GM 100: MANAGEMENT PRINCIPLES AND PRACTICE

HANDOUTS

BY

MR.LELO. J. MEKU

ASSISTANT LECTURER, COLLEGE OF BUSINESS EDUCATION

DEPARTMRNT OF ICT AND MATH’S

EMAIL: johnmeku@yahoo.com,

1
TOPIC 1
INTRODUCTION TO CONCEPT OF MANAGEMENT

Management is a universal phenomenon. It is a very popular and widely used term. All
organizations - business, political, cultural or social are involved in management because it is the
management which helps and directs the various efforts towards a definite purpose. According to
Harold Koontz, “Management is an art of getting things done through and with the people in
formally organized groups. It is an art of creating an environment in which people can perform and
individuals and can co-operate towards attainment of group goals”. According to F.W. Taylor,
“Management is an art of knowing what to do, when to do and see that it is done in the best and
cheapest way”.

Management is a purposive activity. It is something that directs group efforts towards the
attainment of certain pre – determined goals. It is the process of working with and through others to
effectively achieve the goals of the organization ,by efficiently using limited resources in the
changing world. Of course, these goals may vary from one enterprise to another. E.g.: For one
enterprise it may be launching of new products by conducting market surveys and for other it may
be profit maximization by minimizing cost.

Management involves creating an internal environment: - It is the management which puts into use
the various factors of production. Therefore, it is the responsibility of management to create such
conditions which are conducive to maximum efforts so that people are able to perform their task
efficiently and effectively. It includes ensuring availability of raw materials, determination of wages
and salaries, formulation of rules & regulations etc. Therefore, we can say that good management
includes both being effective and efficient. Being effective means doing the appropriate task i.e,
fitting the square pegs in square holes and round pegs in round holes. Being efficient means doing
the task correctly, at least possible cost with minimum wastage of resources.

What is management?

A precise definition of the term management is not so simple because the term is used in variety of
ways. Being a new discipline, it has drawn concepts and principles from a number of disciplines
such as economics, sociology, psychology, anthropology, statistics and so on. The result is each

2
group of contributors has treated differently. For example economists have treated management as
a factor of management, sociologists have treated it as a class or group of persons, practitioners
have treated it as a process comprising different activities. Naturally, all these divergent group view
the nature and scope of management from their own point of view.

Management can be defined in detail in following categories:

1. Management as a Process
2. Management as an Activity
3. Management as a Discipline
4. Management as a Group
5. Management as a Science
6. Management as an Art
7. Management as a Profession

Management as a process

As a process, management refers to a series of inter – related functions. It is the process by which
management creates, operates and directs purposive organization through systematic, coordinated
and co-operated human efforts, according to George R. Terry, “Management is a distinct process
consisting of planning, organizing, actuating and controlling, performed to determine and
accomplish stated objective by the use of human beings and other resources”. As a process,
management consists of three aspects:

1. Management is a social process – Since human factor is most important among the other
factors, therefore management is concerned with developing relationship among people. It
is the duty of management to make interaction between people – productive and useful for
obtaining organizational goals.
2. Management is an integrating process – Management undertakes the job of bringing
together human physical and financial resources so as to achieve organizational purpose.
Therefore, is an important function to bring harmony between various factors.
3. Management is a continuous process – It is a never ending process. It is concerned with
constantly identifying the problem and solving them by taking adequate steps. It is an on-
going process.

Management as an activity

3
Like various other activities performed by human beings such as writing, playing, eating, cooking
etc, management is also an activity because a manager is one who accomplishes the objectives by
directing the efforts of others. According to Koontz, “Management is what a manager does”.
Management as an activity includes –

1. Informational activities – In the functioning of business enterprise, the manager constantly

has to receive and give information orally or in written. A communication link has to be
maintained with subordinates as well as superiors for effective functioning of an enterprise.
2. Decisional activities – Practically all types of managerial activities are based on one or the
other types of decisions. Therefore, managers are continuously involved in decisions of
different kinds since the decision made by one manager becomes the basis of action to be
taken by other managers. (E.g. Sales Manager is deciding the media & content of
advertising).
3. Inter-personal activities – Management involves achieving goals through people.
Therefore, managers have to interact with superiors as well as the sub-ordinates. They
must maintain good relations with them. The inter-personal activities include with the sub-
ordinates and taking care of the problem. (E.g. Bonuses to be given to the sub-ordinates).

Management as discipline
Management as a discipline refers to that branch of knowledge which is connected to study of
principles & practices of basic administration. It specifies certain code of conduct to be followed by
the manager & also various methods for managing resources efficiently.

Management as a discipline specifies certain code of conduct for managers & indicates various
methods of managing an enterprise. Management is a course of study which is now formally being
taught in the institutes and universities after completing a prescribed course or by obtaining degree
or diploma in management, a person can get employment as a manager.

Any branch of knowledge that fulfils following two requirements is known as discipline:

1. There must be scholars & thinkers who communicate relevant knowledge through
research and publications.
2. The knowledge should be formally imparted by education and training programmes.

4
Since management satisfies both these problems, therefore it qualifies to be a discipline. Though it
is comparatively a new discipline but it is growing at a faster pace.

Management as a group of people

Management as a group refers to all those persons who perform the task of managing an
enterprise. When we say that management of ABC & Co. is good, we are referring to a group of
people those who are managing. Thus as a group technically speaking, management will include
all managers from chief executive to the first – line managers (lower-level managers). But in
common practice management includes only top management i.e. Chief Executive, Chairman,
General Manager, Board of Directors etc. In other words, those who are concerned with making
important decisions, these persons enjoy the authorities to use resources to accomplish
organizational objectives & also responsibility to for their efficient utilization.
Management as a science
Science is a systematic body of knowledge pertaining to a specific field of study that contains
general facts which explains a phenomenon. It establishes cause and effect relationship between
two or more variables and underlines the principles governing their relationship. These principles
are developed through scientific method of observation and verification through testing.
Science is characterized by following main features:

1. Universally acceptance principles – Scientific principles represents basic truth about a

particular field of enquiry. These principles may be applied in all situations, at all time & at
all places. E.g. – law of gravitation which can be applied in all countries irrespective of the
time.

Management also contains some fundamental principles which can be applied universally
like the Principle of Unity of Command i.e. one man, one boss. This principle is applicable
to all type of organization – business or non business.

2. Experimentation & Observation – Scientific principles are derived through scientific

investigation & researching i.e. they are based on logic. E.g. the principle that earth goes
round the sun has been scientifically proved.

5
 Management principles are also based on scientific enquiry & observation and not only on
the opinion of Henry Fayol. They have been developed through experiments & practical
experiences of large no. of managers. E.g. it is observed that fair remuneration to personal
helps in creating a satisfied work force.

3. Cause & Effect Relationship – Principles of science lay down cause and effect relationship
between various variables. E.g. when metals are heated, they are expanded. The cause is
heating & result is expansion.

The same is true for management, therefore it also establishes cause and effect
relationship. E.g. lack of parity (balance) between authority & responsibility will lead to
ineffectiveness. If you know the cause i.e. lack of balance, the effect can be ascertained
easily i.e. in effectiveness. Similarly if workers are given bonuses, fair wages they will work
hard but when not treated in fair and just manner, reduces productivity of organization.

4. Test of Validity & Predictability – Validity of scientific principles can be tested at any time or
any number of times i.e. they stand the test of time. Each time these tests will give same
result. Moreover future events can be predicted with reasonable accuracy by using
scientific principles. E.g. H2 & O2 will always give H2O.

Principles of management can also be tested for validity. E.g. principle of unity of
command can be tested by comparing two persons – one having single boss and one
having 2 bosses. The performance of 1st person will be better than 2nd.
It cannot be denied that management has a systematic body of knowledge but it is not as exact as
that of other physical sciences like biology, physics, and chemistry etc. The main reason for the
inexactness of science of management is that it deals with human beings and it is very difficult to
predict their behavior accurately. Since it is a social process, therefore it falls in the area of social
sciences. It is a flexible science & that is why its theories and principles may produce different
results at different times and therefore it is a behavior science. Ernest Dale has called it as a Soft
Science.

Management as an art.

6
Art implies application of knowledge & skill to trying about desired results. An art may be defined as
personalized application of general theoretical principles for achieving best possible results. Art has
the following characters –

1. Practical Knowledge: Every art requires practical knowledge therefore learning of theory is
not sufficient. It is very important to know practical application of theoretical principles. E.g.
to become a good painter, the person may not only be knowing different colour and
brushes but different designs, dimensions, situations etc to use them appropriately. A
manager can never be successful just by obtaining degree or diploma in management; he
must have also know how to apply various principles in real situations by functioning in
capacity of manager.
2. Personal Skill: Although theoretical base may be same for every artist, but each one has
his own style and approach towards his job. That is why the level of success and quality of
performance differs from one person to another. E.g. there are several qualified painters
but M.F. Hussain is recognized for his style. Similarly management as an art is also
personalized. Every manager has his own way of managing things based on his
knowledge, experience and personality, that is why some managers are known as good
managers (like Aditya Birla, Rahul Bajaj) whereas others as bad.
3. Creativity: Every artist has an element of creativity in line. That is why he aims at
producing something that has never existed before which requires combination of
intelligence & imagination. Management is also creative in nature like any other art. It
combines human and non-human resources in useful way so as to achieve desired results.
It tries to produce sweet music by combining chords in an efficient manner.
4. Perfection through practice: Practice makes a man perfect. Every artist becomes more and
more proficient through constant practice. Similarly managers learn through an art of trial
and error initially but application of management principles over the years makes them
perfect in the job of managing.
5. Goal-Oriented: Every art is result oriented as it seeks to achieve concrete results. In the
same manner, management is also directed towards accomplishment of pre-determined
goals. Managers use various resources like men, money, material, machinery & methods
to promote growth of an organization.

7
Thus, we can say that management is an art therefore it requires application of certain principles
rather it is an art of highest order because it deals with moulding the attitude and behavior of
people at work towards desired goals.

Management as a profession

A profession may be defined as an occupation that requires specialized knowledge and intensive
academic preparations to which entry is regulated by a representative body. The essentials of a
profession are:

1. Specialized Knowledge – A profession must have a systematic body of knowledge that can
be used for development of professionals. Every professional must make deliberate efforts
to acquire expertise in the principles and techniques. Similarly a manager must have
devotion and involvement to acquire expertise in the science of management.
2. Formal Education & Training – There are no. of institutes and universities to impart
education & training for a profession. No one can practice a profession without going
through a prescribed course. Many institutes of management have been set up for
imparting education and training. For example, a CA cannot audit the A/C’s unless he has
acquired a degree or diploma for the same but no minimum qualifications and a course of
study has been prescribed for managers by law. For example, MBA may be preferred but
not necessary.
3. Social Obligations – Profession is a source of livelihood but professionals are primarily
motivated by the desire to serve the society. Their actions are influenced by social norms
and values. Similarly a manager is responsible not only to its owners but also to the
society and therefore he is expected to provide quality goods at reasonable prices to the
society.
4. Code of Conduct – Members of a profession have to abide by a code of conduct which
contains certain rules and regulations, norms of honesty, integrity and special ethics. A
code of conduct is enforced by a representative association to ensure self discipline
among its members. Any member violating the code of conduct can be punished and his
membership can be withdrawn. The AIMA has prescribed a code of conduct for managers
but it has no right to take legal action against any manager who violates it.

8
 5. Representative Association – For the regulation of profession, existence of a
representative body is a must. For example, an institute of Charted Accountants of India
establishes and administers standards of competence for the auditors but the AIMA
however does not have any statuary powers to regulate the activities of managers.

From above discussion, it is quite clear that management fulfills several essentials of a profession,
even then it is not a full fledged profession because: -

a. It does not restrict the entry in managerial jobs for account of one standard or other.
b. No minimum qualifications have been prescribed for managers.
c. No management association has the authority to grant a certificate of practice to various
managers.
d. All managers are supposed to abide by the code formulated by AIMA,
e. Competent education and training facilities do not exist. .
f. Managers are responsible to many groups such as shareholders, employees and society.
A regulatory code may curtail their freedom.
g. Managers are known by their performance and not mere degrees.
h. The ultimate goal of business is to maximize profit and not social welfare. That is why
Haymes has rightly remarked, “The slogan for management is becoming – ’He who serves
best, also profits most’.”

Management as both Science and Art

Management is both an art and a science. The above mentioned points clearly reveals that
management combines features of both science as well as art. It is considered as a science
because it has an organized body of knowledge which contains certain universal truth. It is called
an art because managing requires certain skills which are personal possessions of managers.
Science provides the knowledge & art deals with the application of knowledge and skills.

A manager to be successful in his profession must acquire the knowledge of science & the art of
applying it. Therefore management is a judicious blend of science as well as an art because it
proves the principles and the way these principles are applied is a matter of art. Science teaches to
’know’ and art teaches to ’do’. E.g. a person cannot become a good singer unless he has

9
knowledge about various ragas & he also applies his personal skill in the art of singing. Same way
it is not sufficient for manager to first know the principles but he must also apply them in solving
various managerial problems that is why, science and art are not mutually exclusive but they are
complementary to each other (like tea and biscuit, bread and butter etc.).

The old saying that “Manager are Born” has been rejected in favor of “Managers are Made”. It has
been aptly remarked that management is the oldest of art and youngest of science. To conclude,
we can say that science is the root and art is the fruit.

Over a large few decades, factors such as growing size of business unit, separation of ownership
from management, growing competition etc have led to an increased demand for professionally
qualified managers. The task of manager has been quite specialized. As a result of these
developments the management has reached a stage where everything is to be managed
professionally.

Features of Management

Management is an activity concerned with guiding human and physical resources such that
organizational goals can be achieved. Nature of management can be highlighted as: -

1. Management is Goal-Oriented: The success of any management activity is accessed by its

achievement of the predetermined goals or objective. Management is a purposeful activity.
It is a tool which helps use of human & physical resources to fulfill the pre-determined
goals. For example, the goal of an enterprise is maximum consumer satisfaction by
producing quality goods and at reasonable prices. This can be achieved by employing
efficient persons and making better use of scarce resources.
2. Management integrates Human, Physical and Financial Resources: In an organization,
human beings work with non-human resources like machines. Materials, financial assets,
buildings etc. Management integrates human efforts to those resources. It brings harmony
among the human, physical and financial resources.
3. Management is Continuous: Management is an ongoing process. It involves continuous
handling of problems and issues. It is concerned with identifying the problem and taking
appropriate steps to solve it. E.g. the target of a company is maximum production. For

10
 achieving this target various policies have to be framed but this is not the end. Marketing
and Advertising is also to be done. For this policies have to be again framed. Hence this is
an ongoing process.
4. Management is all Pervasive: Management is required in all types of organizations
whether it is political, social, cultural or business because it helps and directs various
efforts towards a definite purpose. Thus clubs, hospitals, political parties, colleges,
hospitals, business firms all require management. When ever more than one person is
engaged in working for a common goal, management is necessary. Whether it is a small
business firm which may be engaged in trading or a large firm like Tata Iron & Steel,
management is required everywhere irrespective of size or type of activity.
5. Management is a Group Activity: Management is very much less concerned with
individual’s efforts. It is more concerned with groups. It involves the use of group effort to
achieve predetermined goal of management of ABC & Co. is good refers to a group of
persons managing the enterprise.

Level of management

The term “Levels of Management’ refers to a line of demarcation between various managerial
positions in an organization. The number of levels in management increases when the size of the
business and work force increases and vice versa. The level of management determines a chain of
command, the amount of authority & status enjoyed by any managerial position. The levels of
management can be classified in three broad categories: -

1. Top level / Administrative level

2. Middle level / Executory
3. Low level / Supervisory / Operative / First-line managers

11
LEVELS OF MANAGEMENT

1. Top Level of Management

It consists of board of directors, chief executive or managing director. The top

management is the ultimate source of authority and it manages goals and policies for an
enterprise. It devotes more time on planning and coordinating functions.

The role of the top management can be summarized as follows –

a. Top management lays down the objectives and broad policies of the enterprise.
b. It issues necessary instructions for preparation of department budgets,
procedures, schedules etc.
c. It prepares strategic plans & policies for the enterprise.
d. It appoints the executive for middle level i.e. departmental managers.
e. It controls & coordinates the activities of all the departments.
f. It is also responsible for maintaining a contact with the outside world.
g. It provides guidance and direction.
h. The top management is also responsible towards the shareholders for the
performance of the enterprise.
2. Middle Level of Management

The branch managers and departmental managers constitute middle level. They are
responsible to the top management for the functioning of their department. They devote
more time to organizational and directional functions. In small organization, there is only
one layer of middle level of management but in big enterprises, there may be senior and
junior middle level management. Their role can be emphasized as –

a. They execute the plans of the organization in accordance with the policies and
directives of the top management.
b. They make plans for the sub-units of the organization.

12
 c. They participate in employment & training of lower level management.
d. They interpret and explain policies from top level management to lower level.
e. They are responsible for coordinating the activities within the division or
department.
f. It also sends important reports and other important data to top level management.
g. They evaluate performance of junior managers.
h. They are also responsible for inspiring lower level managers towards better
performance.
3. Lower Level of Management

Lower level is also known as supervisory / operative level of management. It consists of

supervisors, foreman, section officers, superintendent etc. According to R.C. Davis,
“Supervisory management refers to those executives whose work has to be largely with
personal oversight and direction of operative employees”. In other words, they are
concerned with direction and controlling function of management. Their activities include –

a. Assigning of jobs and tasks to various workers.

b. They guide and instruct workers for day to day activities.
c. They are responsible for the quality as well as quantity of production.
d. They are also entrusted with the responsibility of maintaining good relation in the
organization.
e. They communicate workers problems, suggestions, and recommendatory appeals
etc to the higher level and higher level goals and objectives to the workers.
f. They help to solve the grievances of the workers.
g. They supervise & guide the sub-ordinates.
h. They are responsible for providing training to the workers.
i. They arrange necessary materials, machines, tools etc for getting the things done.
j. They prepare periodical reports about the performance of the workers.
k. They ensure discipline in the enterprise.
l. They motivate workers.
m. They are the image builders of the enterprise because they are in direct contact
with the workers

The main objectives of management are:

1. Getting Maximum Results with Minimum Efforts – The main objective of management is to
secure maximum outputs with minimum efforts & resources. Management is basically
concerned with thinking & utilizing human, material & financial resources in such a manner
that would result in best combination. This combination results in reduction of various
costs.

13
 2. Increasing the Efficiency of factors of Production – Through proper utilization of various
factors of production, their efficiency can be increased to a great extent which can be
obtained by reducing spoilage, wastages and breakage of all kinds, this in turn leads to
saving of time, effort and money which is essential for the growth & prosperity of the
enterprise.
3. Maximum Prosperity for Employer & Employees – Management ensures smooth and
coordinated functioning of the enterprise. This in turn helps in providing maximum benefits
to the employee in the shape of good working condition, suitable wage system, incentive
plans on the one hand and higher profits to the employer on the other hand.
4. Human betterment & Social Justice – Management serves as a tool for the upliftment as
well as betterment of the society. Through increased productivity & employment,
management ensures better standards of living for the society. It provides justice through
its uniform policies.

Importance of management

1. It helps in Achieving Group Goals – It arranges the factors of production, assembles and
organizes the resources, integrates the resources in effective manner to achieve goals. It
directs group efforts towards achievement of pre-determined goals. By defining objective
of organization clearly there would be no wastage of time, money and effort. Management
converts disorganized resources of men, machines, money etc. into useful enterprise.
These resources are coordinated, directed and controlled in such a manner that enterprise
work towards attainment of goals.
2. Optimum Utilization of Resources – Management utilizes all the physical & human
resources productively. This leads to efficacy in management. Management provides
maximum utilization of scarce resources by selecting its best possible alternate use in
industry from out of various uses. It makes use of experts, professional and these services
leads to use of their skills, knowledge, and proper utilization and avoids wastage. If
employees and machines are producing its maximum there is no under employment of any
resources.
3. Reduces Costs – It gets maximum results through minimum input by proper planning and
by using minimum input & getting maximum output. Management uses physical, human

14
 and financial resources in such a manner which results in best combination. This helps in
cost reduction.
4. Establishes Sound Organization – No overlapping of efforts (smooth and coordinated
functions). To establish sound organizational structure is one of the objective of
management which is in tune with objective of organization and for fulfillment of this, it
establishes effective authority & responsibility relationship i.e. who is accountable to
whom, who can give instructions to whom, who are superiors & who are subordinates.
Management fills up various positions with right persons, having right skills, training and
qualification. All jobs should be cleared to everyone.
5. Establishes Equilibrium – It enables the organization to survive in changing environment. It
keeps in touch with the changing environment. With the change is external environment,
the initial co-ordination of organization must be changed. So it adapts organization to
changing demand of market / changing needs of societies. It is responsible for growth and
survival of organization.
6. Essentials for Prosperity of Society – Efficient management leads to better economical
production which helps in turn to increase the welfare of people. Good management
makes a difficult task easier by avoiding wastage of scarce resource. It improves standard
of living. It increases the profit which is beneficial to business and society will get maximum
output at minimum cost by creating employment opportunities which generate income in
hands. Organization comes with new products and researches beneficial for society.

Management and Administration

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

major objectives, the identification of general purposes and laying 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

15
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.

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

1. Functions
2. Usage / Applicability

On the Basis of Functions: -

Basis Management Administration

Meaning Management is an art of getting things done It is concerned with formulation of

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

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

making function.

Process Management decides who should as it & how Administration decides what is to
should he dot it. be done & when it is to be done.

Function Management is a doing function because Administration is a thinking

managers get work done under their function because plans & policies
supervision. are determined under it.

Skills Technical and Human skills Conceptual and Human skills

Level Middle & lower level function Top level function

16
On the Basis of Usage: -

Basis Management Administration

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

y 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 of capital invested & profits in the form of
salaries & wages). dividend.

Practically, there is no difference between management & administration. Every manager is

concerned with both – administrative management function and operative management function as
shown in the figure. However, the managers who are higher up in the hierarchy denote more time
on administrative function & the lower level denote more time on directing and controlling worker’s
performance i.e. management.

17
The Figure above clearly shows the degree of administration and management performed by the
different levels of management

Management versus Leadership

A burning question is how management differs from leadership. For some, there is no difference. A
clear way of differentiating the two is to say that leadership promotes new directions while
management executes existing directions as efficiently as possible. Unfortunately, management is
mistakenly seen as task-oriented, controlling and insensitive to people's needs. By contrast,
leaders are portrayed as emotionally engaging, visionary and inspiring. But, separating leadership
from management in terms of style is a dead end, simply because leadership can be shown by
quiet or forceful arguments based on hard facts. An inspiring leader induces us to change direction
while an inspiring manager motivates us to work harder to get a tough job done on time.

The best managers are very strategic about themselves. They recognize that time and other
resources are scarce, that competitive pressures demand efficient use of everything. Being
strategic about themselves is the same thing as being a proactive, serious investor who regularly
monitors his or her investments in order to shift them around to get a better return. Managers also
have to be strategic about the business. It is not enough to do the work efficiently, it is essential to
do the right things. Both of these imperatives can be thought of in terms of wise investment.
Management is primarily a decision making role. Managers are charged with the responsibility to
make a profit and this requires them to make sound decisions.

18
By contrast, leadership is strictly informal influence. Leaders persuade people to change direction.
This way of thinking about leadership means that it is not a position and that there is no such thing
as autocratic leadership. It is vitally important to recast leadership in this way. Otherwise, how can
we explain the leadership of Martin Luther King who influenced the Supreme Court to outlaw
segregation on buses without any formal authority over this body? We confuse ourselves when we
call senior executives leaders. The truth is that they are managers by virtue of their positions and
they only show leadership when they influence people informally, like Martin Luther King did, to
change direction. Leadership is an occasional act; management is an ongoing role.

Functions of Management
Management has been described as a social process involving responsibility for economical and
effective planning & regulation of operation of an enterprise in the fulfillment of given purposes. It is
a dynamic process consisting of various elements and activities. These activities are different from
operative functions like marketing, finance, purchase etc. Rather these activities are common to
each and every manger irrespective of his level or status

Different experts have classified functions of management. According to George & Jerry, “There
are four fundamental functions of management i.e. planning, organizing, actuating and controlling”.
According to Henry Fayol, “To manage is to forecast and plan, to organize, to command, & to
control”. Whereas Luther Gullick has given a keyword ’POSDCORB’ where P stands for Planning,
O for Organizing, S for Staffing, D for Directing, Co for Co-ordination, R for reporting & B for
Budgeting. But the most widely accepted are functions of management given by KOONTZ and
O’DONNEL i.e. Planning, Organizing, Staffing, Directing and Controlling.

For theoretical purposes, it may be convenient to separate the function of management but
practically these functions are overlapping in nature i.e. they are highly inseparable. Each function
blends into the other & each affects the performance of others.

19
1. Planning

It is the basic function of management. It deals with chalking out a future course of action
& deciding in advance the most appropriate course of actions for achievement of pre-
determined goals. According to KOONTZ, “Planning is deciding in advance – what to do,
when to do & how to do. It bridges the gap from where we are & where we want to be”. A
plan is a future course of actions. It is an exercise in problem solving & decision making.
Planning is determination of courses of action to achieve desired goals. Thus, planning is a
systematic thinking about ways & means for accomplishment of pre-determined goals.
Planning is necessary to ensure proper utilization of human & non-human resources. It is
all pervasive, it is an intellectual activity and it also helps in avoiding confusion,
uncertainties, risks, wastages etc.

2. Organizing

It is the process of bringing together physical, financial and human resources and
developing productive relationship amongst them for achievement of organizational goals.
According to Henry Fayol, “To organize a business is to provide it with everything useful or
its functioning i.e. raw material, tools, capital and personnel’s”. To organize a business
involves determining & providing human and non-human resources to the organizational
structure. Organizing as a process involves:

20
  Identification of activities.
 Classification of grouping of activities.
 Assignment of duties.
 Delegation of authority and creation of responsibility.
 Coordinating authority and responsibility relationships.
3. Staffing

It is the function of manning the organization structure and keeping it manned. Staffing has
assumed greater importance in the recent years due to advancement of technology,
increase in size of business, complexity of human behavior etc. The main purpose o
staffing is to put right man on right job i.e. square pegs in square holes and round pegs in
round holes. According to Kootz & O’Donell, “Managerial function of staffing involves
manning the organization structure through proper and effective selection, appraisal &
development of personnel to fill the roles designed un the structure”. Staffing involves:

 Manpower Planning (estimating man power in terms of searching, choose the

person and giving the right place).
 Recruitment, selection & placement.
 Training & development.
 Remuneration.
 Performance appraisal.
 Promotions & transfer.

4. Directing

It is that part of managerial function which actuates the organizational methods to work
efficiently for achievement of organizational purposes. It is considered life-spark of the
enterprise which sets it in motion the action of people because planning, organizing and
staffing are the mere preparations for doing the work. Direction is that inert-personnel
aspect of management which deals directly with influencing, guiding, supervising,
motivating sub-ordinate for the achievement of organizational goals. Direction has
following elements:
 Supervision

21
  Motivation
 Leadership
 Communication

Supervision- implies overseeing the work of subordinates by their superiors. It is the act of
watching & directing work & workers.

Motivation- means inspiring, stimulating or encouraging the sub-ordinates with zeal to

work. Positive, negative, monetary, non-monetary incentives may be used for this purpose.

Leadership- may be defined as a process by which manager guides and influences the
work of subordinates in desired direction.

Communications- is the process of passing information, experience, opinion etc from one
person to another. It is a bridge of understanding.

5. Controlling

It implies measurement of accomplishment against the standards and correction of

deviation if any to ensure achievement of organizational goals. The purpose of controlling
is to ensure that everything occurs in conformities with the standards. An efficient system
of control helps to predict deviations before they actually occur. According to Theo
Haimann, “Controlling is the process of checking whether or not proper progress is being
made towards the objectives and goals and acting if necessary, to correct any deviation”.
According to Koontz & O’Donell “Controlling is the measurement & correction of
performance activities of subordinates in order to make sure that the enterprise objectives
and plans desired to obtain them as being accomplished”. Therefore controlling has
following steps:

a. Establishment of standard performance

b. Measurement of actual performance
c. Comparison of actual performance with the standards and finding out
deviation if any.
d. Corrective action.

22
TOPIC 2
SCIENTIFIC MANAGEMENT THEORY
The evolution of modern management began in the closing decades of the nineteenth century,
after the industrial new economic climate, managers of all types of organizations – political,
educational, and economic – were increasingly trying to find better ways to satisfy customer’s
needs. Many major economic, technical, and cultural changes were taking place at this time. The
introduction of steam power and the development of sophisticated machinery and equipment
changed the way goods were produced, particularly in the weaving and clothing industries. Small
work shops run by skilled workers who produced hand manufactured products (a system called
crafts production) were being replaced by large factories in which sophisticated machines
controlled by hundreds or even thousands of unskilled or semiskilled workers made products. For
example, raw cotton and wool, which in the past had been spun into yarn by families or whole
villages working together, were now shipped to factories where workers operated machines that
spun and wove large quantities of yarn into cloth.
Owners and managers of the new factories found themselves unprepared for the challenges
accompanying the change from small scale crafts production to large scale mechanized
manufacturing. Moreover, many of the managers and supervisors in these workshops and
factories were engineers who had only a technical orientation. They were unprepared for the
social problems that occur when peo0le work together in large groups in a factory or shop system.
Managers began to search for new techniques to manage their organizations’ Managers bean to
search for new techniques to manage their organization’ resources, and soon they began to focus
on ways to increase the efficiency of the worker – task mix.

Job Specialization and the Division of Labor.

Initially, management theorists were interested in the subject of why the new machine shops and
factory system were more efficiency and produced grater quantities of goods and services than

23
older craft – style production operations. Nearly 200 years before Adam Smith had been one of the
first writes to investment the advantages associated with producing goods and services in factories
A famous economist Smith journeyed around England in the 1700s studying the effect of industrial
revolution. 1In a study of factories that produced various pins or nails, Smith identified two different
manufacturing methods. The first was similar to crafts – style production, in which each worker
was responsible for all of the 18 tasks involved in producing a pin. The other had each worker
performing only 1 or a few of the 18 tasks that go into making a complete pin. In a comparison of
the relative performance of these different ways of organizing production, smith found that the
performance of the factories in which worker specialized in only 1 or few tasks was much greater
than the performance of the factory in which workers performed all 18 pin –making tasks. In fact,
Smith found that 10 workers specializing in a particular task could make 48,000 pins a day,
whereas those workers who performed all the tasks could make only a few thousand at most.
2
Smith reasoned that this difference in performance was due to the fact that the workers who
specialized became much more skilled at their specific tasks and as groups were thus able to
produce a product faster than the group of workers who each performed many tasks.
Smith concluded that increasing the level of job specialization – the process by which a division of
labor occurs as different workers specialize in specific tasks over time – increases efficiency and
leads to higher organizational performance Armed with the insights gained from Adam Smith’s
observations, other managers and researchers began to investigate how to improve job
specialization to increase performance. Management practitioners and theorists focused on how
managers should organize and control the work process to maximize the advantages of job
specialization and the division of labor.

F. W. TAYLOR AND SCIENTIFIC

Frederick W. Taylor (1856 – 1915) is best known for defining the techniques of scientific
management, the systematic study of relationships between people and tasks for the purpose of
redesigning the work process to increase efficiency. Taylor was a manufacturing manager who
eventually became a consultant and taught other managers how to apply his scientific
management techniques. Taylor believed that if the amount of time and effort that each worker
expends to produce a unit of output (a finished good or service) can be reduced by increasing
1
2

24
specialization and the division of labor, the production process will become more efficient.
According to Taylor the way to create the most efficient division of labor could best be determined
by scientific management techniques, rather than intuitive or informal rule-of –thumb knowledge.
Based on his experiments and observations as a manufacturing manager in a variety of settings,
he developed four principles to increase efficiency in the workplace.
`
 Principle 1. Study the way workers perform their tasks, gather all the informal job
knowledge that workers possess, and experiment with ways of improving how tasks are
performed.
To discover the most efficient method of performing specific tasks, Taylor studied in great detail
and measured the ways different workers went about performing their tasks. One of the main tools
he used was a time and motion study, which involves the careful timing and recording of the
actions taken to perform a particular task. Once Taylor understood the existing method of
performing a task, he then experimented to increase specialization. He tried different methods of
dividing and coordinating the various tasks necessary to produce a finished product. Usually this
meant simplifying jobs and having each worker perform fewer, more routine tasks, as at the pin
factory or on Ford’s car assembly line. Taylor also sought to find ways to improve each worker’s
ability to perform a particular task – for example, by reducing the number of motions workers made
to complete the task, by changing the number of motions workers made to complete the task, by
changing layout of the work area or the type of tools workers used, or by experimenting with tools
of different sizes.

 Principle 2: Codify the new methods of performing tasks into written rules and standard
operating procedure.
Once the best method of performing a particular task was determined, Taylor specified that it
should be recorded so that this procedure could be taught to all workers performing the same task.
These new methods further standardized and simplified jobs – essentially making jobs even more
routine. In this way efficiency could be increased throughout an organization.

25
  Principle 3: Carefully select workers who possess skills and abilities that match the needs
of the task, and train them to perform the task according to the established rules and
procedures.
To increase specialization, Taylor believed worker had to understand the tasks that were
required and be thoroughly trained to perform the task at the
Required level. Workers who could not be trained to this level were to be transferred to a
job where they were able to reach the minimum required level of proficiency.

 Principle 4: establish a fair or acceptable level of performance for a task, and then
develop a pay system that provides a reward for performance above the acceptable level
of performance for a task, and then develop a pay system that provides a reward for
performance above the acceptable level
To encourage workers to perform at a high level of efficiency, and to provide them with an
incentive to reveal the most efficient techniques for performing a task, Taylor advocated
that workers benefit from any gains in performing a task, Taylor advocated that workers
benefit from any gains in performance. They should be paid a bonus and receive some
percentage of the performance gains achieved through the more efficient work process.
By 1910 Taylor’s system of management had become nationally known and in many
instances was faithfully and fully practiced. However, managers in many organizations
chose to implement the new principles of scientific management selectively. This decision
ultimately resulted in problems. For example some managers using scientific
management obtained increases in performance, but rather than sharing performance
gains with workers through bonuses as Taylor had advocated, they simply increased the
amount of work that each system found that as their performance increased, managers
required them to do more work for the same pay. Workers also learned that increases in
performance often meant fewer jobs and a greater threat of layoffs because fewer workers
were needed. In addition, the specialized, simplified jobs were often monotonous and
repetitive, and many workers became dissatisfied with their jobs.
Scientific management brought many workers more hardship than gain and a distrust of managers
who did not seem to care about their well being. These dissatisfied workers resisted attempts to
used the new scientific management techniques and at times even withheld their job knowledge

26
from managers to protect their jobs and pay. It is not difficult for workers to conceal the true
potential efficiency of a work system to protect their interests. Experienced machine operators, for
examples can slow their machines in undetectable ways by adjusting the tension in the belts or by
misaligning gears. Workers sometimes even develop informal work rules that discourage high
performance and encourage shirking as work group attempt to identified an acceptable or fair
performance level a tactic discussed in the next section
Unable to inspire workers to accept the new scientific management techniques for performance
task some organization increased the mechanization of the work process. For example one reason
why Henry Ford introduced belt controls the pace of work instead of workers setting their own pace
thought were beyond their reach. Charlie Chaplin captured this aspect of mass production in one of
opening scenes of his famous movie modern times in the firm Chaplin caricatured a new factory
employee fighting to ford also used the principle of scientific management to identify the tasks that
each worker should perform on the production line and thus to determine the moss effective way to
create a division of labor to suit the need of a mechanized production
system
From performance perspective the combination of the two management practices – 1 achieving the
right mix of worker – task specialization and 2 linking people and tasks by the speed of the
production line makes sense. It line makes sense. It ducked the huge savings in cost and huge
increases in out put that occur in larger organized work setting. For example in 1908 managers at
the Franklin Motor Company using scientific management practices raises many concerns. The
definition of the works rights not by the works themselves but the owners or manager as a result of
the introduction of the new management practical raised an ethics Action.
Dispute the problem of worker turnover absenteeism and discounted at Ford Motor Company
managers of the other car companies watched Ford reap huge gains in efficiency from the
application of the new management principles. They be lived that their companies would have to
imitate Ford if they were to survive the m how to adopt the technical of scientific management. In
addition. Taylor elaborated his principle of scientific management to reorganize the work system .
Managers in very organization whether it produced goods or services now carefully an analyze the
basic tasks that must be perfumed and try to devise the work system that will allow their
organization to operate most efficiency

27
The Gilberts
Two promised followed Taylor were Frank Gilbreth 1868 – 1924 and Lillian Gilberts 18678 – 1972
who refined Taylor analysis of work movement and made many contributions to time and motion
study. Their aims were to (1) break up and analyze every individual action necessary to performed
more effiencincly at less cost of time and effort
The Gilbert’s often filmed a worker performing a particular task and then separated the task actions
frame by frame into their component movement. Their goal was to maximize the efficiency with
which each individual task was performed so that gains across tasks would add up to enormous
savings of time and effort. Their attempt to develop improved management principles were
captured at times quite humorously – in the movie Cheaper by the Dozen, which depicts how the
Gilberts (with their 12 children ) tried to live their own lives according to these efficiency principles
and apply them to daily actions such as shaving, cooking, and even raising a family. 16
Eventually, the Gilbreths became increasingly interested in the study of fatigue. They studied how
the physical characteristics of the workplace contribute to job stress that often leads to fatigue and
thus poor performance. They isolated factors that result in worker fatigue, such as lighting,
heating, the color of walls, and the design of tools and machines. Their pioneering studies paved
they way for new advances in management theory.
In workshops and factories, the work of the gilbreths, Taylor, and many others had a major effect
on the practice of management. In comparison with the old crafts system, jobs in the new system
were more repetitive, boring, and monotonous as a result of the application of scientific
management increasingly dissatisfied. Frequently, the management of work settings became a
game between workers and managers: managers tried to initiate work practices to increase
performance, and workers tried to hide the true potential efficiency of the work setting to protect
their own well – being.17

ADMINISTRATIVE MANAGEMENT THEORY

Side by side with scientific managers studying the person task mix to increase efficiency, other
researchers were focusing on administrative management, the study of how to create an
organizational structure that leads to high efficiency and effectiveness. Organizational structure is
the system of task and authority relationships that control how employees use resources to achieve

28
the organization’s goals. Two of the most influential views regarding the creation of efficient
system of organization administration were developed in Europe: Max Weber, a German professor
of sociology, developed one theory. Henri Fayol, the French manager developed the other.

THE THEORY OF BUREAUCRACY

Max Weber (1864 – 1920) wrote at the turn of the twentieth century, when Germany was
undergoing its industrial revolution. 18 To help Germany manage its growing industrial enterprises
at a time when it was striving to become a world power, Weber developed the principles of
bureaucracy –a formal system of organization and administration designed to ensure efficiency and
effectiveness. A bureaucratic system of administration is based on the five principles;

 Principle 1. In a bureaucracy, a manager’s formal authority derives from the position he

or she holds in the organization.
Authority is the power to hold people accountable for their actions and to make decisions
concerning the use of organizational resources. Authority gives managers the right to direct and
control their subordinates’ behavior to achieve organizational goals. In a bureaucratic system of
administration, obedience is owed to a manager, not because of any personal qualities – such as
personality, wealth, or social status-but because the manager occupies a position that is
associated with a certain level of authority and responsibility.

 Principle 2: In a bureaucracy, people should occupy positions because of their

performance, not because of their social standing or personal contacts.
This principle was not always followed in Weber’s time and is often ignored today some
organizations and industries are still affected by social networks in which personal contacts and
relations, not job – related skills, influence hiring and promotional decisions.

 Principle 3: The extent of each position’s formal authority and task responsibilities,
and its relationship to other positions in an organization are clearly specified,
When task and authority associated with various position in the organization are Cleary specified
managers and workers know what is expected of them and what to expect from each other.

29
Moreover, an organization can hold all its employees strictly accountable for their actions when
they know their exact responsibilities.

 Principle 4: Authority can be exercised effectively in an organization when positions

are arranged hierarchically, so employees know how to report to and who reports to them
Managers must create an organizational hierarchy of authority that makes it clear who reports to
whom and to whom managers and workers should go if conflicts or problems arise. This principle
is especially important in the armed forces, FBI, CIA, and other organizations that deal with
sensitive issues involving possible major repercussions. It is vital that managers at high levels of
the hierarchy be able to hold subordinates accountable for their actions.
 Principle 5: Managers must create a will – defined system of rules, standard operating
procedures, and norms so that they can effectively control behavior within an organization.
Rules are formal written instructions that specify actions to be taken under different circumstances
to achieve specific goals (for example, if A happens, do B). Standard operating procedures
(SOPs) are specific sets of written instructions about how to perform a certain aspect of a task. A
rule might state that at the end of the workday employees are to leave their machines in good
order, and a set of SOPs specifies exactly how they should do so, itemizing which machine parts
must be oiled or replaced. Norms are unwritten, informal codes of conduct that prescribe how
people should act in particular situations. For example, an organizational norm in a restaurant
might be that waiters should help each other if time permits.
Rules, SOPs. And norms provide behavioral guidelines that increase the performance of a
bureaucratic system because they specify the vest ways to accomplish organizational tasks.
Companies such as McDonald’s and Wal-Mart have developed extensive rules and procedures to
specify the behaviors required of their employees, such as “Always greet the customer with a
smile”
Weber believed that organizations that implement all five principles establish a bureaucratic system
that improves organizational performance. The specification of positions and the use of rules and
SOPs to regulate how tasks are performed make it easier for managers to organize and control the
work of subordinates. Similarly, fair and equitable selection and promote the interests of the
organization.

30
If bureaucracies are not managed well, however, many problems can result. Sometimes,
managers allow rules and SOPs, or “bureaucratic red tape,” to become so cumbersome that
decision making becomes slow and inefficient and organizations are unable to change. When
managers rely too much on rules to solve problems and not enough no their own skills and
judgment, their behavior becomes inflexible. A key challenge for managers is to use bureaucratic
principles to benefit, rather than harm, an organizational.

FAYOL’S PRINCIPLES OF MANAGEMENT

Henri Fayol (1841 – 1925) was the CEO of Comambault Mining. Working at the same time as, but
independently from Weber, Fayol identified 14 principles (summarized in Table 21) that he believed
essential to increase the efficiency of the management process. 22 We discuss these principles in
detail here because, although they were developed at the turn of the twentieth century, they remain
the bedrock on which much of the recent management theory and research are based. In fact, as
the “Management Insight” following this discussion suggests, modern writers such as will – known
management guru Tom Peters continue to extol these principles.

DIVISION OF LABOR: A champion of specialization and the division of labor for reasons already
mentioned, Fayol was nevertheless among the first to point out the downside of too much
specialization: boredom – a state of mind result, Fayol advocated that workers be given more job
duties to perform or be encouraged to assume more responsibility for work outcomes, a principle
increasingly applied today in organizations that empower their workers.

AUTHORITY AND RESPONSIBILITY: Like Weber, Fayol emphasized the importance of

authority, and responsibility. Fayol, however, went beyond Weber’s formal authority, which derives
from a manager’s position in the hierarchy, to recognize the informal auth9ority that derives from
personal expertise, technical knowledge, moral worth, and ability to lead and to generate
commitment from subordinates. (The study of authority is the subject of recent research.
UNITY OF COMMAND: The principle of unity of command specifies that an employee should
receive orders from, and report to, only one superior. Fayol believed that dual command, the
reporting relationship that exists when two supervision give order to the same subordinate should
be avoided except in exceptional circumstances. dual command confuses the subordinate under

31
mines order and discipline and creates havoc within the formal hierarch of authority and
responsibility in the system of dual command is difficult and the manager who is bypassed feels
slighted and angry and many be uncooperative in the future

LINE OF AUTHOLITY the line of authority is the chain of command extending from the top the
bottom of organization. Fay or was one of the first management theorist to point out the importance
of limiting the length of the chain of command by controlling the number of levels in the managerial
hierarchy. The greater the number of levels in the hierarchy, the longer communication between
managers at the top and bottom takes and the slower the pace of planning and organizing.
Restricting the number of hierarchical levels to lessen these communication problems enables an
organization to act quickly and flexibly; this is one reason for the recent trend toward restructuring
(discussed in chapter 1)

CENTRALIZATION: Fayol also was one of the first management writers to focus on
centralization, the concentration of authority at the top of the managerial hierarchy. Fayol believed
that authority should not be concentrated at the top face is how much authority to centralize at the
top of the organization and what authority to decentralize to managers and workers at lower
hierarchical levels. This is an important issue because it affects the behavior of people at all levels
in the organization.
If authority is very centralized, only managers at the top make important decisions, and
subordinates simple follow orders. This arrangement gives top manager’s great control over
organizational activities and helps ensure that the organization is pursuing its strategy, but is
makes it difficult for the people who are closest to problems and issues to respond to them in a
timely manner. It also can lower the motivation of middle and first line managers and make them
less flexible and adaptable because they become reluctant to make decisions on their own, even
when doing so is necessary. They get used to passing the buck. As we saw in chapter 1, the
pendulum is now swinging toward decentralization, as organizations seek to empower middle
managers and create self –managed teams that monitor and control their own activities both to
increase organizational flexibility and to reduce operating costs and increase efficiency.

32
UNITY OF DIRECTION: Just as there is a need for unity of command, there is also a need for unity
of direction the singleness of purpose that makes possible the creation of one plan of action to
guide managers and workers as they use organizational resources. An organization without a
single guiding plan becomes inefficient and ineffective; its activities become unfocused, and
individuals and groups work at cross-purposes. Successful planning starts with top managers
working as a team to craft the organization’s strategy, which they communicate to middle
managers, who decide how to use organizational resources to implement the strategy.

EQUITY: As Fayol wrote: “For personnel to be encouraged to carry out their duties with all
the devotion and loyalty of which they are capable, they must be treated with respect for their own
sense of integrity, and equity results from the combination of respect and justice.”23 Equity – the
justice, impartiality, and fairness to which all organizational members are entitled – is receiving
much attention today; the desire to treat employees fairly is a primary concern for many managers.
(Equity theory is discussed in Chapter 12)

ORDER: Like Taylor and the Gilbreths, Fayol was interested in analyzing jobs, positions,
and individuals to ensure that the organization was using resources as efficiently as possible. To
Fayol, order meant the methodical and to provide employees with career opportunities to satisfy
their needs. Thus, Fayol recommended the use of organizational charts to show the position and
duties of each employee and to indicate which positions an employee might move to or be
promoted into in the future. He also advocated that managers engage in extensive career planning
to help ensure orderly career paths. Career planning is of primary interest today as organization
and developing their workforces.

INITIATIVE: Although order and equity are important means to fostering commitment and
loyalty among employees, Fayol believed that managers’ must without direction from a superior
used properly, initiative can be a major source of strength for an organization because it leads to
creativity and innovationzation’s need for order and employees, desire for initiative. Fayol believed
that the ability to strike this balance was a key indicator from a superior. Used properly, initiative
can be a major source of strength for an organization because it lead to creativity and innovation.
Managers need skill and tact to achieve the difficult balance between the organization’s need for

33
order and employee’s desire for initiative. Fayol believed that the ability to strike this balance was
a key indicator of a superior manager.

DISCIPLINE: In focusing on the importance of discipline – obedience, energy, application, and

other outward marks of respect for a superior’s authority – Fayol was addressing the concern of
many early managers: How to create nizational goals. According to Fayol, discipline results in
respectful relational between organizational members and reflects the quality of an organization’s
leadership and a manager’s ability to act fairly and equitably.

REMUNERATION OF PERSONNEL: Fayol proposed reward systems including bonuses and

profit – sharing plans, which are increasingly utilized today as organizations seek improved ways to
motivate employees. Convinced from his own experience that an organization’s payment system
has important implications for organizational success, Fayol believed that effective reward systems
should be equitable for both employees and the organixation, encourage productivity by rewarding
well-directed effort, not be subject to abuse, and be uniformly applied to employees.

STABILITY OF TENURE OF PERSONNEL: Fayol also recognize the importance of long –

term employment, and the idea has been echoed by contemporary management gurus such as
Tom Peters, Jeff Pfeffer, and William Ouchi. When employees stay with an organization for
extended periods of time, they develop skills that improve the organization’s ability to utilize its
resources.

SUBORDINATION OF INDIVIDUAL INTERESTS TO THE COMMON INTEREST: The interests of

the organization as a whole must take precedence over the interests of any one individual or group
if the organization and its members to ensure that employees are treated fairly and rewarded for
their performance and to maintain the disciplined organizational relationships so vital to an efficient
system of administration.

ESPRIT DE CORPS: As this discussion of Fayol’s ideas suggests the appropriate design of an
organization’s hierarchy of authority and the right mix of order and discipline foster cooperation and
commitment. Likewise, a key element in a successful organization is the development of esprit de

34
corps, a French expression that refers to shared feelings of comradeship, enthusiasm, or result
when managers encourage personal, verbal contact between managers and workers and by
encouraging communication to solve problems and implement solutions.
Some of the principles that Fayol outlined have faded from contemporary management practices,
but most have endured. The characteristics of organizations that Tom Peters and Robert
Waterman identified as being “excellently managed” in their best – selling book in search of
Excellence (1982) are discussed in this “Management Insight”24
As this insight into contemporary management suggests, the basic concerns that motivated Fayol
continue to motivate management teorists.25 The principles that Fayol and Weber set forth still
provide a clear and appropriate set of guidelines that managers can use to create a work setting
that makes efficient and effective use of organizational resources. These principles remain the
bedrock of modern management theory; recent researchers have refined or developed them to suit
modern conditions. For example, Weber’s and Fayol’s concerns for equity and for establishing
appropriate links between performance and reward are central themes in contemporary theories of
motivation and leadership.

BEHAVIORAL MANAGEMENT THEORY:

Because the writings of Weber and Fayol were not translated into English and published in the
United States until the late 1940s, American management theorists in the first half of the twentieth
century were unaware of the contributions of these European pioneers. American manage
theorists began where Taylor and his followers left off. Although their writings were all very
different, the terrorists all espoused a theme that focused on behavioral management, the study of
how managers should personally behave to motivate employees and encourage them to perform at
high levels and be committed to achieving organizational goals.
THE WORK OF MARY PARKER FOLLETT.
If F. W. Taylor is considered the father of management thought, Mary Parker Follett (1868 – 1968)
serves as its mother. 26 much of her writing about management and about the way managers
should behave toward workers was a response to her concern that Taylor was ignoring the human
side of the organizational. She pointed out that management often overlooks the multitude of ways
in which employees can contribute to the organization when managers allow them to participate
and exercise initiative in their everyday work lives. Taylor, for example, never proposed that

35
managers should involve workers in analyzing their jobs to identify better ways to perform tasks, or
even ask or workers how they felt about their jobs. Instead, he used time and motion experts to
analyze the worker’s jobs for them. Follett, in contrast, argued that because workers know the
most about their jobs, they should be involved in job analysis and managers should allow them to
participate in the work development process.
Follett proposed that “Authority should go with knowledge whether it is up the line or down.” In
other words, if workers have the relevant knowledge, then workers, rather than managers, should
be in control of the work process itself, and managers should behave as coaches and facilitators
not as monitors and supervisors. In making this statement, Follett anticipated the current interest
in self-managed teams and empowerment. She also recognized the importance of having
managers in different departments communicate directly with each other to speed decision making.
She advocated what she called cross-functioning: members of different department’s teams to
accomplish projects-an approach that is increasingly utilized today.

Fayol also mentioned expertise and knowledge as important sources of manager’s authority, but
Follett went further. She proposed that knowledge and expertise, and knowledge as important
sources of manager’s authority, but Follett went further. She proposed that knowledge and
expertise, and not managers’ formal authority deriving from their position in the hierarchy, should
decide who would lead at any particular moment. She believed, as do many management
theorists today, that power is fluid and should flow to the person who can best help the
organization achieve its goals. Follett took a horizontal view of power and authority, in contrast to
Fayol, who saw the formal line of authority and vertical chain of command as being most essential
to effective management. Follett’s behavioral approach to management was very radical for its
time.
THE HAWTHORNE STUDIES AND HUMAN RELATIONS
Probably because of its radical nature, Follett’s work was unappreciated by managers and
researchers until quite recently. Most continued to follow in the footsteps of Taylor and the
Gilbreths. To increase efficiency, they studied ways to improve various characteristics of the work
setting, such as job specialization or the kinds of tools workers used. One series of studies was
conducted from 1924 to 1932 at the Hawthorne Works of the Western Electric Company. This
research, now known as the Hawthorne studies, began as an attempt to investigate how

36
characteristics of the work setting-specifically the level of lighting or illumination-affect worker
setting-specifically the level of lighting or illumination-affect worker fatigue and performance. The
researchers conducted an experiment in which they systematically measured worker productivity at
various levels of illumination.
The experiment produced some unexpected results. The researchers found that regardless for
whether they raised or lowered the level of illumination, productivity increased. In fact, productivity
began to fall only when the level of illumination dropped to the level of moonlight, a level at which
presumably workers could no longer see well enough to do their work efficiently.

The researchers found these results puzzling and invited a noted Harvard psychologist, Elton
Mayo, to help them. Mayo proposed another series of experiments to solve the mystery. These
experiments, known as the relay assembly test experiments, were designed to investigate the
effects of other aspects of the work context on job performance, such as the effect of the number
and length of rest periods and hours of work on fatigue and monotony. The goal was to raise
productivity.

During a two –year study of a small group of female workers, the researchers again observed that
productivity increased over time, but the increases could not be solely attributed to the effects of
changes in the work setting. Gradually, the researchers discovered that, to some degree, the
results they were obtaining were influenced by the fact that the researchers themselves had
become part of the experiment. In other words, the presence of the researchers was affecting the
results because the workers enjoyed receiving attention and being the subject of study and were
willing to cooperate with the researchers to produce the results they believed the researchers
desired.
Subsequently, it was found that many other factors also influence worker behavior, and it was not
clear what was actually influencing the Hawthorne workers’ behavior. However, this particular
effect-which became known as the Hawthorne effect-seemed to suggest that workers’ attitudes
toward their managers affect the level of workers’ performance. In particular, the significant finding
was that a manager’s behavior or leadership approach can affect performance. This finding led
many researchers to turn their attention to managerial behavior and leadership. If supervisors
could be trained to behave in ways that would elicit cooperative behavior from their subordinates,

37
then productivity could be increased. From this view emerged the human relations movement,
which advocates that supervisors be behaviorally trained to manage, subordinated in ways that
elicit their cooperation and increase their productivity.
The importance of behavioral or human relations training became even clearer to its supporters
after another series of experiments – the bank wiring room experiments. In a study of workers
making telephone switching equipment, researchers Elton Mayo and F.J Roethlisberger discovered
that the workers, as a group, had deliberately adopted a norm of output restriction to protect their
jobs. Workers violated this informal production norm were subjected to sanctions by other group
members. Those who violated group performance norms and performed above the norm were
called ratebusters; those who performed below the norm were called chiselers.

The experimenters concluded that both types of workers threatened the group as a whole. Rate
busters threatened group members because they revealed to managers how fast the work could
be done. Chiselers were looked down on because they were not doing their share of the work.
Work-group members disciplined both rate busters and chiselers to create a pace of work that the
workers (not the managers) thought were fair. Thus, a work group’s influence over output can be
as great as the supervisors’ influence. Since the work group can influence the behavior of its
members, some management theorists argue that supervisors should be trained to behave in ways
that gain the goodwill and cooperation of workers so that supervisors, not workers, control the level
of work-group performance.
One of the main implications of the Hawthorne studies was that the behavior of managers and
workers in the work setting is as important in explaining the level of performance as the technical
aspects of the task. Managers must understand the workings of the informal organization, the
system of behavioral rules and norms that emerge in a group, when they try to manage or change
behavior in organizations. Many studies have found that, as time passes, groups often develop
with elaborate procedures and norms that bond member’s together, allowing unified action either to
cooperate with management to raise performance or to restrict output and thwart the attainment of
organizational goals. The Hawthorne studies demonstrated the importance of understanding how
the feelings, thoughts, and behavior of work-group members and managers affect performance. It
was becoming increasingly clear to researchers that understanding behavior in organizations is a
complex process that is critical to increasing performance. indeed the increasing interest in the

38
area of management known as organizational behavior, the study of the factors that have an
impacts on how individuals and groups respond to and act in organizations, dates from these early
studies.

THEORY X AND THEORY Y

Several studies after the Second World War revealed how assumptions about workers attitudes
and behavior affect manager’s behavior. Perhaps the most influential approach was developed by
Douglas Mc Gregor. He proposed that two sets of assumption about how work attitude and
behaviors not only dominate the way managers think but also affect how they behave in
organizations. Mc Gregor named these two contrasting sets of assumptions Theory X and Theory
Y

THEORY X .According to the assumptions of Theory X, the average worker is lazy, dislikes work
and will try to do as little as possible. Moreover, workers have little ambition and wish to avoid
responsibility. Thus, the manager’s task is to counteract workers natural tendencies to avoid work.
To keep workers’ performance at a high level, the manager must supervise them closely and
control their behavior by means of “the carrot and stick” – rewards and punishments.
Managers who accept the assumptions of theory X design and shape the work setting to maximize
their control over workers’ behaviors and minimize workers’ control over the pace of work. These
managers believe that workers must be made to do what is necessary for the success of the
organization, and they focus on developing rules, SOPs, and a well-defined system of rewards and
punishments to control behavior. They see little point in giving workers autonomy to solve their
own problems because they think that the workforce neither expects nor desires cooperation.
Theory X managers see their role as closely monitoring workers to ensure that they contribute to
the production process and do not threaten product quality. Henry Ford, who closely supervised
and managed his workforce, fits McGregor’s description of a manager who holds Theory X
assumptions.

THEORY Y: In contrast, Theory Y assumes that workers are not inherently lazy, do no naturally
dislike work, and, if given the opportunity, will do what is good for the organization. According to
theory Y, the characteristic of the work setting determine whether workers consider work to be a

39
source of satisfaction or punishment; and managers do not need to closely control workers’
behavior to make them perform at a high level because workers exercise self-control when they
are committed to organizational goals. The implication of Theory Y, according to McGregor, is that
“the limits of collaboration in the organizational setting are not limits of human nature but of
management’s ingenuity in discovering how to realize the potential represented by its human
resources.”
It is the manager’s task to create a work setting that encourages commitment to organizational
goals and provides opportunities for workers to be imaginative and to exercise initiative and self-
direction.
When managers design the organizational setting to reflect the assumptions about attitudes and
behavior suggested by Theory Y, the characteristics of the organization are quite different from
those of an organizational setting based on Theory X. Managers who believe that workers are
motivated to help the organization reach its goals can decentralize authority and give more control
over the job to workers, both as individuals and in groups. In this setting, individuals and groups
are still accountable for their activities, but the manager’s role is not to control employees but to
provide support and advice, to make sure employees have the resources they need to perform
their jobs, and to evaluate them on their ability to help the organization meet its goals. Henri
Fayol’s approach to administration more closely reflects the assumptions of Theory Y, rather than
Theory X.

MANAGEMENT SCIENCE THEORY:

Management’s science theory is a contemporary approach to management that focuses on the
used of rigorous quantitative techniques to help managers make maximum use of organizational
resources to produce goods and services. In essence, management science theory is a
contemporary extension of scientific management, which as developed by Taylor, also took a
quantitative approach to measuring the worker task mix to raise efficiency. There are many
branches of management science and once again, IT, which is having significant impact on all
kinds of management practices, is affecting the tools managers use to make decisions. Each
branch of management science deals with a specific set of concerns:
 Quantitative management utilizes mathematical techniques, such as linear and nonlinear
programming, modeling, simulation, queuing theory, and chaos theory, to help managers

40
 decide, for example, how much inventory to hold at different times for the year, where to
locate a new factory, and how best to invest an organization’s financial capital. IT offers
managers new and improved ways of handling information to enable managers to make
more accurate assessments of the situation and better decisions.
 Operations management provides managers with a set of techniques that they can use to
analyze any aspect of an organization’s production system to increase efficiently. IT,
through the internet transforms the way managers handle the acquisition of inputs and the
disposal of finished products.
 Total quality management (TQM) focuses on analyzing an organization’s input,
conversions, and output activities to increase product quality. Once again, through
sophisticated software packages and computer-controlled production, IT, is changing the
way managers and employees think about the work process and ways of improving it.
 Management information systems (MIS) help managers design information system that
provide information about events occurring inside the organization as well as in its external
environment-information that is vital for effective decision making. Once again IT gives
managers access to more and better information, and allows more managers at all levels
to participate in the decision making process.
All these subfields of management science, enhanced by sophisticated IT provide tools and
techniques that managers can use to help improve the quality of their decision making and
increase efficiency and effectiveness. We discuss many of the important developments in
management science theory thoroughly in Part 6 of this book. In particular, Chapter 17, “Managing
Information System and Technologies,” and Chapter 18. “Operations Management: Managing
Quality, Efficiency, and Responsiveness to Customers,” Focuses on IT, operations man
agreement, and TQM.

ORGANIZATIONAL ENVIRONMENT THEORY.

An important milestone in the history of management thought occurred when researchers went
beyond the study of how managers can influence behavior within organizations to consider how
managers control the organization’s relationship with its external environment, or organizational
environment-the set of forces and conditions that operate beyond an organization’s boundaries but
affect a manager’s ability to acquire and utilize resources. Resources in the organizational

41
environment include the raw materials and skilled people that an organization requires to produce
goods and services, as well as the support of groups including customers who buy these goods
and services and provide the organization with financial resources. One way of determining the
relative success of an organization is to consider how effective its managers are at obtaining
scarce and valuable resource. The importance of studying the environment became clear after the
development of open systems theory and contingency theory during the 1960s.

THE OPEN SYSTEMS VIEW.

A system is an assemblage of things connected or interrelated so as to form a complex unity; a

whole composed of parts and sub parts in orderly arrangement according to some scheme or plan.

Features of system

1. A system is basically a combination of parts, subsystems. Each part may have various
subparts. Organization is a system of mutually dependent parts, of which may include
subsystems.
2. Parts and sub parts of a system are mutually related to each other, some more, some less;
some directly some indirectly
3. A system is not merely a totality of parts and sub parts but their arrangement is more
important. The whole becomes greater than the total of individual parts because of type of
arrangement made in this parts and sub parts.
4. A system has boundary. In the case of physical system, the boundary is quite visible, and
therefore the system can be identified easily. In social system the boundary is not visible
because is not like a wall that functions to preserve what is inside
5. Systems are divided into two closed system and open system. All living organisms are
open systems while non living things are closed systems
6. System transform inputs into output

One of the most influential views of how an organization is affected by its external environment was
developed by Daniel Katz, Robert Kahn, and James Thompson in the 1960s. These theorists
viewed the organization as an open system-a system that takes in resources from its external

42
environment and coverts or transforms them into goods and services that are sent back to that
environment, where they are bought by customers
At the input stage an organization acquires resources such as raw materials, mine, and skilled
workers to produce goods and services. Once the organization has gathered the necessary
resources, conversion begins. At the conversion stage the Origination’s workforce, using
appropriate tools, techniques, and machinery, transforms the inputs into outputs of finished goods
and services such as cars, hamburgers, or flights to Hawaii. At the output stage the organization
releases finished goods and services to its external environment, where customers purchase and
use them to satisfy their needs. The money the organization releases finished goods and services
to its external environment, where customer purchase and use them to satisfy their needs. The
money the organization obtains from the sales of its outputs allows the organization to acquire
more resources so that the cycle can begin again.
The system just described is said to be open because the organization draws from and interacts
with the external environment in order to survive; in other words, the organization is open to its
environment. A closed system, in contrast, is as elf-contained system that is not affected by
changes in its external environment. Organizations that operate as closed systems, that ignore the
external environment, and that fail to acquire inputs are likely to experience entropy, the tendency
of a system to lose its ability to control itself and thus to Management. theorists can model the
activities of most organizations by using the open systems view Manufacturing companies like Ford
and General Electric, for example, buy inputs such as component parts, skilled and semiskilled
labor, and robots and computer-controlled manufacturing equipment; then at the conversion stage
they use their manufacturing skills to assemble inputs into outputs of cars and appliances. .
Competition between organizational for resources is one of several major challenges to managing
the organizational environment.

Researchers using the open – systems view are also interested in how the various parts of a
system work together to promote efficiency and effectiveness. Systems theorists like to argue that
the whole is greater than the sum of its parts; they mean that an organization performs at a higher
level when its department works together rather than separately. The performance gains that
result when individuals and departments coordinate their actions, is possible only in an organized

43
system, the recent interest in designing organizational systems to create synergy and thus
increase efficiency and effectiveness.

System theory is the big picture approach that overcomes the common mistake of viewing things in
too narrow perspective. It attempt to view organization as a unified, purposeful entity composed of
interrelated parts. Rather than dealing separately with the various parts of organizations, the
system theory gives the managers a way at looking at an organization as a whole and as the part
of the lager, external environment. In so doing, system theory tells as that the activity of an
organization affect the activity of every other part. The job of a manager is to ensure that all parts
of the organization are coordinated internally so that the goals can be achieved. A system view of
management, for instance would recognize that regardless of how efficient the productions
department might be, if the marketing department does not anticipate changes in consumer tastes
and work with the product development department in creating what consumer want, the
organization’s performance will be hampered.

System theory makes organizations theorists search of integrative model rather than be satisfied
with making lists of unrelated principles (Fayol, Tylor). It also emphasizes on looking at the forest
rather than the trees. It uses the ways of thinking that highlights underlying relationships. The
practical implications of the systems theory for manager are enormous. Most effectives managers
operate with a system mentality even though they may not be conscious aware of it. As a matter of
course, executives ask what effects a decision will have on others. They think before they act,
implying the process of evaluating the impacts of their actions will have. A conscious commitment
of system thinking requires explicit responsibility for forming decision in term of entire organization
will be affected.

The implication of system theory

The theory helps to understand the existence of different parts in organization, and that these
different parts works together in coordination, so it sees organization in holism, for instance St
John’s University as an institution has elements that makes it “the faculties” which are made up of
department, these element have to be coordinated to accomplish St John’s University goals. So
the theory helps to see an organization in wholeness. The whole is more than the total of its parts
“synergism”

44
CONTINGENCY THEORY.
Another milestone in management theory was the development of theory in the 1960s, by Tom
Burn and G.M. Stalker in Britain and Pul Lawrence and Jy Lorsch in the United Stastes.42 The
crucial message of contingency theory is that there is no one best way to organize: The
organizational structures and the control systems that managers choose depend on – are
contingent on- are contingent on characteristics of the external environment in which the
organization operates. According to contingency theory, the characteristics of the environment
affect an organization’s ability to obtain resources; and to maximize the likelihood of gaining access
to resources, managers must allow an organization’s departments to organize and control their
activities in ways most likely to allow them to obtain resources, given the constraints of the
particular environment they face. In other words, how managers design the organizational
hierarchy, choose a control system, and lead and motivate their employees is contingent on the
characteristics of the organizational environment
An important characteristic of the external environment that affects an organization’s ability to
obtain resources is the degree to which the environment is changing. Changes in the
organizational environment include changes in technology, which can lead to the creation of new
products (such as compact discs) and result in the obsolescence of existing products (eight-track
tapes); the entry of new competitors (such as global organizations that compete for available
resources): and unstable economic conditions. In general, the more quickly the organizational
environment is changing, the greater are the problems associated with gaining access to resources
and the greater is manager’s need to find ways to coordinate the activities of people in different
departments to respond to the environment quickly and effectively.

MECHANISTIC AND ORGANIC STRUCTURES: Drawing on Weber’s and Fayol’s principles of

organization and management, Burns and Stalker proposed two basic ways in which managers
can organize and control an organization’s activities to respond to characteristics of its external
environment: They can use a mechanistic structure or an organic structure. 43 As you will see, a
mechanistic structure typically rests on Theory X assumptions.
When the environment surrounding an organization is stable, managers tend to choose a
mechanistic structure to organize and control activities and make to choose a mechanistic structure
to organize and control activities and make employee behavior predictable. In a mechanistic

45
structure authority is centralized at the top of the managerial hierarchy, and the vertical hierarchy of
authority is the main means used to control subordinates’ behavior. Tasks and roles are clearly
specified, subordinates are closely supervised, and the emphasis is on strict discipline and order.
Everyone knows his or her place, and there is a place for everyone. A mechanistic structure
provides the most efficient way to operate in a stable environment because allows managers to
obtain inputs at the lowest cost, giving an organization the most control over its conversion
processes and enabling the most efficient production of goods and services with the smallest
expenditure of resources. McDonald’s restaurants operate with a mechanistic structure.
Supervisors make all important decisions; employees are closely supervised and follow well-
defined rules and standard operating procedures. In contract, when the environment is changing
rapidly, it is difficult to obtain access to resources, and managers need to organize their activities in
away that allow them to cooperate, to act quickly to acquire.

TOPIC 3

DESIGNING ADAPTIVE ORGANIZATIONS

3.1 INTRODUCTION
In an organization, a number of activities are performed. These activities are required to be
coordinated. Organization structure is designed for division of tasks, grouping of activities and
coordinating and controlling the tasks of the organization. The detailed study of all components and
dimensions of organizational structure is required for creation of efficient and stable structure. Well
designed organization structure facilitates the smooth functioning of the organization. In this unit,
you will learn the concept, components and types of organization structure. You will further learn
the dimensions of structure and the models of organizational designs. You will be familiarized with
the determinants of the organizational effectiveness.

3.2 CONCEPT OF ORGANISATION STRUCTURE

Organization structure may be defined as the established pattern of relationships among the
components of the organization. Organization structure in this sense refers to the network of
relationships among individuals and positions in an organization. Jennifer and Gareth have defined
organization structure as the formal system of task and reporting relationships that controls,
coordinates and motivates employees so that they cooperate and work together to achieve an

46
organization’s goals. In fact organization structure describes the organization framework. Just as
human beings have skeletons that define their parameters, organizations have structures that
define-theirs. It is like the architectural plan of a building. Just as the architect considers various
factors like cost, space, special features needed etc. while designing a good structure, the
managers too must look into factors like benefits of specialization, communication problems,
problems in creating authority levels etc., before designing the organization structure.
The manager determines the work activities to get the job done, writes job descriptions, and
organizes people into groups and assigns them to superiors. He fixes goals and deadlines and
establishes standards of performance. Operations are controlled through a reporting system. The
whole structure takes the shape of a pyramid. The structural organization implies the following
things:
· The formal relationships with well-defined duties and responsibilities;
· The hierarchical relationships between superior and subordinates within the
organization;
· The tasks or activities assigned to different persons and the departments;
· Coordination of the various tasks and activities;
· A set of policies, procedures, standards and methods of evaluation of performance
which are formulated to guide the people and their activities.

The arrangement which is deliberately planned is the formal structure of organization. But the
actual operations and behaviour of people are not always governed by the formal structure of
relations. Thus, the formal arrangement is often modified by social and psychological forces and
the operating structure provides the basis of the organization.
Significance of Organization Structure
The organization structure contributes to the efficient functioning of organization in the following
ways.
Clear-cut Authority Relationships: Organization structure allocates authority and responsibility. It
specifies who is to direct whom and who is accountable for what results. The structure helps an
organization member to know what is his role and how does it relate to other roles.
Pattern of Communication: Organization structure provides the patterns of communication and
coordination. By grouping activities and people, structure facilitates communication between

47
people centered on their job activities. People who have joint problems to solve often need to share
information.
Location of Decision Centers: Organization structure determines the location of centers of decision
making in the organization. A departmental store, for instance may follow a structure that leaves
pricing, sales promotion and other matters largely up to individual departments to ensure that
various departmental conditions are considered.
Proper Balancing: Organization structure creates the proper balance and emphasizes on
coordination of group activities. Those more critical aspects for the success of the enterprise may
be given higher priority in the organization. Research in a pharmaceutical company, for instance,
might be singled out for reporting to the general manager or the managing director of the company.
Activities of comparable importance might be given, roughly equal levels in the structure to give
them equal emphasis.
Stimulating Creativity: Sound organization structure stimulates creative thinking and initiative
among organizational members by providing well defined patterns of authority. Everybody knows
the area where he specializes and where his efforts will be appreciated.
Encouraging Growth: An organization structure provides the framework within which an enterprise
functions. If it is flexible, it will help in meeting challenges and creating opportunities for growth. A
sound organization structure facilitates growth of the enterprise by increasing its capacity to handle
increased level of activity.
Making use of Technological Improvements: A sound organization structure which is adaptable to
change can make the best possible use of latest technology. It will modify the existing pattern of
authority responsibility relationships in the wake of technological improvements. In short, existence
of good organization structure is essential for better management. Properly designed organization
can help in improving team work and productivity by providing a framework within which the people
can work together most effectively. Therefore, an organization structure should be developed
according to the needs of the people in the organization.

3.3 COMPONENTS OF ORGANISATION STRUCTURE

Organization structure influences the division of the tasks, grouping of activities, coordinating the
activities and the overall accomplishment of the tasks. Since organization structure relates to

48
relatively stable relationship and process of the organization, all influencing factors must be
analyzed for designing the organization structure.
According to Robbins organization structure stipulates how tasks are to be allocated, who reports
to whom, and the formal coordinating mechanisms and interaction patterns that will be followed.
John Ivancevich and Michael Matteson have also expressed the same view and advocated that
manager are required to take the following four decisions for designing organizational structure :
 Divisions of overall task into smaller jobs.
 Distribution of authority among the jobs.
 Bases by which the individual jobs are to be grouped together; and
 The appropriate size of group reporting to each superior.

The discussion of each of them in detail

Division of Labour
Adam Smith emphasized on the division of labour in his celebrated work, Wealth of Nation. In the
early twentieth century, Henry Ford used assembly line operations for manufacturing automobiles.
He assigned a specific repetitive task to each worker. The whole tasks were broken into number of
smaller steps or activities. Each step was required to be completed by separate individual. Thus,
the individual attained specialization in performing that particular activity. The manufacturing sector
has been using the work specialization extensively all over the world. The division of labour which
results in work specialization provide the following benefits to the organization.
 The performance of specialized job enhances the work efficiency. Hence, the employee’s
skills can be used in the most efficient way.
 Since the work cycles of the job are very short, the workers can attain perfection on that
job quickly.
 It enhances productivity in the organization.
 The workers can be trained easily to perform the repetitive work.
 The training costs are reduced.
 It is easier to match workers with the specific job skills.

Despite these benefits, the division of labour has been criticized on the following ground.
 It cannot be used for all types of jobs.

49
  It may lead to monotony and boredom.
 It focuses on physical performance of the job and underestimates the behavioural aspects
of the workers.
The positive features of division of labour over show the negative features. Hence, the work
specialization has been widely used as an important means for enhancing productivity in the
organization.
Delegation of Authority
Delegation is the process that a manager follows in dividing the work assigned to him so that he
performs that part, which because of his position he can perform effectively. Delegation is
legitimate authorization to a manager or employee to act in specified ways. It enables him to
function independently without reference to the supervisor but within the limits set by the supervisor
and the normal framework of organizational objectives, policies, rules and procedures. Thus,
delegation involves:
a) Entrustment of work to another for performance,
b) Grant of power, right or authority to be exercised to perform the work,
c) Creation of an obligation on the part of the person accepting delegation.
Delegation of authority is one of the most important elements in the process of organization.
Organizations are characterized by a network of activities and roles. Delegation is the process
through which the interrelationships are created among individuals in their different roles in the
organization.
Delegation is necessary because it is physically impossible for a single man to look after the affairs
of a large organization. The success of a manager lies in his ability to multiply himself through
other people. The organizations of today are not only large but also complex in character. No
manager can claim to have all the skills and expertise to perform all the diverse kinds of jobs.
Again, large scale business activities are not confined to one place. It may have several branches
and units at several places. Delegation becomes a necessity for running these branches.
An organization is continuity. Managers may go and come but the organization continues.
Delegation provides continuity of operations in the organization. The process of delegation helps
managerial development in an organization.
Thus, delegations is important for any organization because it reduces the burden of the managers
and leaves him free to look after important matters of the organization. It is a method by which

50
subordinates can be developed and trained to take up higher responsibilities. It provides continuity
to the organization and creates a healthy organizational climate by creating better understanding
among the employees.
The major benefits of delegation are:
 Delegation leads to professionalism.
 Managerial decisions may involve creativeness and innovativeness.
 The competitive environment may be created in the organization.
 The mangers may take quick decisions.
The limitations of delegation of authority are:
 The managers may resist to delegate authority.
 The managers may require training for taking decisions and the costs of training may be
higher.
 Every person may not be able to take high level of decision in the effective way.
 The administrative costs may also increase.
Despite these limitations, delegation of authority enhances efficiency in the organization.
Departmentation
The division of labour divides the jobs into smaller activities. In order to coordinate these activities,
they are grouped together. The basis by which these activities are grouped together are known as
departmentalization. It may be defined as the process of forming departments or grouping activities
of an organization into a number of separate units for the purpose of efficient functioning. This term
vary a great deal between different organizations. For example, in business undertaking, terms are
division, department and section; in Government these are called branch, department and section;
in military, regiment, batallion groups and company.
The impact of departmentation is a delineation of executive responsibilities and a grouping of
operating activities. Every level in the hierarchy below the apex is departmentalized and each
succeeding lower level involves further departmental differentiation.
The major benefits of departmentalisation are :
Specialisation : Departmentation leads to the benefits of specialization as various organizational
activities are grouped according to their relation with the specific functions or objectives. Every
departmental manager specializes in the tasks assigned to him.

51
Administrative control : Departmentation helps in effective managerial control because the
standards of performance for each and every department can be laid down precisely. Every
department has a specific objective. This also facilitates keeping expenditure within limits.
Fixation of responsibility : Since organization work is divided into manageable units, and authority
and responsibility are precisely defined, it is easier to fix the accountability of different managers for
the performance of various tasks.
Freedom or autonomy : The departments created through departmentation are semi-autonomous
units. Their heads are given a sufficient degree of authority to run their departments. This
increases the efficiency of the departments.
Development of managers : Departmentation helps in the development of managerial personnel by
providing them opportunities to take independent decisions and initiative. The executives can
develop themselves for promotion to higher jobs.
Span of Control : The departmentation reflects the types of jobs which are grouped together.
Different persons are involved in performing these jobs. They are required to be supervised
closely. Span of control refers to the number of individuals a manager can effectively supervise.
Thus, it is expected that the span of control, that is, the number of subordinates directly reporting to
a superior should be limited so as to make supervision and control effective. This is because
executives have limited time and ability. It is sometimes suggested that the span of control should
neither be too wide nor too narrow. In other words, the number of subordinates should not be too
large or too small. The number of subordinates cannot be easily determined because the nature of
jobs and capacity of individuals vary from one organization to another. Moreover, the actual span
of supervision affects the organisation in different ways. A wide span results in fewer levels of
supervision and facilitates communication. It permits only general supervision due to the limited
availability of time. Narrow span, on the other hand, requires multiple levels of supervision and
hence longer time for communication. It is more expensive and complicates the process of
communication. A narrow span, however enables managers to exercise close supervision and
control. Although there are certain limits to the span of control, the tendency in recent years has
been to avoid specifying absolute number because it has been recognized that the ideal span
depends on a number of factors.
Some of the important factors are discussed below :

52
Nature of the Work : If the work is simple and repetitive, the span of control can be wider. However,
if the work requires close supervision the span of control must be narrow.
Ability of the Manager : Some managers are more capable of supervising large number of people
than others. Thus for a manager who possesses qualities of leadership, decision-making ability
and communication skill in greater degree the span of control may be wider.
Efficiency of the Organization : Organizations with efficient working systems and competent
personnel can have larger span of control.
Staff Assistants : When staff assistants are employed, contact between supervisors and
subordinates can be reduced and the span broadened.
Time Available for Supervision : The span of control should be narrowed at the higher levels
because top managers have less time available for supervision. They have to devote the major
part of their work time in planning, organising, directing and controlling.
Ability of the Subordinates: Fresh entrants to jobs take more of a supervisor’s time than trained
persons who have acquired experience in the job. Subordinates who have good judgment,
initiative, and a sense of obligation seek less guidance from the supervisor.
Degree of Decentralisation : An executive who personally takes many decisions is able to
supervise fewer people than an executive who merely provides encouragement and occasional
direction. It should be clear that the size of the span of control is related to numerous variables,
and no single limit is likely to apply in all cases. A variety of factors can influence the resulting
number of employees comprising the optimum span of control in any particular organization. The
span of control also influences the creation of tall and flat structure. Let us learn the concept of tall
and flat structure.

Tall and Flat Structure

A tall organizational structure would have many hierarchical levels there is a long distance between
the top most manager and the bottom most manager. There are large number of job titles and a
career path to the employee. Fewer numbers of subordinates a particular manager is required to
guide, the organizational structure would be taller. Contrarily, a flat structure would have wide span
of management. The number of hierarchy would be less. Larger the number of subordinates a
particular manager is required to guide the organizational structure would be flatter. Choosing an
appropriate span of management is important for two reasons. First, it affects efficiency. Too wide

53
a span may mean that managers are over extended and subordinates are receiving too little
guidance or control. When this happens, managers may be pressured to ignore or condone serious
errors. In contrast, too narrow a span may mean that managers are underutilized. Thus, the extent
of division of work, the nature of delegation of authority, the process of departmentation and the
requirement of effective supervision i.e., span of control influence the designing of organization
structure.

3.4 TYPES OF ORGANISATION STRUCTURE

Different types of Organization structure can be created on the basis of arrangement of activities.
Accordingly, three broad types of structural forms are :
 Functional Structure
 Divisional Structure, and
 Adaptive Structure

Functional Structure
When units and sub-units of activities are created in organization on the basis of functions, it is
known as functional structure. Thus, in any industrial organization, specialized functions like
manufacturing, marketing, finance and personnel constitute as separate units of the organization.
All activities connected with each such function are placed in the same unit. As the volume of
activity increases, sub-units are created at lower levels in each unit and the number of persons
under each manager at various levels get added. This results in the interrelated positions taking
the shape of a pyramid.

The main advantage of the functional structure of organization is that there is functional
specialization in each unit, which leads to operational efficiency of people engaged, and the
organization as a whole derives the benefit of specialized operations. The heads of the functional
units are in direct touch with the chief executive who can sort out inter-functional problems, if any,
and also coordinate the interrelated functions. The chief executive is also able to be in direct touch
with lower level subordinates and thereby have full knowledge of the state of affairs in the
organization.

54
However, while the functional arrangement may be well suited to small and medium size
organizations, it is incapable of handling the problems of an organization as it grows in size and
complexity. Problems of subunits at lower levels do not receive adequate attention of higher level
managers while some of the activities tend to be over-emphasized.
Functional units become unwisely and difficult to manage when there are diverse kinds of activities
performed in large number of sub-units. Personal contact between superiors and subordinates
become rare, and flow of communication is slow leading to problems of coordination and control.
Divisional Structure
The divisional organization structure is more suited to every large enterprise particularly those
which deal in multiple products to serve more than one distinctive markets. The organization is
then divided into smaller business units which are entrusted with the business related to different
products or different market territories. In other words, independent divisions (product divisions or
market division), are created under the overall control of the head office. Each divisional manager
is given autonomy to run all functions relating to the product or market segment or regional market.
Thus, each division may have a number of supporting functions to undertake. A divisional structure
may consist of two or more product divisions or market or territorial divisions.
In a divisional structure each division contributes planned profits to the organization, but otherwise
operates as an independent business. The functional units are headed by managers while the final
authority vests in the divisional manager, who coordinates and controls the activities of the various
functional units in the division. The top management of the organization, besides providing funds,
determines the organization goals and formulates policies.
The divisional structure is characterized by decentralization of authority. Thus, it enables managers
to take decisions promptly and resolve problems appropriate to the respective divisions. It also
provides opportunity to the divisional managers to take initiative in matters within their jurisdiction.
But such a structure involves heavy financial costs due to the duplication of supporting functional
units for the divisions. Moreover, it requires adequate number of capable managers to take charge
of the respective divisions and their functional units.

Adaptive Structure
Organization structures are often designed to cope with the unique nature of undertaking and the
situation. This type of structure is known as adaptive structure. There are two types in structures.

55
 i) Project Organization, and
ii) Matrix Organization

i) Project Organization :
When an enterprise undertakes any specialized, time-bound work involving one-time operations for
a fairly long period, the project organization is found most suitable. In this situation the existing
organization creates a special unit so as to engage in a project work without disturbing its regular
business. This becomes necessary where it is not possible to cope with the special task or project.
Within the existing system, the project may consist of developing a new project, installing a plant,
building an office complex, etc. A project organization is headed by a project manager in charge,
who holds a middle management rank and reports directly to the chief executive. Other managers
and personnel in the project organization are drawn from the functional departments of the parent
organization. On completion of the project they return to their parent departments. The main
advantage of such a structural arrangement is that it leaves regular business undisturbed. It is
exclusively concerned with the task of completing the project work on time and in conformity with
the standards of performance relevant to its goal. There is better management and control over the
project activities as the project manager enjoys necessary authority and is alone responsible for
the results. But project organization may create problems as well. Functional managers often
resent the exercise of authority by the project manager in the functional areas and hence conflict
arises. The stability of the functional departments is disturbed by transfer of personnel to project
work from time to time. Shifting of personnel from project to project disrupts their developments in
the specialized fields.

ii) Matrix Organization :

This is another type of adaptive structure which aims at combining the advantages of autonomous
project organization and functional specialization. In the matrix organization structure, there are
functional departments with specialized personnel who are deputed to work full time in different
projects sometimes in more than one project under the overall guidance and direction of project
managers. When a project work is completed, the individuals attached to it go back to their
respective functional department to be assigned again to some other project. This arrangement is
found suitable where the organization is engaged in contractual project activities and there are

56
many project managers, as in a large construction company or engineering firm. Matrix
organization provides a flexible structure ideally suited to the requirements of changing conditions.
It facilitates pooling of specialized and technical personnel from different functional
departments, who can be deputed to a number of projects. They acquire valuable experience of
handling varied and complex problems in project work. There is speedy exchange of information
and decision making as they work under the coordinating authority of project managers.
The major drawback of matrix organization is that the personnel drawn from specialized functional
departments are subjected to dual authority, that of the functional heads and the project managers.
The principle of unity of command is thereby sacrificed. This generates stresses and strains in
project management, because there is simultaneous engagement of the same individual in a
number of projects.

3.5 DIMENSIONS OF ORGANISATION STRUCTURE

Robins has identified three dimensions of organization structure, i.e., formalization, centralization
and complexity. Let us learn them briefly.
Formalization :
It refers to the extent to which the activities, rules, procedures, instructions, etc. are specified and
written. This primarily means that the degree to which the activities of the organization are
standardized. High division of labour i.e., specialization, high level of delegation of authority, high
degree of departmentation and wide span of control lead to high degree of formalization. The major
benefits of formalization are as follow :
 Standardized activities reduce the variability in the organization.
 It promotes coordination. All activities are defined and specified which facilitate the process
of coordination.
 There is least scope of discretion. The decision is taken on the basis of standard rules and
procedures; hence the scope of personal discretion is reduced.
 Operating costs are reduced.
 The standard activities reduce the conflict and ambiguity.

Formalization is criticized on the following ground :

 It prevents creativity and flexibility in the organization.

57
  It may be difficult for the organization to change the rules.
 The formulation and implementation of new rules may face great resistance by the
employees.

Despite these limitations formalization has been widely used in the organization. The formalized
structure helps in smooth functioning of the organization. Well defined jobs and relationships
enhance the efficiency of the organization.
Centralization :
There are some organizations, where top management makes all the decisions and middle and
lower level managers merely implement the decisions taken by the top management. At the other
extreme, there are some organizations in which decisions are made at all levels of management.
The first case fits into the centralized structure where as the second one is highly decentralized.
One of the fourteen principles of Henry Fayol happens to be centralization. According to him,
decreasing the role of subordinates in decision-making is centralization; increasing their role is
decentralization. Fayol believed that managers should retain final responsibility but at the same
time give their subordinates enough authority to do their jobs properly. The problem is to find the
proper degree of centralization in each case. Thus, centralization refers to the degree to which
decision making is centralized in the organization. In centralization little delegation of authority is
the rule; power and discretion are concentrated in a few executives. Control and decision-making
reside at the top levels of management. However, absolute centralization is untenable because it
would mean that subordinates have no duties, power or authority. Centralization may be essential
in small organization to survive in a highly competitive world. But as the organization becomes
more complex in terms of increasing size, interdependence of work-flow, complexity of tasks and
spatial physical barriers within and among groups, a function requisite for efficiency is to move
decision-making centres to the operating level. Thus, the larger the size of an organization, the
more urgent is the need for decentralization. This does not mean that decentralization is good and
centralization is bad. On the other hand, decentralization is the systematic effort to delegate to the
lowest levels all authority except that which can be exercised at central points. It is the pushing
down of authority and power of decision-making to the lower levels of organization. The centres of
decision-making are dispersed throughout the organization. The essence of decentralization is the
transference of authority from a higher level to a lower level. It is a fundamental principles of

58
democratic management where each individual is respected for his inherent worth and constitution.
As you know, decentralization is a correlate of delegation; to the extent that authority is not
delegated, it is centralized. Absolute centralization decreases the role of subordinate managers
which in turn encourages decentralization. Absolute decentralization is also not possible because
managers cannot delegate all their authority.
Complexity :
It refers to the differences among the jobs and units. It reflects the degree of differentiation existing
within the organization. A variety of jobs and units create more complex organization structure. The
management of complex structure may be difficult. Based on the complexity of activities, there may
be horizontal differentiation, vertical differentiation and spatial differentiation. Let us learn them
briefly. Horizontal differentiation refers to the number of different units at the same level. This
means if the number of activities which require more specialized skills, the organization will tend to
be more complex.
Specialization and departmentation are good examples of such differentiation. Another
differentiation i.e., vertical differentiation refers to the number of levels in the organization.
It reflects the depth of the hierarchy in the organization. This means that increase in hierarchical
level enhances complexity in the organization. In such organization, coordination and
communication become difficult. The process of interaction is influenced by span of control which
determines the number of persons effectively supervised by a manager.
In the wide span, the managers have more persons to be supervised and in the narrow span they
have less persons to be supervised. The supervision depends on number of other factors as well.
The third types of differentiation i.e., spatial differentiation refers to the degree to which location of
units and the personnel are dispersed. As you must be aware that these days activities of the
organization are located in different areas. The multiple location increases the complexity of the
organization. Coordination and interaction also become difficult in such organization.
An increase in above types of differentiation may lead to increase in complexity in the organization.
Thus, the complexity of the organization determines the amount of coordination, communication
and control. John Invancevich and Michael Matteson have analyzed that the high formalization
reflects high specialization, delegated authority, functional departments and wide span of control.
The high centralization reflects the high specialization, centralized authority, functional departments
and wide span of control. The high complexity reflects high specialization, delegated authority,

59
territorial, customer and product departments and narrow spans of control. The low formalization,
centralization and complexity reflect the opposite characteristics.
3.6 ORGANISATIONAL DESIGN
Organizational design refers to the process of coordinating the structural elements of organizations
in the most appropriate manner. There are three distinct schools; the classical, the neoclassical
and the contemporary. The classical school represented by Max Weber, F.W.Taylor and Henry
Fayol; the proponents of formal hierarchy, clear set of rules and specialization of labour. The neo-
classical represented by organizational scholar such as McGregor, Argyris and Likert. They
emphasize on employee satisfaction along with economic effectiveness and call for the designing
of flat hierarchical structure with a high degree of decentralization. The proponents of
contemporary design emphasize on the environmental factors in which the organizations are
operating. Let us now learn them briefly.
Classical Form of Organization
The Simple Structure :
A simple structure has low departmentalization, wide span of control, concentration of authority in a
single person, and little or no formalization. Simple structure is normally flat type of organization
having two or three vertical levels, a loose body of employees and one individual in whom the
decision-making authority is centralized. Usually, practiced in small organizations having owner
manager or family owned businesses. The advantage of simple structure is in its simplicity. It is
fast, flexible, inexpensive to maintain and accountability is absolutely clear. However, it is very
difficult to maintain especially when the organizations grow larger.
The Bureaucracy :
The most common form of organization is the classical bureaucratic structure. The structure is
inflexible, impersonal and highly standardized. You may observe some of the organizations we
come across very frequently. The banks, where we deposit our money and withdraw cash as and
when we need them. The stores from where we buy large number of items of daily use. The
income tax office, we need to file our income tax returns every year. If you observe these
organizations closely, we may find that they are all having highly routinised work system carried out
through specialization, formally written rules and regulations, centralized authority, narrow span of
control and all decision have to follow the chain of command. Max Weber (1947), considered it as
an ideal form of organization. The bureaucracy, though not very ideal form of organization in

60
modern times but still holds ground. The strength of bureaucracy lies in its ability to perform
standardized functions highly efficiently. However, obsessive observance of rules and regulations
is said to be its major weakness.
The Matrix Structure :
Mathematically, matrix is an array of horizontal rows and vertical columns. In order to understand
the Matrix Structure, we first need to understand the Functional Organization, a form of
departmentalization in which every member of the organization engaged in a functional area i.e.,
employee engaged in marketing or production is grouped into one unit. The matrix organization is
defined as type of organization in which each employee has two bosses or (under dual authority).
They have to report to both functional and divisional manager and also to a project or group
manager. This type of structure is most popular in the advertising agencies, hospitals, Research
and Development laboratory and universities. The matrix structure allows for flexible use of
organizations human resources, pooling and sharing of specialized resources but the major
problem is with regard to coordination of task and stress caused by two bosses.
Alternate Design
Robins has classified the structural designs into three broad types; the team structure, the virtual
organization, and the boundary less organization.
The Team Structure : The team structure uses the team as the central device to coordinate work
activities. Robins defines work team as a group whose individual efforts result in a performance
greater than the sum of the individual inputs. The primary characteristics of the team structure are
that it breaks down departmental barriers and decentralizes decision making to the level of the
work team. One of the prerequisites of the team structure is that the employees have to be both
generalists as well as specialists. In India some of the well known multinationals like Xerox,
Motorola and the IT giant H.P uses cross functional teams.
The Virtual Organisation :
In the age of specialization no organization can survive without outsourcing. The core activity
remains with the main organization whereas parts are performed by others. The virtual
organization (also known as network or modular organization) goes a step ahead by outsourcing
major business function. In structural terms the virtual organization is highly centralized, with little
or no departmentation. When large organizations use virtual structure, they frequently use it to

61
outsource manufacturing activities. This is the reason why do some of the very large organizations
do business of crores of rupees without having manufacturing activities.
The Boundary Less Organisation :
The credit for coining the term boundary less organization goes to Mr.
Jack Welch of General Electrics (GE). He wanted GE to become boundary less organization. The
type of organization, which seeks to eliminate the chain of command, have limitless span of control
and replace departments with empowered teams.
By removing vertical boundaries, management flattens the hierarchy, status, and ranks are
minimized. G.E. has been using cross-hierarchical teams, participative decision making practices
and 360-degree performance appraisal system to break vertical boundaries. It is the networked
computers (with the help of internet and intra-net), which makes the boundaryless organisation
possible by allowing people to communicate across inter-organizational and intra-organizational
boundaries. Electronic Mail for example permits hundreds of employee to share information
simultaneously and allows ranks and file workers to communicate directly with senior executives.
Organizational and Mechanistic Designs
There are two extreme models of organizational design i.e., mechanistic model and organic model.
Let us learn them briefly. Robins has identified following characteristics of mechanistic and organic
model of organizational design :
Mechanistic Model : The major features of mechanistic model are as follow:
 extensive departmentalization
 high formalization
 a limited information network; and
 centralization
The activities are grouped together based on the strategies of the departmentation like functional,
division, adaptive; etc. There are standardized policies, procedures, rules and decision making
styles. The flow of information is very limited. The decision making style is highly centralized. Thus,
the mechanistic model endevours to achieve efficiency because of its structural characteristics.
Organic Model : The major features of organic model are as follow:
 cross hierarchical and cross functional teams
 low formalization
 comprehensive information network

62
  high participation in decision making
In the organic model teams emerge from different hierarchy and functional areas. The tasks, rules,
procedures and decision making are in a fluid situation and changeable. The information flows
across the organization. There exists decentralization of decision making where participation is
sought from the larger group. This model focuses on flexibility and adaptability. It encourages
greater utilization of human resources.
3.7 ORGANISATIONAL EFFECTIVENESS
The study of organizational structure is necessary to understand organizational effectiveness. In
simple terms better the structure of an organization more effective would be the organization and
vice versa. You must be aware that some organizations perform better and grow more rapidly than
other. On the extreme side some organizations perform badly and within a short period of time go
out of business. How can we measure effectiveness? In order to measure the effectiveness let us
analyze following components of organizational effectiveness.
The different components of organizational effectiveness can be found from the answer to the
following questions.
 Are the employees satisfied with the organization?
 Are the customers satisfied with the organization?
 Is the organization profitable?
 Is the organization growing in terms of profit, revenue, number of products, expansion into
new locations, line of products etc?
 Is the organization productive i.e., creating goods and services of high value at minimum
cost? And
 Is the organization innovative or stale?

Determinants of Organizational Effectiveness

Several factors influence the organizational effectiveness. Let us learn them in detail.
Managerial Policies and Practices
Managerial policies and practices integrate the entire organization, maintain balance among the
interest groups in the organization, and accommodate them with the external environment.
Managerial policies and practices have a direct bearing on the Organizational effectiveness. The
major managerial policies and practices are as follow :

63
Strategy: A strategy is a plan for interacting with the competitive environment to achieve
organizational goals. Goals define where does the organization want to go and strategies define
how will the organization reach there. In other words, strategy is the determination of basic long
term goals of the organization, the adoption of the courses of action and the allocation of resources
necessary to achieve them. The strategy is the most important factor of an organization which
decides the future course of action for the organization. New strategy is often selected based upon
environmental needs, and then the top management attempts to redesign the organization to
achieve those ends.
Leadership: It is the process of influencing members towards the achievement of organizational
goals. It is said that managers are people who do things right and leaders are people who do the
right thing. Leaders facilitate the identification of organizational goals. They initiate the
development of vision for their organization.
Decision-making: Decision-making is choosing among alternatives. It has close relationship with all
traditional management functions. The decision that management makes has a profound impact on
the success of an organization.
Rewards: Organizational success to a large extent depends on how is management able to gain
support of its team by way of compensating them for the efforts they are making for the
achievement of organizational goals. It is primarily meant to sustain employee morale and improve
or maintain productivity.
Communication: It is the linkages among members of the organization whereby they exchange
information. The organizational structure has to provide for a perfect communication among
different members of the organization. Organizational communication is the grease that enables
any organizational change.

Environmental Characteristics
Organizational effectiveness is influenced to a great degree by the external environmental
characteristics. It is dependent on how is the external environment predictable, complex and hostile
to the organization and its activity. The major characteristics are as follow :
Predictability: Predictability refers to how certain or uncertain an organization may be towards
supply of various resources; human, raw material etc. It is an element of external environment.

64
Complexity: Environment complexity refers to the heterogeneity and range of activities which are
relevant to an organization’s operations. How many diverse groups from external environment the
organizations have to deal with.
Hostility: A hostile environment is one in which the underpinning of the organization is threatened.
How is an organization viewed by the people at large. You may recall the case of Union Carbide
after the Bhopal gas leakage about the hostility of environment.
Employee characteristics
The characteristics of the human resource could make or break an organization. It is employee
characteristics, which is reflected in the success or failure of an organization. The major
characteristics are as follow :
Goals: Goals define where the organization wants to go. Goals are intentions that an individual or
an organization would like to achieve in the course of their working. Goals provide a directional
nature to people’s behavior and guide their thoughts and actions.
Skills: Skill is the ability to engage in a set of behavior that are functionally related to one another
and that lead to a desired performance in a given area. The skill can be technical, managerial,
behavioural etc.
Motives: A motive is an inner state of a person that energizes activates, or moves and directs
towards the achievement of a pre defined goal. The motivated employees have high motives to
perform better and achieve the targets.
Attitudes: Attitudes are evaluative statements- either favourable or unfavourable concerning
objects, events, or people. Attitudes influence job behaviour and hence organizational
effectiveness.
Values: Values represent basic convictions or a specific mode of conduct. It generally influences
an individual’s attitude and behaviour. The value that a person holds influences his or her
motivation and subsequently behaviour.
Organizational Characteristics
Organizational characteristics refer to the general conditions that exist within an organization.
Various organizational characteristics influence organizational effectiveness. The major
characteristics are as follow :
Structure: An organizational structure defines how are job tasks formally divided, grouped and
coordinated. For organizational effectiveness, six elements need to be addressed while designing

65
organizational structure. These are: work specialization, departmentation, chain of command, span
of control, centralization and decentralization, and formalization.
Technology: The term technology refers to how does an organization transfer its inputs into
outputs. Every organization has at least one technology for converting financial, human and
physical resources into products or services. The choice of technology and its use influences
organizational effectiveness.
Size: In a narrow sense organizational size refers to the number of people in an organisation. But,
if we take a broader view, size refers to the physical capacity of the organization, the personnel
available to the organization, the organizational inputs or outputs and the discretionary resources
available to an organization. It is the size which influences the structure which in turn influences
organizational effectiveness.

Benefits of organizational effectiveness:

 Structures and behaviours are aligned with business needs.
 Disruption to business is minimized which reduces operational risk.
 Employee morale is sustained which maintains productivity.
 The right employees and talent are retained.
 Employees objectives and rewards are aligned to business goals.

TO SUM UP
Organization structure refers to the grouping of activities and establishing pattern of relationship
among the various parts of the organization. It involves the assignment of tasks, establishment of
hierarchical relationship, creation of policies, procedures, coordination and control of all activities in
the organization.
The major components of organization structure are : division of labour, delegation of authority,
departmentation and span of control. Different types of organization structure are created based on
the arrangement of various activities. They are:
functional, divisional and adaptive. The adaptive structure consists of project organisation and
matrix organization. The dimensions of organization structure are : formalization, centralization and
complexity. The Organizational structure has been changing over a period of time. There is not one
organizational structure, which is suitable for a particular type of organization. We find that within

66
the same organization there can be more than one structure in vogue. However, from bureaucracy
to the matrix organization there has been wide variety of structures. As a result of growing
outsourcing the organizational structure would be more towards virtual and boundary less
organization. But bureaucracy in a limited manner shall remain true in all ages and
departmentation has to be done in order to assign task and ascertain accountability.
The Organizational designs are dependent on a wide variety of factors; namely the management
philosophy, the size of the organization, the type of technology, and the external environmental
factors. Therefore, there cannot be tailor-made solutions for all organizations. The ultimate aim for
the organization is to be effective and organizational structure is a tool in the attainment of
organizational objectives. The components of organizational effectiveness are managerial policies
and practices, employee characteristics, organizational characteristics and the environmental
characteristics.

67