliers. On the one hand, suppliers help firms to perceive
new methods and opportunities to apply new technology. A spur to innovation could, on the
other hand, be given from firms to their suppliers by influencing suppliers’ technical efforts in a
direction of testing new developments and ideas. Other factors such as exchange of R&D, joint
problem solving or transmitting of information through suppliers to different firms contribute to
the establishment of a fast pace of innovation within the entire national industry.

In regard to related industries, they could also be a source of competitive advantage to the
industry in question. “Related industries are those in which firms can coordinate or share
activities in the value chain when competing, or those which involve products that are
complementary. Technology development, manufacturing, distribution, marketing or service are
all areas in which sharing of activities could occur. This process is especially beneficial, given
that the related industry is internationally successful, which means that it stimulates the
establishment of competitive advantage in other industries through providing opportunities for
information flow and technical interchange. Another way through which related industries could
influence competitiveness is by means of pulling through demand for complementary products
and services. The greater the number of related industries which possess competitive advantage
in a nation, the greater is the possibility for this nation to achieve sustained success in an industry.
This, however, depends to a significant extent on the state of the factors forming the rest of the
“diamond” because it is only when the facets are working in a system that the conditions for
building a true competitive advantage are ensured.

4. Firm Strategy, Structure, and Rivalry

Closing the circle of factors which determine the existence of competitive advantage it is
necessary to consider the context in which firms are created, organized and managed as well as
the nature of domestic rivalry. The goals, strategies, and ways of organizing firms in industries
are widely influenced by national circumstances. The achievement of national advantage
depends on the degree to which these choices correspond to the sources of competitive advantage
in an industry. Firm strategy and structure are reflective of company goals and individual goals
as well as national prestige and national priority. Company goals are most strongly determined
by ownership structure, the motivation of owners and holders of debt, the nature of the corporate
governance, and the incentive processes that shape the motivation of senior managers. Provided
that the goals of owners and managers match the needs of the industry, the opportunities for
success are greatly enhanced. As far as the goals of individuals who work in firms are concerned,
they also have a significant role for creating and upgrading competitive advantage. The
achievement of the latter depends on the motivation of people to develop their skills as well as
to expend the necessary effort needed for the company’s success. Another source of powerful
influence on the way firms are organized is national prestige or national priorities. These factors
affect the process of attracting qualified human resources to particular industries as well as the
strength of individuals’ and shareholders’ motivation. Provided that the latter is quite
pronounced it also turns into an important conductor of corporate success. The reason for it is
that it assures sustained commitment of capital and human resources to an industry, to a firm,
and for employees, to a profession. This in turn enhances productivity and effectiveness.

The stimuli for increased productivity and effectiveness should also be traced at a
higher level which encompasses not only the manner of a firm’s organization but also its
performance as influenced by the behaviour of its competitors. In this respect, an important
correlation based on empirical findings has been established. It concerns the association between
vigorous domestic rivalry and the creation and persistence of competitive advantage in an
industry. The underlying logic is that competition at home pressures firms to improve and
innovate. Having once established the manner for constant upgrading of their competitive edge at
home, companies easily transfer their strategy for success on a worldwide scene. Vigorous local
rivalry can also stimulate competitiveness through bringing fourth the need for enlarging the
firms’ markets and selling abroad in order to grow. This is particularly likely in the presence of
economies of scale when local competitors force each other to direct their activities abroad in the
pursuit of greater efficiency and higher profitability. Domestic rivalry not only creates pressures
to innovate but to innovate in ways that upgrade the competitive advantages of a nation’s firms.
The presence of rivals lowers the significance of advantages created through little effort and
investment (e. g. those which stem simply from being in a nation). It, therefore, forces a nation’s
firms to seek higher and ultimately more sustainable sources of competitive advantage. So,
contrary to the wrongly perceived notion of “national champions” reaping economies of scale in
the home market, the existence of strong domestic rivalry keeps from reliance on factor
advantages as well as conditions their more efficient deployment.

Apart from the major determinants Porter considers two additional variables which are
not as important as the determinants in influencing the creation of a competitive advantage but
are significant in shaping the direction of the influence. These are chance and government.
Chance events are developments beyond the control of firms, such as pure inventions,
breakthroughs in basic technologies, etc. They can play an important role in shifting competitive
advantage in many industries. Government, being the other variable, is important to the extent to
which its policies can influence the entire system of determinants either in the direction of
undermining or enhancing competitive advantage.

Important in understanding the determinants’ power to foster competitiveness in an

industry is the condition for their being interrelated. What this means is that the determinants
should form a mutually reinforcing system, referred to as a “diamond, and the effect of one of
them should be contingent on the state of others. This implies not only the inadequacy of one
favourable national attribute to induce competitive advantage itself but also the possibility that
an advantage in one determinant can create or upgrade advantages in others.