Management

Fundamentals
and Information
Systems

(Covers Latest Syllabus of

Doeacc B3.1 Course)

Vishal Goyal
 
Syllabus

 Lectures  90

 Practical/tutorials  30

 Total  120

 Introduction to Management (2 hrs.)

 Understanding the meaning and definitions and Management, Nature of Management an art or science, Importance
of Management in today‘s organizations, An overview of management processes - Planning, Organizing, Staffing,
Directing, Coordinating and controlling, Evolution of Management Though - the classical school, the Behavioral
Approach, the Management Science Approach, the Contingency Approach and the systems Approach
 Planning (4 hrs.)
 Strategy, plan, policy and programs; purpose of planning; Mission, Vision and goal setting; and SWOT Analysis,
Forecasting - need of forecasting in Planning; Types of Planning; and tools of Forecasting - Moving Average,
Exponential Smoothing and Regression Models
 Organizing (6 hrs.)
 Principles and structure of organization, Theories and types of organization, Concept of: Authority, Responsibility,
Power, Delegation & Centralization of Authority, Span of Control.
 Formal and informal organizations
 Staffing (2 hrs.)
 Meaning nature and principles of staffing, Job Rotation, Job enrichment, Job enlargement
 Directing (incl. Decision Making) (4 hrs.)
 Communications in the Organization, Motivational Theories, Leadership, Decision Making
 Controlling (2 hrs.)
 Concepts and Principle of Controlling, Basis Control Processes, Open Loop, Closed Loop and Feed forward Control
Mechanisms, Essentials of a good control system.
 Production and Operations Management (10 hrs.)
 Production planning, aggregate planning, MRP, Selective inventory control, EOQ and ordering systems, Production
methods - job, batch, flow, continuous production; CAM and FMS, Quality control- Quality Costs, Statistical Quality
Control; Control charts and their uses.
 Marketing Management (10 hrs.)
 Overview of Marketing function, Product, Price, Promotion and Distribution strategies, Marketing research and its
role
 Financial Management (10 hrs.)
 Accounting Principles, balance sheet and profits and loss statements, Working capital Management, Cost concepts,
break even analysis, Investment decisions - Pay Back Period, NPV, IRR.
 Human Resources Management (10 hrs.)
 Nature and Function of HRM, Human Resource Planning - HR information system, Performance appraisal System,
Rewards and Incentive schemes
 Information Systems, Organization, Management & Strategy (10 hrs.)
 Emergence of Digital Firm in the existing era of IT, Information needs of management at various level of an
organization, flow of information in the organization: top down, bottom up and integrated.
 Information System: Meaning, nature and their role
 Approaches to Information Systems: Technical Approach, Behavioral Approach and Socio Technical Approach.
 Types of Information Systems in Organization: Decision Support System, MIS, Expert System, Knowledge
Management System, Transaction Processing System.
 Importance of information systems in supporting various levels of business strategy formulations and decision
makings, Software and Hardware Requirements for developing efficient Information System (It is expected that
such discussion should cover the latest developments taking place in software and hardware).
 Information Systems and Managerial Functional Areas (12 hrs.)
 Understanding various processes/decisions involved in Production and Operations management; and determining
their information needs, developing necessary information systems for Production and Operations management and
their integration with the overall enterprise information systems.
 Processes and decisions required for effective and efficient Sales and Marketing Management; need for necessary
information systems for them and their integration with other information systems in an organization.
 Appreciating the information requirement of a finance manager for various financial decisions in an organization and
how suitable information systems can be designed to meet their requirements, integration of financial information
system with that of the enterprise information system.
 Determining information requirements of a personnel manager and his/her need for necessary information systems
for better decisions. Integrating Personnel Management related information systems with overall information
system in an organization.
 Current Issues in Information Systems (8 hrs.)
 Role of Intranet and Internet in the development of various information systems in an organization, E-Commerce,
Enterprise Resource Planning (ERP), Role of Information Systems in Supply Chain Management, Information
Systems and Customer Relation Management (CRM).

 BOOKS RECOMMENDED FOR READING AND REFERENCE

 MAIN READING

 Harold Koontz and Heinz Weihrich, "Essentials of Management"

 C. B. Gupta, "Management Concepts and Practices"
 W.S. Jawadekar, "Management Information System"
 James A O'Brien, "Introduction to Information Systems"

 SUPPLEMENTARY READING

 Gareth R. Jones and Jennifer M. George, "Contemporary Management"

 K.C. Laudon and J.P. Laudon, " Management Information Systems: Organization and Technology"
 
Table of Contents

 Preface..............................................................................Error! Bookmark not defined.

 Syllabus ...................................................................................................................1.2
 Table of Contents ................................................................................................1.4
1 Introduction to Management ........................................................................1.2
1.1 Introduction to Management: Management is a critical element in the economic
growth of a country. .................................................................................................................................................. 2
1.2 Nature of Management an art or science .............................................................................................. 2
1.3 Importance of Management in today’s organizations ..................................................................... 4
1.4 Management Processes ................................................................................................................................. 5
1.4.1 Planning: ....................................................................................................................................................................................... 5
1.4.2 Organizing: .................................................................................................................................................................................. 5
1.4.3 Staffing: ........................................................................................................................................................................................ 5
1.4.4 Directing (Leading/Actuating/Motivating): ...................................................................................................................... 5
1.4.5 Coordination:............................................................................................................................................................................... 5
1.4.6 Controlling: .................................................................................................................................................................................. 5

1.5 Evolution of Management Thoughts:....................................................................................................... 5

1.5.1 Scientific Management (1856-1915): ................................................................................................................................ 6
1.5.2 Administrative Management theory: Henri Fayol (1841-1925) 14 principles of management .................. 6
1.5.3 Human Relations Movement: ................................................................................................................................................ 6
1.5.4 Behavioral Approach: ............................................................................................................................................................... 6
1.5.5 Quantitative Approach (management science approach): (During Second World War) ............................. 7
1.5.6 Systems Approach: ................................................................................................................................................................... 7
1.5.7 Contingency Approach: ........................................................................................................................................................... 7

2 Planning .................................................................................................................... 8
2.1...................................................................................................................................................................................... 8

3 Organizing ................................................................................................................ 9
3.1 Organization: ..................................................................................................................................................... 9
3.2 Process of Organizing:................................................................................................................................... 9
3.3 Principles of Organizing ................................................................................................................................ 9

3.4 Organization Structure: .............................................................................................................................. 10

3.4.1 Mechanistic or Classical structure ..................................................................................................................................... 10
3.4.2 Organic or behavioral structure: ....................................................................................................................................... 11

3.5 Span of Management: .................................................................................................................................. 12

3.6 Authority: .......................................................................................................................................................... 13
 3.7 Power:................................................................................................................................................................. 13
3.7.1 Difference between Authority and Power ....................................................................................................................... 14
3.7.2 Uses of Authority: ................................................................................................................................................................... 14

3.8 Responsibility .................................................................................................................................................. 14

3.9 Delegation of Authority ............................................................................................................................... 14

3.10 Decentralization of Authority................................................................................................................ 15

3.11 Informal Organization: ............................................................................................................................ 16

3.11.1 Why informal groups are formed: ..................................................................................................................................... 16
3.11.2 Types of Informal Groups: ................................................................................................................................................... 16
3.11.3 Difference between Formal and Informal organization ............................................................................................. 16
3.11.4 Benefits of informal organization to its members ....................................................................................................... 17
3.11.5 Disadvantages of informal organization ......................................................................................................................... 17

4 Staffing .....................................................................................................................18
4.1 Staffing ............................................................................................................................................................... 18
4.2 Nature of Staffing .......................................................................................................................................... 20
4.3 Staffing Principles ......................................................................................................................................... 20
4.3.1 Principle of staffing objectives ............................................................................................................................................ 20
4.3.2 Principle of staffing ................................................................................................................................................................. 20
4.3.3 Principle of job definition ...................................................................................................................................................... 20
4.3.4 Principle of managerial appraisal....................................................................................................................................... 20
4.3.5 Principle of open competition in promotion ................................................................................................................... 20
4.3.6 Principle of management development ........................................................................................................................... 20
4.3.7 Principle of universal development ................................................................................................................................... 20

4.4 Job ........................................................................................................................................................................ 20

4.5 Job Design......................................................................................................................................................... 20

4.6 Methods of Job Design................................................................................................................................. 21

4.6.1 Work simplification: ................................................................................................................................................................ 21
4.6.2 Job enlargement:..................................................................................................................................................................... 21
4.6.3 JOB ENRICHMENT .................................................................................................................................................................... 21
4.6.4 Job rotation: .............................................................................................................................................................................. 22

5 Directing (incl. Decision Making) .................................................................23

5.1 Communications in the Organization: .................................................................................................. 23

5.2 Motivational Theories: ................................................................................................................................. 24

5.2.1 Direction ...................................................................................................................................................................................... 24
5.2.2 Motivation: ................................................................................................................................................................................. 24
5.2.3 Features of motivation: ......................................................................................................................................................... 25
5.2.4 Factors that motivate a person: ........................................................................................................................................ 25
5.2.5 Need and Importance of Motivation ................................................................................................................................. 25
5.2.6 Motivational Theories ............................................................................................................................................................. 26
5.2.7 Maslow‘s Hierarchy Needs .................................................................................................................................................... 26
5.2.8 FREDRICK HERZBERG‘s TWO FACTOR THEORY .......................................................................................................... 27
5.2.9 Maslow Theory V/s Herzberg‘s Theory ............................................................................................................................ 27
5.2.10 McClelland‘s Need for achievement Theory ................................................................................................................... 28
5.2.11 Victor Vroom‘s Expectancy Theory: ................................................................................................................................. 28
5.2.12 J Stacey Adams - equity theory on job motivation .................................................................................................... 28
 5.3 Leadership ........................................................................................................................................................ 29
5.3.1 Difference between Leader and Manager ....................................................................................................................... 30
5.3.2 DIFFERENT APPROACHES TO LEADERSHIP ................................................................................................................... 30
5.3.2.1 TRAIT APPROACHES ...................................................................................................................................................... 30
5.3.2.2 BEHAVIOURAL APPROACH ........................................................................................................................................... 30
5.3.2.3 Contingency Approach .................................................................................................................................................. 31

5.4 Decision Making.............................................................................................................................................. 31

5.4.1 Types of Decisions: ................................................................................................................................................................. 31
5.4.1.1 Programmed and Non Programme ........................................................................................................................... 31
5.4.1.2 Major and Minor Decisions .......................................................................................................................................... 31
5.4.1.3 Routine and Strategic Decisions................................................................................................................................ 32
5.4.1.4 Individual and Group decisions ................................................................................................................................. 32
5.4.2 Approaches to tackle disadvantages of group decision making ............................................................................ 32
5.4.2.1 Nominal Group technique: .......................................................................................................................................... 32
5.4.2.2 Delphi Technique: ........................................................................................................................................................... 32
5.4.2.3 Steps in Rational Decision Making............................................................................................................................ 32

6 Controlling ..............................................................................................................33
6.1 Controlling ........................................................................................................................................................ 33
6.2 Purpose or need for control ...................................................................................................................... 33
6.3 Steps in Control Process: ........................................................................................................................... 33
6.4 Types of Control Methods ........................................................................................................................... 34
6.5 Past –oriented: ............................................................................................................................................... 34
6.5.1 Closed loop system: ............................................................................................................................................................... 34
6.5.2 Open loop systems: ................................................................................................................................................................ 35

6.6 Future –Oriented (Feed forward Control Mechanisms): ............................................................... 35

6.7 Essentials of effective control systems /Comparison of Past oriented and Future
oriented controls ....................................................................................................................................................... 35
6.8 Control in an organization ......................................................................................................................... 36

7 Production and Operations Management .................................................37

7.1 Production and Operations Management ............................................................................................ 37
7.2 Production Planning ..................................................................................................................................... 38

7.3 Aggregate Planning ...................................................................................................................................... 38

7.3.1 Characteristics of aggregate planning ............................................................................................................................. 38
7.3.2 Production Plan (manufacturing aggregate plan) ....................................................................................................... 38
7.3.3 Staffing Plan (service aggregate plan) ............................................................................................................................ 38
7.3.4 Objectives of Aggregate Planning ..................................................................................................................................... 38

7.4 Purchasing ........................................................................................................................................................ 39

7.4.1 Definitions: ................................................................................................................................................................................. 39
7.4.2 Steps involved in purchasing .............................................................................................................................................. 39

7.5 MRP- Material Requirement Planning ................................................................................................... 40

7.5.1 Material Requirements Planning - (MRP)........................................................................................................................ 40
7.5.2 Just-in-time Systems (JIT) .................................................................................................................................................. 40
7.5.2.1 Benefits of JIT are: ......................................................................................................................................................... 40
 7.6 Inventory Control .......................................................................................................................................... 40
7.7 Economic Order quantity Model (EOQ Model) ................................................................................... 40
7.7.1 Assumptions of EOQ Model: ................................................................................................................................................ 40
7.7.2 EOQ Formula: ........................................................................................................................................................................... 41
7.7.3 Monitoring and controlling Inventories ........................................................................................................................... 41
7.7.4 Criteria for judging the inventory system ...................................................................................................................... 41
7.7.5 Selective Inventory Control ................................................................................................................................................. 41

7.8 Types of production Methods ................................................................................................................... 42

7.8.1 Job: ............................................................................................................................................................................................... 42
7.8.1.1 Key characteristics of Jobbing Production ............................................................................................................. 42
7.8.2 Batch:........................................................................................................................................................................................... 42
7.8.2.1 Key characteristics of Batch Production ................................................................................................................. 42
7.8.3 Mass Production ....................................................................................................................................................................... 42
7.8.3.1 Unit mass production: ................................................................................................................................................... 42
7.8.3.2 Key features of Mass production ............................................................................................................................... 43
7.8.3.3 b) Flow /Continuous Mass production ..................................................................................................................... 43
7.8.4 New technology in Manufacturing ..................................................................................................................................... 43
7.8.4.1 Computer-aided Manufacture (CAM) ....................................................................................................................... 44
7.8.4.1.1 The Benefits of CAD/CAM ....................................................................................................................................... 44
7.8.4.2 Flexible Manufacturing Systems (FMS) .................................................................................................................. 44

7.9 Quality Control ................................................................................................................................................ 44

7.9.1 Inspection ................................................................................................................................................................................... 44

7.10 Statistical Quality Control ...................................................................................................................... 45

7.10.1 Process control: ........................................................................................................................................................................ 45
7.10.1.1 Control Charts .................................................................................................................................................................. 45
7.10.1.1.1 Analysis of Patterns on Control Charts ........................................................................................................... 45
7.10.1.1.2 Types of control charts ......................................................................................................................................... 45
7.10.1.1.3 Uses of Control charts ........................................................................................................................................... 45
7.10.1.2 Automatic Process control: ......................................................................................................................................... 45
7.10.2 Acceptance Sampling: ........................................................................................................................................................... 46

7.11 Benefits of Quality Control ..................................................................................................................... 46

7.12 TQM –Total Quality Management ........................................................................................................ 46

7.12.1 Key points of TQM advocated by William Edwards Deming: .................................................................................. 46

7.13 Quality Circles.............................................................................................................................................. 46

7.13.1 Task of Quality Circles ........................................................................................................................................................... 46
7.13.2 Benefits of Quality Circles .................................................................................................................................................... 47

7.14 Quality Costs ................................................................................................................................................ 47

7.14.1 Four segments of quality costs: ......................................................................................................................................... 47
7.14.2 Total Cost of Quality: ............................................................................................................................................................. 47

7.15 Quantitative Techniques/ Operation Research Techniques (OR) ......................................... 48

8 Marketing Management ....................................................................................50

8.1 Marketing .......................................................................................................................................................... 50
8.1.1 Kinds of Organizations based upon marketing ............................................................................................................. 50
8.1.2 Needs and wants of consumer: .......................................................................................................................................... 50

8.2 Marketing Mix .................................................................................................................................................. 50

 8.3 Product ............................................................................................................................................................... 51
8.3.1 Product Life Cycle .................................................................................................................................................................... 51

8.4 Price ..................................................................................................................................................................... 52

8.5 Promotion.......................................................................................................................................................... 53
8.5.1 Advertising: ............................................................................................................................................................................... 53
8.5.2 Personal Selling: ...................................................................................................................................................................... 54
8.5.3 Sales promotion: ..................................................................................................................................................................... 55
8.5.4 Publicity: ..................................................................................................................................................................................... 55

8.6 Distribution....................................................................................................................................................... 55
8.7 Market Segmentation ................................................................................................................................... 56

8.8 Market Research............................................................................................................................................. 57

8.9 Marketing Organization............................................................................................................................... 58

9 Financial Management.......................................................................................60
10 Human Resources Management ....................................................................61
10.1 HRM .................................................................................................................................................................. 61
10.1.1 Human Resource Management: Defined ........................................................................................................................ 61
10.1.2 Human Resource Management: Evolution ..................................................................................................................... 61
10.1.3 Nature .......................................................................................................................................................................................... 61
10.1.4 Scope............................................................................................................................................................................................ 61
10.1.5 HRM: Beliefs .............................................................................................................................................................................. 61
10.1.6 Objectives ................................................................................................................................................................................... 62
10.1.7 Functions..................................................................................................................................................................................... 62
10.1.8 Functions of HRM ..................................................................................................................................................................... 62
10.1.9 Major Influencing Factors ..................................................................................................................................................... 63
10.1.10 Futuristic Vision.................................................................................................................................................................... 63

10.2 Differences between Personnel Management (PM) and Human Resources

Management (HRM) ................................................................................................................................................. 63
10.3 Differences between Human Resource Management (HRM) and Human Resource
Development (HRD)................................................................................................................................................. 64
10.4 Human Resources Planning ................................................................................................................... 64
10.4.1 Planning Procedure ................................................................................................................................................................. 65
10.4.2 Steps in the HRP Process ...................................................................................................................................................... 65
10.4.3 Benefits of Human Resources Planning ........................................................................................................................... 65

10.5 Human Resource Information System .............................................................................................. 66

10.6 Performance Appraisal ............................................................................................................................ 66

10.6.1 Purpose of Appraisal ............................................................................................................................................................... 66
10.6.2 Essentials of a good Appraisal system ............................................................................................................................ 67
10.6.3 Criteria of Performance Appraisal ..................................................................................................................................... 67
10.6.3.1 Performance criteria for Operatives ......................................................................................................................... 67
10.6.3.2 Performance criteria for Middle Level Managers ................................................................................................. 67
10.6.3.3 Performance criteria for Top Managers .................................................................................................................. 67
10.6.4 Performance Appraisal Methods ......................................................................................................................................... 67
10.6.4.1 Ranking Method: ............................................................................................................................................................. 67
10.6.4.2 Rating Scale Method ...................................................................................................................................................... 68
 10.6.4.3 Checklist Method: ........................................................................................................................................................... 68
10.6.4.4 Forced Choice Method: ................................................................................................................................................. 68
10.6.4.5 Critical Incident Technique: ........................................................................................................................................ 68
10.6.5 Appraisal Interview: ............................................................................................................................................................... 69
10.6.5.1 Tell and sell: ..................................................................................................................................................................... 69
10.6.5.2 Tell and listen: ................................................................................................................................................................. 69
10.6.5.3 Problem solving Interview: ......................................................................................................................................... 69
10.6.6 Appraisal of Management ..................................................................................................................................................... 70
10.6.7 Organizational Structure :.................................................................................................................................................... 70
10.6.8 Management by Objectives (MBO) ................................................................................................................................... 70
10.6.9 Limitations of Appraisal Methods ....................................................................................................................................... 70
10.6.9.1 Intrusion of subjective criteria: ................................................................................................................................. 71
10.6.10 Limitations of Performance Appraisal .......................................................................................................................... 71
10.6.11 Advantages of Appraisal ................................................................................................................................................... 71
10.6.12 How to make appraisal system more effective: ...................................................................................................... 71

10.7 Reward and Incentive Schemes Promotion, Transfer, Demotion and Dismissal .......... 71
10.7.1 Primary compensation (Monetary): .................................................................................................................................. 72
10.7.2 Non-monetary Incentive: ..................................................................................................................................................... 72

10.8 Promotions .................................................................................................................................................... 72

10.8.1 Dry promotion: When the promotion is associated with no increase in the pay-scale. ............................... 72
10.8.2 Two types of Promotions:..................................................................................................................................................... 72
10.8.3 Requirements of a sound Promotional Policy ................................................................................................................ 73
10.8.4 Criteria for promotion: Merit v/s Seniority .................................................................................................................... 73
10.8.5 Transfers ..................................................................................................................................................................................... 73
10.8.6 Dismissal ..................................................................................................................................................................................... 73

11 Information Systems and Managerial Functional Areas ....................75

11.1 ................................................................................................................................................................................. 75
11.2 Types of Information Systems in Organization ............................................................................ 75
11.2.1 Decision Support System (DSS) ........................................................................................................................................ 75
11.2.2 MIS (Management Information Systems) ...................................................................................................................... 76
11.2.3 EXPERT SYSTEMS: APPLIED AI .......................................................................................................................................... 77
11.2.4 Knowledge Management System ...................................................................................................................................... 78
11.2.5 Transaction Processing System (TPS) ............................................................................................................................. 79

12 Information Systems and Managerial Functional Areas ....................81

13 Current Issues in Information Systems ....................................................83
14 83
 1
Introduction to Management
Overview: Understanding the meaning and definitions and Management, Nature of Management an art or science,
Importance of Management in today‘s organizations, an overview of management processes - Planning,
Organizing, Staffing, Directing, Coordinating and controlling, Evolution of Management Though - the classical
school, the Behavioral Approach, the Management Science Approach, the Contingency Approach and the systems
Approach
1.1 Introduction to Management:
Management is a critical element in
the economic growth of a country.
The four economic/production factor:
1. Men
2. Money
3. Material
4. Machines
Management is the dynamic, life giving element in
every organization. It coordinates current
organizational activities and plans future ones. In the
competitive economy, the quality and performance of
the management determines the success of an
organization. Now-a-days organizations cannot hold
its monopoly on capital or technology, but good
management can definitely become monopoly and
give it a competitive edge over its rivals.
According to Mary Parker Follett, Management
is the ―art of getting things done through
people”.
A manager is one who contributes to the
organization‘s goals indirectly by directing the effort
of others- not by performing the task himself.
According to George R. Terry, Management is
a process ―consisting of planning, organizing,
actuating and controlling, performed to determine
and accomplish the objectives by use of people and
resources‖.
Management is the process of designing and
maintaining an environment for the purpose of
efficiently accomplishing selected aims.
Manager carries out the functions like:
Planning, Organizing, Staffing, Leading, and
Controlling.
1.2 Nature of Management an art or
science
One of the enduring questions in the field of
management is whether it is an art or a science.
Webster‘s College Dictionary defines an art as ―skill in
conducting any human activity‖ and science as ―any
skill or technique that reflects a precise application of
facts or a principle.‖ Reflected in the differences in
these definitions is the use of precision in science, in
that there is a particular, prescribed way in which a
manager should act. Thus, management as a science
would indicate that in practice, managers use a
specific body of information and facts to guide their
behaviors, but that management as an art requires
no specific body of knowledge, only skill. Conversely,
those who believe management is an art are likely to
believe that there is no specific way to teach or
understand management, and that it is a skill borne
of personality and ability. Those who believe in
management as an art are likely to believe that
certain people are more predisposed to be effective
managers than are others, and that some people
cannot be taught to be effective managers. That is,
even with an understanding of management research
and an education in management, some people will
not be capable of being effective practicing managers.
FOUNDATIONS OF THE MANAGEMENT
AS A SCIENCE PERSPECTIVE
Practicing managers who believe in management as a
science are likely to believe that there are ideal
managerial practices for certain situations. That is,
when faced with a managerial dilemma, the manager
who believes in the scientific foundation of his or her
craft will expect that there is a rational and objective
way to determine the correct course of action. This
manager is likely to follow general principles and
theories and also by creating and testing hypotheses.
For instance, if a manager has a problem with an
employee‘s poor work performance, the manager will
look to specific means of performance improvement,
expecting that certain principles will work in most
situations. He or she may rely on concepts learned in
business school or through a company training
program when determining a course of action,
perhaps paying less attention to political and social
factors involved in the situation. Many early
management researchers subscribed to the vision of
managers as scientists. The scientific management
movement was the primary driver of this perspective.
Scientific management, pioneered by Frederick W.
Taylor, Frank and Lillian Gilbreth, and others,
attempted to discover ―the one best way‖ to perform
jobs. They used scientific processes to evaluate and
organize work so that it became more efficient and
effective. Scientific management‘s emphasis on both
reducing inefficiencies and on understanding the
psychology of workers changed manager and
employee attitudes towards the practice of
management.
Frederick W. Taylor’s Principles of Scientific
Management
1. Managers must study the way that workers perform their
tasks and understand the job knowledge (formal and
informal) that workers have, and then find ways to improve
how tasks are performed.
2. Managers must codify new methods of performing tasks
into written work rules and standard operating procedures.
3. Managers should hire workers who have skills and
abilities needed for the tasks to be completed, and should
train them to perform the tasks according to the
established procedures.
4. Managers must establish a level of performance for the
task that is acceptable and fair and should link it to a pay
system that rewards workers who perform above the
acceptable level.
FOUNDATIONS OF THE MANAGEMENT
AS AN ART PERSPECTIVE
Practicing managers who believe in management as
an art are unlikely to believe that scientific principles
and theories will be able to implemented in actual
managerial situations. Instead, these managers are
likely to rely on the social and political environment
surrounding the managerial issue, using their own
knowledge of a situation, rather than generic rules, to
determine a course of action. For example, as a
contrast to the example given previously, a manager
who has a problem with an employee‘s poor work
performance is likely to rely on his or her own
experiences and judgment when addressing this
issue. Rather than having a standard response to
such a problem, this manager is likely to consider a
broad range of social and political factors, and is
likely to take different actions depending on the
context of the problem. Henry Mintzberg is probably
the most well-known and prominent advocate of the
school of thought that management is an art.
Mintzberg is an academic researcher whose work
capturing the actual daily tasks of real managers was
ground breaking research for its time. Mintzberg,
through his observation of actual managers in their
daily work, determined that managers did not sit at
their desks, thinking, evaluating, and deciding all day
long, working for long, uninterrupted time periods.
Rather, Mintzberg determined that mangers engaged
in very fragmented work, with constant interruptions
and rare opportunities to quietly consider managerial
issues.
Thus, Mintzberg revolutionized thinking about
managers at the time that his work was published,
challenging the prior notion that managers behaved
rationally and methodically. This was in line with the
perspective of management as an art, because it
indicated that managers did not necessarily have
routine behaviors throughout their days, but instead
used their own social and political skills to solve
problems that arose throughout the course of work.
Another scholar that promoted the notion of
management as an art was David E. Lilienthal, who in
1967 had his series of lectures titled Management: A
Humanist Art published. In this set of published
lectures, Lilienthal argues that management requires
more than a mastery of techniques and skills;
instead, it also requires that managers understand
individuals and their motivations and help them
achieve their goals. Lilienthal believed that combining
management and leadership into practice, by not only
getting work done but understanding the meaning
behind the work, as effective managerial behavior.
Thus, he promoted the idea of the manager as a
motivator and facilitator of others. This manager as
an artist was likely to respond differently to each
employee and situation, rather than use a prescribed
set of responses dictated by set of known guidelines.
Another proponent of the management as art school
of thought is Peter Drucker, famed management
scholar who is best known for developing ideas
related to total quality management. Drucker terms
management ―a liberal art,‖ claiming that it is such
because it deals with the fundamentals of knowledge,
wisdom, and leadership, but because it is also
concerned with practice and application. Drucker
argues that the discipline (i.e., the science) of
management attempts to create a paradigm for
managers, in which facts are established, and
exceptions to these facts are ignored as anomalies.
He is critical of the assumptions that make up the
management paradigm, because these assumptions
change over time as society and the business
environment change. Thus, management is more of
an art, because scientific ―facts‖ do not remain stable
over time.
ART AND SCIENCE
IN MANAGEMENT RESEARCH
Noted researcher Thomas Kuhn, in his book The
Structure of Scientific Revolutions, addresses issues
associated with the state of current scientific research
and the opportunities for scientific discovery. Kuhn, in
his previous editions of this text, drew distinctions
between mature and immature fields of study. In
mature fields of study, many of the central questions
of that field have been answered, and strong
consensus exists among researchers regarding the
fundamental assumptions of that field. Conversely, in
immature fields of study, there is still a great deal of
debate on major questions in the field, and gains in
knowledge come sporadically. In many ways,
management is an immature science. While its
foundations in psychology, sociology, and other
related areas give it a long and rich history, the
nature of the areas of study renders it immature.
That is, due to the difficulties of studying human
behavior in a number of disparate settings, the study
of management is still very young when compared to
other fields of research (e.g., in the physical
sciences). In fact, many scholars have argued that
the social sciences (e.g., management research)
suffer from envy of the physical sciences, in which
―truths‖ are able to be determined through research.
As such, social sciences researchers may strive to
create a more ―scientific‖ approach to their fields in
order to grant them more legitimacy.
Despite its relative immaturity, some consistent
answers have been developed in the field of
management.
In many ways this is due to the increased
sophistication of management research. However,
there are still a number of research gaps in
management; despite our increased knowledge in
some areas, there is still a great deal of disagreement
and confusion in other areas. In these circumstances,
the practice of management is likely to be dictated by
the perspective of management as an art. Because
there are no hard and fast rules in certain
circumstances, individual managers‘ experiences and
skills must guide them.
Today, much of the management research conducted
in academic institutions blends the notion of
management as an art and as a science. Some of
these trends in management research that have
pushed the field in either direction—namely increased
statistical sophistication and the emphasis on
contextual influences—are described below.
Conclusion: Management – a Science or an
Art?
Science is organized knowledge. In Science
1. Methods of inquiry are systematic and
empirical.
2. Information can be ordered and analyzed
3. Results are cumulative and communicable.
The development of management theory involves
development of concepts, principles and techniques.
These principles are universal to all environments.
Management is not only acquisition of knowledge
(which is a science), but it is also application of
knowledge which requires skills.
The art or practice of management is different in
different situations viz. political, legislative, social,
and cultural as well as in economic nature.
A good manager is one who is sensitive to its
environment.
Under science one normally learns the ‗Why‘ of a
phenomenon; under art one learns the ‗How‘ of it.
Management is the art of getting things done through
others in dynamic and mostly non-repetitive
situations.
Knowledge of management theory and principles is
indeed a valuable aid and kit of the manager but it
cannot replace his other managerial skills and
qualities.
Management knowledge can certainly improve
Managerial practices.
This knowledge has to be applied and practiced by
the manager just as the medical or legal practitioners
practice their respective sciences.
Thus, Management is both an art as well as a science.
1.3 Importance of Management in
today’s organizations
Peter Ducker once remarked 'Management is what the modern
world is all about'. Modern world is witnessing continuous
breakthroughs in science and technology. There are developments
all over the world. There is no doubt that all the breakthroughs and
developments were made possible by efficient and effective
management.
You are well aware that there is a wide gap of development
between Europe and Asia. European countries, Japan, and U.S.A.
are highly developed as compared to Asian and African nations.
You may call this gap as the 'Science and Technology gap', but in
reality it is the 'Management Gap'. In other words, economies of
well developed nations are well managed, whereas, economies of
less developed nations arc poorly managed. Everyone knows that
Japan and Germany we're totally in ruins after the World War II,
but today these two nations are highly developed, thanks to better
and innovative management.
You must have heard that some organizations survive and succeed
during bad times, whereas, others fail even during good times. This
is mainly because of the quality of management in the concerned
organizations. Thus, it is evident that management plays a vital
role in the success and development of not only the business
organizations but the entire nation as a whole.
The importance of management can be stated as follows:
1. It facilitates optimum utilization of resources: Managers make
use of several resources such as men, money, materials,
machines, methods, etc. Efficient management facilitates optimum
utilization of resources in order to accomplish results. In other
words, management transforms resources into results.
2. It motivates personnel: Managers need to create a good
environment in the organization. They need to provide good
working conditions and facilities to the employees. The success of
management is reflected through the efforts of highly dedicated
and motivated work-force. In order to have a dedicated and
motivated work-force, managers provide monetary and non-
monetary incentives to their subordinates.
3. It encourages initiative: Managers of successful organizations
follow the principle of encouraging initiative. They encourage their
subordinates to show their initiative, to come out with suggestions
and actions that would not only help the organization to grow and
expand but also enable the subordinates to fulfill their career
aspirations. Thus, it helps to improve individual, group and
organizational effectiveness.
4. It facilitates innovation: Modern management is dynamic in
nature. Successful managers generate innovative ideas to solve
business problems or to handle their tasks and responsibilities.
Again, due to freedom of self- expression, and specialization,
subordinates often come out with innovative ideas. Such
innovativeness helps them to carry out their activities effectively
and efficiently.
5. It furthers technological improvements: Modern world is
witnessing continuous breakthroughs in science and technology.
New machines, new methods and new techniques are being
introduced in business activities. This is possible due to effective
and efficient management. Such technological developments are
not only vital to the concerned organization but also to the entire
nation and even to the whole world.
6. Minimizes wastages: Managers minimize wastages by following
the process of management. Every manager at all levels needs to
plan, to organize, to direct and to control activities. For instance,
the production manager makes optimum use of resources through
systematic production planning and control. This results in
reduction in wastages of resources, and as such brings higher
returns.
7. Maintains good relations: Managers develop good relations with
their subordinates. Good relations are maintained by proper
directions, communication and leadership. The success of any
organization depends largely on the smooth relations between
management and employees, between superior and subordinates,
between different levels, and between different departments or
sections.
8. Facilitates expansion and diversification: Successful managers
are responsible for the growth and expansion of the enterprise.
Without the active involvement and commitment on the part of the
superiors and their subordinates, it is not possible for any
organization to grow and expand. Quite often, it is the inefficient
management that retards the growth and expansion of the
organization.
9. Quality of workers' life: Modern management shares the fruits of
productivity and efficiency with the workers. Workers are provided
not only with good working conditions but they are also rewarded
monetarily and non-monetarily, and as such their quality of life
enhances.
10. Assists society: Managers are socially responsible. Now-a-days,
profit is not the only motive. Successful organizations have
reconciled profit motive with social responsibility. Because of this
factor, the society at large is benefited in terms of quality goods at
good prices, employment opportunities, and so on.
The blooming technology has taken deep roots in every field
nowadays. It is impossible for anyone to imagine a world without
high computing environment. It is the worst nightmare for any
organization to imagine its functioning without high end automated
systems. In management field the computer plays a vital role
directly or indirectly. At all the 3 levels of management i.e.
operational level, Middle Level and High level wide use of
computers is made. Let us see how the computer is essential for
the levels of management.
In Operational level of any organization there are thousands of
transactions to be performed daily. The transactions carried out
help to improve the routine business activity and affect the overall
performance of any organization. The transactions may include
calculations, summarizing or sorting of data. Most of the
organizations have automated computer systems for handling their
transactions. The use of computers drastically increases the speed
at which the transactions occur and provide greater accuracy. The
main advantage is that the computers can be programmed and
changed from time to time with change in activities.
The middle level management benefits the most by the use of
computers and automated systems. The computer helps the
manager to take crucial decisions and helps in solving problems.
With computers the manager can take better decisions and can
draw conclusions with help of precise data in no time. Preparing
daily reports in graphical format makes it easier for the manager.
The rise and the falls in employee‘s performance can be easily
traced with several automated systems.
In most of the companies the top level management uses the
executive information systems which are structured and automated
tracking systems. These systems provide the top level
management with rapid access to timely information. The major
advantage is that the systems provides the top level management
with effective updates of slightest changes in the working
conditions and abreast them with what is happening in the major
areas.
1.4 Management Processes
There are mainly following management processes:
• Planning
• Organizing
• Staffing
• Directing
• Coordinating
• Controlling
1.4.1 Planning:
Planning involves selecting missions and objectives
and the actions to achieve them. Before a decision is
made, all that exists is a planning study, an analysis,
or proposal. Planning is the function that determines
in advance what should be done. Planning is
determination of what is to be done, how and where
it is to be done, who have to do it and how the results
are to be evaluated. It is a function to be performed
at all the three levels –Top, Middle and Supervisory.
1.4.2 Organizing:
According to Allen, Organization refers to the
―structure which results from identifying and grouping
work, defining and delegating responsibility and
authority and establishing relationships‖.
Organizing is that part of management that
establishes an intentional structure of roles for people
to fill in an organization. It is intentional in the sense
that it makes sure that all the tasks necessary to
accomplish goals are assigned to people who can do
them best.
1.4.3 Staffing:
Staffing is an important part of organizing or building
the human organization.
Staffing is defined as filling, and keeping filled
positions in the organization.
It includes identifying work force requirements,
inventorying the people available, recruiting,
selecting, placing, promoting, appraising, and training
or otherwise developing both candidates and current
jobholders to accomplish the tasks effectively.
1.4.4 Directing
(Leading/Actuating/Motivating):
It is the process of guiding and influencing the work
of the people. It is stimulating and inspiring workers
to do their best, to contribute towards the
organization‘s goals.
It involves three sub functions: communication,
leadership and motivation. Communication is the
process of passing information and understanding
from one person to another. Leadership is process by
which a manager guides and influences the work of
subordinates. Motivation means arousing desire in the
minds of people to give their best to the enterprise.
Motivation can be financial and non-financial.
1.4.5 Coordination:
It is to reconcile the differences in approach, timing,
effort, or interest, and to harmonize individual goals
to contribute to organization goals.
1.4.6 Controlling:
It is the measuring and correcting of activities of
subordinates to ensure that events conform to plans.
It measures performance against goals and plans.
1.5 Evolution of Management Thoughts:
The period between 1700 and 1850 highlights the
Industrial revolution. Several economists during this
period explained their concepts and functions of
management. Like, Adam Smith, explained concept
and consequences of division of labour. Turgot
explained the importance of direction and control.
Say explained importance of planning. But
management as a separate field of study emerged 10. Order : Right place for everything
during the second half of the 19th century. 11. Equity : Fair treatment
The evolution of management thought during this 12. Stability of tenure of personnel : Job Security
period can be studied in two parts: 13. Initiative
14. Union is strength: Harmony and unity among
1. Early Management Approaches:
the staff.
1. Scientific Management
1.5.3 Human Relations Movement:
2. Administrative Management theory and
Based on Hawthorne experiment done by Prof Elton
3. Human relations movement. Mayo (1927-1932)
2. Modern Management Approaches: Features:
1. Behavioral Approach 1. A business organization is not only a techno-
2. Quantitative /Management Science economic system but also a social system. So,
Approach it is important to provide social satisfaction to
3. Systems Approach the workers.
4. Contingency Approach 2. No correlation between improved working
conditions and high production.
1.5.1 Scientific Management (1856-1915):
3. Workers do not want money only, non-
(Father of Scientific Management is Frederick Winslow
financial rewards are also important.
Taylor)
4. Employee-centric, democratic and participative
Important contributions:
style of supervisory leadership is more
1. Time and Motion study: effective than task-centered leadership.
2. Differential payment: Incentive linked with Limitations:
Production
1. It is as much incomplete as the Scientific and
3. Drastic reorganization of supervision: Administrative Management Approaches.
Separation of Planning and doing
2. Only focused on Human variables and ignored
4. Scientific Recruitment and Training for workers the task and structure variables.
to bring out the best results.
3. Over-emphasized on the importance of
5. Intimate friendly cooperation between the
symbolic rewards and underplays the role of
management and workers
material rewards.
4. Its production oriented and not employee
Limitation of Scientific Management:
oriented.
1. Economic incentives are strong enough to
5. Based on wrong assumption that satisfied
motivate workers for increased production
workers are more productive workers.
proved wrong.
2. No man is entirely ‗economic man‘. They have 6. It makes unrealistic demand on the superior.
other needs as well, Security need, social It wants him to give up the ‗Desire for Power‘.
need, egoistic need etc. Modern Management Approaches:
3. Time and motion study is not accepted as 1.5.4 Behavioral Approach:
entirely scientific.
4. Separation of planning and doing leads to This approach is more matured version of Human
greater monotony of work and reduces the Relations Approach. (Douglas McGregor, Abraham
skills. Maslow,Kurt Lewin, Chester Barnard, Mary Parker
5. Advance tools and machines eliminated some Follett, George Homans,Rensis Likert,Chris
workers, which cause resentment among Arglyris,and Warren Bennis.)
them. Features:
1.5.2 Administrative Management theory: 1. More flexible organization structures and jobs
Henri Fayol (1841-1925) built around the capabilities and aptitudes of
14 principles of management average employees.
2. It puts great weightage to participative and
1. Division of work group decision –making.
2. Authority and responsibility 3. Emphasis was on humanizing the
3. Discipline administration of control process and
4. Unity of command encouraging the process of self direction and
5. Unity of Direction control.
6. Remuneration 4. It considers the organization as groups of
7. Subordination of individual interest to general individuals with certain goals.
interest 5. Pragmatic approach to organizational conflicts
8. Centralization and change.
9. Scalar chain
1.5.5 Quantitative Approach (management
science approach): (During Second
World War)
Initially, the Operations Research (OR) techniques
were used to solve the War related problems. But
after the war ended, they used it for solving problems
of the Industries.
1. OR techniques provide the rational base for
decision making process. It provides
Quantitative techniques and tools to make
objectively rational decisions.
Objectively rational -> Unemotional, orderly,
reasoned decisions
2. It facilitates disciplined thinking.
3. Keynote of this approach is precision and
perfection.
Drawback:
Organizations have more human problems related to
organizing, staffing, leading etc, than technical. In
such situations, you can‘t only take decisions based
on quantitative tools.
1.5.6 Systems Approach:
Common pitfall of the Classical, Behavioral and
Quantitative schools is that they stress one aspect at
the cost of others.
Classical Approach emphasizes on task and structure.
Behavioral approach emphasized on ‗People‘ whereas
Quantitative approach emphasized on ‗Mathematical
Decision Making‘.
1. Systems Approach is based on the concept of
‗Holism‘. A System is a set of interdependent
parts which together forms a unitary whole
that performs some function.
2. An organization is also a system composed of
4 interdependent parts: Task, structure,
people and technology.
3. A system can be open or closed.
4. Open System interacts with its environment.
E.g., Human and social systems are Open
systems as they constantly interacts with their
environments.
5. Close Systems don‘t interact with their
environment, like mechanical systems.
6. Earlier theorists considered Organization as a
closed system with its own boundaries.
7. Later they were considered as open systems
that are more flexible, permeable, and
changeable.
8. Every system/organization has many external
systems like suppliers, creditors, customers,
Government agencies etc.
9. Every system has flows of information,
material and energy. These enter into the
system as input (raw material, fuel,
equipment, technology, information, human
efforts )and leaves the system as outputs(
services, products, satisfaction )
1.5.7 Contingency Approach:
1. According to this approach, management
principles and concepts of different schools
have no general and universal applicability
under all conditions.
2. It says that there is no one way of doing the
things under all situations. Methods and
techniques highly effective in one situation
may not work in other situation.
3. According to this approach, the task of the
manager is to identify the best suitable
technique for a particular situation that can
contribute best to the attainment of the
management goal.
4. Managers are thus required to develop the
situational sensitivity and practical selectivity.
5. This approach is applicable in designing
organizational structure, in deciding degree of
decentralization, in motivational and
leadership approaches, in establishing control
systems, in resolving conflicts and managing
change in employee development and training
and various other areas.
 2
Planning

Overview: Strategy, plan, policy and programs; purpose of planning; Mission, Vision and goal setting; and SWOT Analysis,
Forecasting - need of forecasting in Planning; Types of Planning; and tools of Forecasting - Moving Average, Exponential
Smoothing and Regression Models

2.1
 3
Organizing
Overview: Principles and structure of organization, Theories and types of organization, Concept of: Authority, Responsibility,
Power, Delegation & Centralization of Authority, Span of Control. Formal and informal organizations
3.1 Organization:
An organization is a social unit or human grouping,
deliberately structured for the purpose of attainment
of specific goals. For example, Hospitals, armies,
schools, churches, corporations, prisons etc. But
friendship groups, ethnic groups are all not an
organization as it does not involves any significant
amount of conscious planning or deliberate
structuring. Organization pervades all the important
phases of man‘s life. A man is born in an
organization, educated in an organization (schools,
Colleges, Institutes) and work in an organization
(Offices and factories).
3.2 Process of Organizing:
Organization is used in two different senses.
1. Process of organizing
2. Result of that process, namely Organization
Structure
Process of Organizing
Organization is the process of defining and grouping
the activities of the enterprises and establishing the
authority relationship among them. In performing
organizational functions, the manager differentiates
and integrates the activities of his organization.
1. Differentiation: Departmentalization or
segmentation of activities on the basis of some
homogeneity.
2. Integrates: Process of achieving unity of effort
among the various departments.
There are six steps involved in this:
1. Consideration of Objectives: (To know the
objective of the organization)
It will determine the various activities which need to
be performed and the type of organization which
needs to be built for this purpose. Like the structure
of an army will be different from the structure of a
business enterprise.
2. Grouping of Activities into Departments:
This step is to identify the activities necessary to
achieve the objective and grouping similar kind of
activities into departments and divisions. E.g.
Manufacturing unit have various groups /departments
– Production, Marketing, Finance, Personnel etc.
3. Deciding which Department will be Key
Department
Key Departments are those which are involved in the
activities essential for the fulfillment of goals. Key
departments are placed directly under the higher
management. The Department which is to be
considered as key depends on company‘s objective.
e.g.
a) If a company believes that advertising is
the key to success will set up separate
advertising department that will report to the
president.
b) In all Chemical and Pharmaceutical
companies product development may be
considered as key , so production manager
will directly reports to the top management,
whereas in textile industry it may be treated
as a section under Production Department.
4. Determining levels at which various types of
Decisions are to be made:
a. Deciding the levels at which major and
minor decisions have to be taken.
b. Decision of level/extend of Decentralization
of authority and responsibility
Extremely decentralization may lead to loss of
control and on the other hand extreme
centralization too will lead to wrong decisions at
wrong times.
5. Determining the span of management
Determining the number of subordinates that who
should report to each executive. Narrower the span,
taller will be the structure with several levels of
management. This will complicate communication
and increase the payroll.
6. Setting up a coordination Mechanism:
According to Peter Drucker, an organization is like a
tune. It is consists of individual sounds but with
relations among them.
As individuals and departments carry out their
specialized activities, the overall goal of the
organization may become submerged or conflicts may
develop.
3.3 Principles of Organizing
Certain principles are to be followed in order to
develop sound and efficient organization structure.
• Objectives: Objective should be clearly defined
as it influences the structure of the organization.
• Specialization: The activities in an enterprise
should be divided according to the functions and
assigned to the persons according to their
specialization.
• Span of Control: Span of control should be
minimum as there is a limit to the number of
persons that can be supervised by the boss.
• Exception: Only exceptionally complex problem
should be taken to the higher level so that they
can focus their time on more crucial and
important issues.
• Scalar Principle: Also called ‗Chain of
Command‘. The line of authority must be
properly defined.
• Unity of Command: Each subordinate must have
one superior to obey as otherwise it will cause
disorder, indiscipline, and undermining of
authority.
• Delegation: Each manager should have enough
authority to accomplish his task.
• Responsibility: Superiors should be held
responsible for the acts of his subordinates. No
superior should be allowed to avoid responsibility
by delegating authority to his subordinates.
• Authority: Authority should be equal to the
responsibility and must be clearly stated. As it is
a tool to accomplish the goals.
• Efficiency: Organization structure should enable
the enterprise to function efficiently and
accomplish its objective with lowest possible cost.
• Simplicity: Organization structure should be
simple and the levels should be minimum to avoid
ineffective communication and coordination.
• Flexibility: Should be adaptable to the changing
circumstances, and should permit expansion and
replacement without dislocation and disruption of
the basic design.
• Balance: Balance between size of departments,
between centralization and decentralization,
between span of control and short chain of
command and among all types of factors such as
human, financial and technical.
• Unity of direction: There should be one
objective and plan for a group. This facilitates
unification and coordination of activities.
• Personal Ability: There must be proper
selection, placement, training of the staff as
people constitute an organization.
3.4 Organization Structure:
In second sense, organization is the structure for
carrying out the functions of planning, decision-
making, control, communication, motivation etc.
The formal structure of an organization has two
dimensions:
1. Horizontal
2. Vertical
• Horizontal depicts differentiation of total
organizational job into different departments.
• Vertical refers to the hierarchy of authority.
The organizational structure can be depicted by an
organization chart, where the flow of authority,
responsibility can be shown.
But the chart does not shows certain things like, who
has the greater degree of responsibility at each level,
does not indicate the organization‘s informal
relationships and channels of communication.
Organization structures vary tremendously.
Organizations may be departmentalized on the basis
of functions, place, products or some combinations of
the three.
Broadly, we can categories an organization into
two-
• Mechanistic or classic organization
• Organic or behavioral structures
3.4.1 Mechanistic or Classical structure
It is of pyramid shaped. It implies centralization of
authority at the top, departmentalization of jobs,
hierarchy of command, narrow span of supervision and
intense division of labour.
Merits:
Clear and well defined work setting to its employees.
Demerits:
• Each individual carries out his assigned part as
something apart from the overall purpose of the
organization as a whole.
• Decision making will be centralized.
• Communication will be mostly between superior
and his subordinates in the form of commands
• There is insistence on loyalty and obedience to
superiors as a condition of membership
• Once the task has been assigned to the lower
level, it is difficult to change that.
Tall Organization
Decision Making
Center (Authority
Base)
Organization Level 1
Organization Level 2
Organization Level 3
Tall Organization implies:
a. Distance from top to bottom
b. Extended communication lines
c. Narrow span of control
d. Centralization
 3.4.2 Organic or behavioral structure:
• It generally has wider spans of control which
give rise to a flat form, more general
supervision and more decentralization.
• There is little specialization and hierarchy of
command.
1 that it plays in a society. Like
2 b) Business Concerns – Benefiting the owners
3 e.g.,
Flat organization implies:
a. High levels of decentralization
b. Extremely wide spans of control
c. Less extended communication lines.
Merits
• It is flexible; people‘s responsibilities and
functions can be quickly changed to meet
situational demands.
• Communication takes place at all directions.
• Decision making is not centralized at the top. It is
done at all levels.
• Commitment to one‘s task is more valued than
obedience or loyalty.
Demerits
• Continuous uncertainty about the tasks of people
as it is ambiguously defined and is changing.
What type of organization is best?
There is no specific structure that is suitable in all
situations.
According to James C. Worthy, flat structures
are best as with maximum decentralization it
develops self-reliance, initiatives, and decision-
making abilities, in another study Porter and Lawler
concluded that there is no clear overall superiority of
a flat organization structure over a tall organization
structure.
Type of structure useful in a particular organization
depends on a number of factors:
1. Environment: According to Burns and Stalker,
classical structures with strong control and tightly
specified duties are good when stable
environment is there.
Stable environment – when people do fixed and
specialized jobs with little need to change their
Skills.
Whereas in fast changing environments when jobs
need to be constantly redefined to cope with the
ever-changing needs of the environment ,where
creative decision making is required , behavioral
Structure is appropriate.
2. Culture: Culture bounds on what may or may not
be done, on what is desirable and what is not.
Firms in North America tends to be more
decentralized than the firms in Germany , as
American culture supports decentralization of
authority where as German culture does not .
3. Task: It is another important determinant in
formation of organization structure. It is the role
a) Mutual benefit Organizations – Benefit
their members only e.g., Trade
Associations, Labour unions
e.g., Manufacturing Companies, Marketing
organizations etc.
c) Service Organization – Benefiting clients
Insurance Companies, Private
Hospitals, Universities etc.
d) Commonweal organization – benefiting the
public at large e.g., Post Offices,
Government Hospitals etc.
4. Technology: The structure is largely influenced
by its technology. Three broad types of
technology are: Unit, Mass and Process.
Unit is the simplest technology and process is
the most complex.
Joan Woodward‘s study has shown that,
a) The more complex the technology, the
more need for supervision and coordination at
various levels is required. i.e., Complex
technology leads to taller structure.
b) The more complex the technology, the
more the need for better personnel administration
and plant maintenance to keep the equipment in
operation for higher proportion of the time and
the greater the number of clerical and supporting
staff.
c) In mass technology, workers perform
similar types of unskilled jobs. Thus, large
numbers of workers can be supervised by one.
However in unit or process technology, this
is not possible. Here workers perform highly
skilled jobs for which small groups are inevitable.
5. Strategy: It means long-term goals of an
enterprise and allocation of resources necessary
for carrying out these goals.
With the change in strategy, the structure of
the organization needs to be changed. The
strategy of diversification into new products or
new geographical areas will lead to change in the
structure of an organization.
6. Size: The number of employees working for an
organization in a single location. As the number of
employees increases the amount of formality
increases to cope with the complexity of employee
interrelationships and communication problems.
7. Span of control: We have seen there is a close
relationship between the span of control and the
shape of organization structure. Small spans give
 rise to tall structures and big spans to flat supervise four salesmen. His span of management
structures. is now 4.
8. Form: Whether the enterprise is a cooperative, Thus he has added one level of management
private company or a government agency. through which communication between him and
Cooperative is based on democratic principles and salesman will pass and also he has added the cost
therefore will be different from a private firm of four additional managers.
which is based on dictatorship principles.
9. Managerial Characteristics: Structure is
influenced by the value system of its top
managers. If the top managers believe that
people are good and committed to organizational
goals, they would create an organization which
emphasizes freedom of action whereas if they
believe that by nature people are lazy and
uncooperative they would prefer to create an
organization which emphasizes direction and
control.
10. Employee Characteristics: The abilities, skills
and experience as well as their needs and
personality characteristics.
If the organization is composed of unskilled
members or poorly motivated employees, a
classical structure will be appropriate. Organization with Narrow spans
Whereas, if it is composed of skilled members and
have a strong need of independence and self
realization, Behavioral one will be appropriate.
3.5 Span of Management:
Meaning and Importance:
The term ‗Span of Management‘ refers to span of
control, span of supervision, span of authority, or
span of responsibility. It indicates the number of Advantages
subordinates who report directly to a manager. The • Close Supervision
purpose of organizing is to make human cooperation • Close control
effective, the reason for levels of organization is the • Fast communication between subordinates and
limitations of the span of management. In other superiors
words, organisation levels exist because there is limit Disadvantages
to the number of persons a manager can supervise • Superiors tend to get too involved in
effectively. subordinates work
Two reasons why the appropriate span of • Many levels of management
management must be known • High costs due to many levels
a) It affects the efficient utilization of managers and • Excessive distance between lowest level and
the effective performance of their subordinates. top level.
Too wide span may cause overstraining to the
managers and too little control or guidance to the Organization with Wide span
subordinates. Too narrow span may result in
under-utilization of managers and over controlled
subordinates.
b) There is a relationship between organizational
structure and the span of management.
Narrow span will result into tall structure with
many levels of supervision between top level and Advantages
the lowest levels. • Superiors are forced to delegate
Wide span will result into flat organization with Disadvantages
fewer management levels between top and • Tendency of overloading superiors to become
bottom decision bottlenecks
e.g., If 16 sales persons are reporting to a sales • Danger of superior‘s loss of control
manager then span of management will be 16. If • Requires exceptional quality of manager
he feels he is not able to work closely enough with What is an appropriate Span?
each salesman. He decides to reduce the span by
adding 4 assistant managers under him- each to
 Many researches have done to determine the ideal
number of subordinates directly reporting to a
manager.
According to Lyndall Urwick, 4-5 subordinates
should report to a superior.
According to Hamilton, the ideal number of
subordinates is 3 to 6.
Some experts (J.C Worthy) believe that a
manager can effectively manage as many as 20
subordinates.
According to Ernest Dale, 8 number of
subordinates is right, if the group below the
manager is of 20.
Factors governing the span of Management:
It is clear from the above discussion that there
is no unanimity among writers about the average
span that is appropriate
Modern writers have suggested a Contingency
method to determine the appropriate span of
management. It says that the appropriate span
can be determined by the specifics of the
manager‘s particular situation.
a) Ability of the Manager: Depending upon the
capability of the manager the group size reporting
to him can be determined. Thus the span must be
based on a manager of average ability.
b) Ability of the Employees: If the employees are
skilled, competent, self motivated, than less
attention is required by the manager. Thus large
span of control can be used. On the other hand, if
incompetent employees are there, close
supervision is required .This will reduce the span
of management.
c) Type of Work: If the employees are doing similar
jobs, span of management can be larger, whereas
if involved in different types of job, a small span is
necessary. E.g., A supervisor can direct more
employees if they are working on an assembly-
line operations than if they are working in a
warehouse or maintenance situation.
d) Well- Defined Authority and Responsibility: If
the responsibility and authority of the employee
are properly defined, they need not to contact the
superiors frequently for guidance and instructions.
e) Geographic Location: An office manager with 25
employees located in a single place may be able
to supervise them well . But a sales manager with
25 sales people located at different locations
/districts would find direct supervision difficult.
f) Sophisticated Information and Control
System: Will not require close supervision.
g) Level of Management:
h) Economic Consideration: Smaller spans means
a larger number of managers with added salaries
and other costs they entail whereas Wide spans
involve extra costs in the inefficiencies that result
from diminished managerial leadership.
3.6 Authority:
Authority is a formal right of the superior to
command and compel his subordinates to perform a
certain act.
According to Henri Fayol, Authority is ―the right to
give orders and power to exact obedience.‖
Broadly there are two views on the source of
Authority in an organization.
Classical View
Authority originated at the top in the formal structure
of an organization and flows downward to
subordinates.
GM (Board of Dir) - Production Manager- Assistant
manager- Foreman – assistant foreman
Human Relations View
Authority depends on the willingness of his
subordinates to accept it. The authority becomes
somewhat meaningless unless those affected accept
it and respond to it. For e.g., If a superior shouts at
everyone to work hard, the subordinates may not
question the superior‘s right to do so but they may
choose not to comply with the order. The order will
then be robbed of its authority.
Line and Staff Authority:
There are two types of authority in an organization:
Staff and Line.
Line Authority: A superior exercises direct command
over subordinates.
Staff Authority: It is merely advisory. A staff officer
has the ‗Authority of Ideas‘ only. The information
which a staff officer furnishes or the plans he
recommends flow upward to his line superior who
decides whether they are to be transformed into
action.
e.g., Market researchers who gathers and analyses
data on marketing problems and advises the
marketing manager on the demand for new products,
e.g., an internal auditor, who checks the accuracy of
accounting records and suggests the measures to
prevent fraud, to the head of accounting department.
Line and staff Organization of a typical Manufacturing
Company is given at end of chapter.
3.7 Power:
Power is a broader concept than Authority. It is the
ability of individuals or groups to induce or influence
the beliefs or actions of other persons or groups.
French and Raven have suggested five types of
power: Reward, Coercion, Reference, expertise and
legitimacy
• Reward Power: This power has influence when
influential person feels that he will be rewarded.
This power arises from the ability to grant reward.
e.g., Professor
• Coercive Power: This involves punishment if the
subordinates don‘t comply with their superiors.
• Reference Power: When the subordinates
desires more and more to identify with or imitate
their superiors.
• Expert Power: When the senior has the
expertise in a given subject.
• e.g., Lawyers, Professors, etc.
• Legitimate Power: When the subordinates Authority should be equal to the responsibility. A
perceive that the seniors have rights to determine subordinate cannot be expected to accept
their behavior. It arises normally by position. responsibility for activities for which he has no
3.7.1 Difference between Authority and Power authority.
Authority Power If authority exceeds responsibility a misuse of
authority can result.
1. It is the 1. It is the ability of
institutionalized a person to And if responsibility exceeds authority the
right of a superior influence another subordinates may find himself in a frustrating
to command and person to perform situation.
compel his an act.
subordinates to 3.9 Delegation of Authority
2. It rests in the
perform a certain individual. Hence Delegation of functional authority from line authority
act. even when his of president
2. It rests in the position has
position. With the changed his Line Authority of the President
change in position, power remains
the authority also with him. Public
changes. 3. It is earned by an Controller: Personnel Purchasing Relations
Accounting Manager: manager: Manager:
3. It is delegated to an individual through Procedures Personnel Purchasing Public
Procedures
individual by his his own efforts. Procedures Relations
Procedures
superior. 4. It is undefined,
4. It is mostly well inconspicuous and
defined, infinite; its Meaning: In an enterprise, the manager cannot do all
conspicuous (shown location cannot be the tasks himself for the accomplishment of group
on organization known from the goals. His capacity to work and to take decisions is
chart) and finite formal limited. Therefore, he assigns the work to his
5. It serves as the organization subordinates and also gives them the necessary
basis of formal chart. authority to make the decisions within the area of
organization. It serves as the basis their assigned duties.
of informal This downward pushing of authority to make
organization. decisions is known as Delegation of Authority.
3.7.2 Uses of Authority: According to Louis A Allen, ―If the manager requires
• Enforces obedience to norms: In case of his subordinates to perform the work, he must
disobedience, there may be elaborate set of entrust him with part of the rights and powers which
sanctions invoked against him. he otherwise would have to exercise himself to get
that work done.‖
• Secures expertise in the making of decisions.
•Delegation does not mean surrender of authority.
• Permits centralization of decision making and
coordination of activity. •The delegating manager retains the overall
authority.
3.8 Responsibility
As Authority is the right to issue commands,
The observation by Terry says‖ it is something like
Responsibility is the obedience of a subordinate to
imparting knowledge. You share with others who then
obey those commands.
possess the knowledge, but you still retain the
Responsibility has two dimensions: knowledge too.‖
Responsibility for: It is the obligation of a person to Advantages of Effective Delegation
perform certain duties written in his job description
 It relieves the manager of his heavy workload
Responsibility to: It is the accountability of a  It leads to better decision: It leads to better
subordinate to his superior. It is inevitably associated decisions, since the subordinates closest to the
with check-up, punishment, supervision control. scenes of action usually have the best view of the
Responsibility cannot be delegated or transferred. facts.
Responsibility may be specific or continuing.  It speeds up decision-making: The time involved
It is specific when on being discharged by in consulting the superiors to make small decision
subordinates it does not arise again. can be eliminated, if the subordinate is authorized
to take the necessary decisions on the spot.
E.g. the responsibility of a consultant is specific.  It helps train subordinates and builds morale:
Whereas the responsibility of a foreman is continuous Effective delegation causes subordinates to accept
as it does not ceases once the assignment is responsibility. It helps in improving the confidence
accomplished. of subordinates.
 It helps in creation of a formal organization •It is vital and decentralized and
structure: It helps in building superior- essential to the the subordinate
subordinate relationship which give rise to a management become liable for
formal organization structure. process. By that.
delegation only
subordinates can be •It is optional, as it
Guidelines for Effective Delegation
involved in the may or may not be
 Before delegating the authority, make the nature organization and practiced as a
and the scope of the task clear. the management system.
 Assign authority proportionate to the task. can get things
 Make the subordinate clearly understand the done.
limits of his authority.
Advantages of Decentralization
1. Reduces problems of communication and Red
Tapeism: It helps in the communication process
 Give the subordinates some positive incentives for as the organization grows, and also helps in
accepting responsibility. improving organization‘s efficiency.
 Train the subordinate properly. First be in front of 2. Permits quicker and better decision-making: The
him for check-up and guidance and then be at managers, who are close to work, are more
back to follow his performance. knowledgeable about the specific details and
 Create a climate of mutual trust and goodwill. The circumstances of problems that arise in their
subordinate will work better if he has the freedom departments. Thus, if they have the authority to
to commit honest mistakes. take decisions, they will make better decisions
 Do not make the subordinates accountable to than top managers, who are not in touch with the
more than one superior. specific situation.
3. It helps in recognizing the importance of human
3.10 Decentralization of Authority element under decentralization; managers are
Delegation of authority is closely related to the able to exercise more autonomy.
organization‘s decentralization of authority. It is the 4. This gives them power, prestige and status. They
tendency to disperse the decision making authority in feel more motivated and satisfied in their jobs.
an organized structure. Autonomy of subordinates permits greater
experimentation and flexibility to meet new
Every organization has to decide as to how much
conditions.
decision making authority should be centralized in
5. Ensures the development of more capable
hands at the top and how much should be distributed
managers: As under such structures, managers
among managers at lower levels.
often have to deal with difficult situations, they
In a Centralized set up, the decision making authority are assumed to be excellently trained for
is concentrated in few hands at the top and in a promotion into positions of greater authority and
decentralized set-up, it is delegated to the levels responsibility.
where the work is performed. 6. Facilitates diversification of products, activities
According to Fayol,‖ Everything that goes to increase and markets:
the importance of the subordinate‘s role is
decentralization and everything that goes to reduce it
How much decentralization?
is centralization‖
Determination of amount of decentralization is based
Distinction between Delegation and Decentralization
on the following factors:
Delegation Decentralization
1. Size of organization: Number of plants, Number of
•Delegation is a •It is the end result
Employees. In case of large, multi-product,
process. of delegation and
diverse organization decentralized operations
dispersal of
•It refers to enhances the flexibility, efficiency and speed of
authority.
granting the decision making process.
authority and 2. History and age of an organization: If an
•It is a situation
creation of organization has grown by acquisition and
that exists as a
responsibility mergers, it is likely to be decentralized.
result of systematic
between
delegation of
individuals.
authority
•In delegation, throughout the 3. Philosophy of top management: Some managers
superior continues organization. pride themselves in making decisions themselves.
to be responsible The superior is Others take pride in delegating the authority to
for the work relieved from his the subordinates.
delegated to the responsibility for 4. Ability of lower level managers: Talented
subordinates the work executives are often unwilling to accept
 centralization from their superiors. They want to 2. Functional Overlays: Comprising employees
perform independently so that they may give who exert influence and affect the course of
expression to their abilities. action on account of an extra-ordinary amount of
5. Strategy and organization‘s environment: The knowledge which they possess. People respect
strategy of an organization influences the types of them and solicit their assistance outside of formal
its markets, its technological environment and its channels.
competition with other organizations. These 3. Decision Overlays: comprising employees who
factors, in turn, influence the decentralization of are respected and consulted on account of their
an organization. E.g., companies operating in old age, mature judgment and wisdom over and
industries in which the markets are less uncertain, beyond their position or function in the formal
less dynamic, tend to become more centralized. hierarchy.
6. Nature of Management functions: In large multi-
4. Power overlays: Comprising employees who
plant company such functions as purchasing,
have power as distinct from authority.
traffic, cost accounting, quality control, plant
engineering and personnel tend to be
decentralized.
3.11.3 Difference between Formal and Informal
3.11 Informal Organization: organization
Any organization has two aspects: Formal Informal
Organization Organization
1. Technical: Money, Machines, tools etc.
2. Human: This constitutes the informal •It is prescribed •It is natural and
structure of roles spontaneous structure,
group with which individuals identifies
and relationships arising out of the social
themselves. consciously tendency of people to
3.11.1 Why informal groups are formed: coordinated associate and interact.
towards a In other words,
1. Similarity theory: People with similar common management has no
attitudes, interests, and work related needs objective. hand in its emergence,
form a union. •Its value, goals evolution and
and tasks are functioning.
2. Propinquity theory: People/employee from predominantly •Its values, goals and
same geographical area, same office oriented towards tasks predominantly
generally form groups than those who are not productivity, centre around
located together. profitability, individual and group
3. Social Comparison theory: Need for self efficiency, growth esteem, satisfaction,
and so on. affiliation, friendship
evaluation i.e., he wants to tests himself
against other members to determine whether •It is well-defined etc.
in shape. Majority It is shapeless. There
or not his opinions, ideas, and judgments
of formal are number of
correspond to those of others in the group.
organizations are multidirectional,
4. Interaction theory: According to George pyramid-shaped. intricate relationships
Homans, Group formation is a result of
Ranks of which cannot be easily
activities, interactions and sentiments. The individuals are charted.
more interactions between persons, the more made clear by the •Ranks of the members
will be their shared activities and sentiments. use of titles. are implicit.
5. Exchange theory: Based on reward-cost •Communication •There is an unwritten
outcomes of interaction. is simple. One can system of reward and
6. Complementarity Theory: People with easily chart all punishment. Rewards
complementary needs and /or abilities are relationships. take the form of
attracted to form groups. •There is a continuous
prescribed, mostly membership, social
3.11.2 Types of Informal Groups: written system of esteem, satisfaction,
John M. Pfiffner and Frank P. Sherwood have reward and group leadership, etc.
identified five types of informal groups that function punishment. Punishments are
outside the formal organizational structure. They call Rewards can be isolation, harassment
these groups as Overlays. both monetary etc.
and non- •The organization is
1. Social Overlays: Comprising employees with monetary. not very enduring
similar work-related needs. •This organization being dependent on
usually grows to the sentiments of
members, which often
any size. change. ideas without persuading to their boss, before
•It also tends to trying them out.
remain small. 6. Important channel of communication: News
travels quickly via informal organization. It is a
clandestine transmitter and receiver of
3.11.4 Benefits of informal organization to its information, before it is officially released.
7. Social Control: The informal organization
members
provides all its members a set of norms –‟guides
1. Sense of belonging: For job satisfaction, the
to correct behavior‟. Members are expected to
person must feel that he is important to the task
conform to these norms.
and to the organization. But with too much
8. Check on authority: Such groups force
technical changes, and industrialization, the
managers to plan and act carefully than he would
worker becomes just another unit of labour for
otherwise.
the management. Thus the worker finds his work
unsatisfactory. 3.11.5 Disadvantages of informal organization
2. An informal organization fills this void by
1. Resistance to change: Customs, cultures, and
constantly emphasizing and reinforcing each
conventions bind an Informal organization as it
member‘s individual personality. Such groups
does not have any chart. Therefore the group
boost the self-image and personality of the
resists those demands of management which they
individual.
perceive as detracting from their culture.
3. Safety Valve for emotional problems: In daily
2. Rumor: An undesirable characteristic of informal
routine, workers face many occasions loaded with
organization is called ―grapevine‖. The story given
tensions and frustrations. In such groups, he
at the origin is filtered, elaborated and
seeks sympathetic ear of a friend. Generally
assimilated.
friends are those who had similar experiences and
3. Subtraction of details + Add new details +
can thus share and understand his troubles.
amending existing details.
4. Aid on the Job: In case of accidents or illness,
4. Group Think Philosophy: some members begin
members of an informal organization may help
to worship the group because the group has
one another. They may protect one another from
decided so. This develops a delusion of
authoritative action.
righteousness. In such case, individual loses his
5. Breeding ground for innovation and
identity.
originality: Individuals can experiment with their

Line and staff Organization of a typical Manufacturing Company

President

Vice Director of Vice President Director of Public

President Production Relations Vice Prsident Sales
Research
Finance

Manager Manager Manager

Manager Manager
Cash Manager Manager Domestic Foreign
Accounting Manager Advertising
Control Factory Personnel Sales Sales
Purchasing

Chief Production Chief Parts Chief Chief

Control Production Assembly Maintanence
 4
Staffing
Overview: Meaning nature and principles of staffing, Job Rotation, Job enrichment, Job enlargement
4.1 Staffing
Staffing is defined as filling, and keeping filled
positions in the organization.
•It includes identifying work force requirements,
inventorying the people available, recruiting,
selecting, placing, promoting, appraising, and training
or otherwise developing both candidates and current
jobholders to accomplish the tasks effectively.
•All managers have a responsibility of staffing.
Board of director—Chief Executives—Managers
(Finance, Marketing, Production)—Subordinates
(Foreman)—workers.
Importance and need for proper staffing
1. Business cannot be successful unless it is capable of
bringing in and developing the right kind of people.
2. It helps in discovering talented and competent
workers and developing them to move up the
corporate ladder.
3. It ensures greater production by putting the right
man in the right job.
4. It helps to avoid a sudden disruption of an
enterprise‘s production run by shortages of
personnel.
5. It helps to prevent under-utilization of personnel
through overmanning and the resultant high labour
cost and low profit margins.
6. Key to other managerial functions. Staffing
function is very closely related to other managerial
areas of the business. It greatly influences the
direction and control in the organization. The
effectiveness of other managerial functions depends
on the effectiveness of the staffing function.
7. Building healthy human relationships. Staffing
function helps to build proper human relationships in
the organization. Smooth human relations are the
key to better communication and co-ordination of
managerial efforts in an organization.
8. Human resources development: Skilled and
experienced staff is the best asset of a business
concern. The staffing function helps developing this
asset for the business. It inculcates the corporate
culture into the staff which in turn ensures smooth
functioning of all the managerial aspects of the
business.
9. Long Term effect: Staffing decisions have long term
effect on the efficiency of an organization. Qualified,
efficient and well motivated staff is an asset of the
organization. Staffing function assumes special
significance in the context of globalization which
demands high degree of efficiency in maintaining
competitiveness.
10. Potential contribution: Staff selection should be
based on the ability of the prospective employees to
meet the future challenges that the organization need
to address. Therefore the potential contribution of the
staff in their anticipated future roles should also be
taken into account in staff selection.
Manpower Planning
It is the process by which a firm ensures that it has
right number of people and the right kind of people,
at right places, at the right time doing the work for
which they are economically most suitable. It is a
vital tool in the hands of management to control the
cost by avoiding both shortages and surpluses of
personnel in an organization.
Manpower planning can either be Short Term or long
term.
Short Term manpower planning: It is temporary
match between the existing individuals and the
existing jobs.
Steps involved in this planning:
-To identify the weak and strong incumbents. Weak
incumbents are those whose skills falls short of their
job requirements.
Strong incumbents are those whose skills far exceed
their job requirements.
•In case of weak incumbents following things can be
done:
-Assigning difficult part of their jobs to others
-Improving them through short term training or
counseling
-Replacing them by other individuals.
•In case of strong incumbents
–More skilled and difficult jobs should be assigned to
them
The final step will be finding out the person who can
be given additional charges in case of unexpected
vacancies, sudden death, and transfer of the original
incumbents.etc.
Long Term Manpower Planning: It is done to find
a proper match between the future jobs and their
future incumbents.
Steps involved are:
–To determine the requirements of manpower for a
particular period. (Forecasting –it is future manpower
requirement for a period of say five (5) years.)
–To ascertain the existing number of rank and
workers in each sections, departments and to
compare it with the required number.
If the number of required people is more than the
existing number, then Management should decide
how to deal with the shortages –whether through
recruitment or through promotion.
Whereas in case of excess of existing manpower –
Steps should be taken to get rid of excess hands –
either by premature retirement or discharge or layoffs
etc.
The final step will be to determine the need for and
kind of training which is to be given to the existing
and new employees.
Manpower planning also involves analysis, description
and specifications of the job, in order to meet the
requirements of the job.
Job Analysis: It is the means to describe the present
methods, conditions of a job. It reveals what is
actually done as opposed to what should be done.
•Breaking down the complexity of a person's job into
logical parts such as duties and tasks.
•It identifies and organizes the knowledge, skills, and
attitudes required to perform the job correctly.
•This is accomplished by gathering task activities and
requirements by observation, interviews, or other
recording systems.
Job description: A formal statement of duties,
qualifications, and responsibilities associated with a
job.
Job specification: It is a statement of minimal
acceptable human qualities necessary to perform a
job satisfactorily.
•Making job description as a base, it lays down the
abilities and qualities that a worker should possess.
•The exact list of these abilities and qualities varies
from company to company.
Recruitment
Once the requirement of manpower is known; the
process of recruitment starts.
It is defined as the process of identifying the sources
for prospective candidates and to stimulate them to
apply for the jobs.
It is generating applications or applicants for specific
positions.
According to Dalton E. McFarland, it is the process of
attracting potential employees to the company.
The management should have a proper plan for
recruitment regarding quantity and quality of
personnel required and the time when it is required.
Sources of Recruitment: Internal and External
Internal: present work force of a company.
Vacancies can be filled be selecting the individuals
from amongst the existing employees of the
company.
External:
a) Re-employing former employees: Those who have
been laid off or have left for personal reasons may
be re-employed.
b) Friends and relatives of present employees: Those
employees with good personnel relations are
asked to recommend their friends and relatives.
c) Applicants at the gate (Walk ins): Unemployed
persons are called and those who are found
suitable for the existing vacancies are selected.
d) College and technical institutes (Campus
Interviews): Many companies remain in touch
with the technical institutions and colleges to
recruit young and talented persons.
e) Employment exchanges: It serves as an important
source of recruitment.
f) Advertising the vacancy: By advertising the
vacancies in the leading newspapers.
g) Labour unions: Companies with strong labour
unions, Persons are recommended for
appointment by their labour unions.
Companies must combine these sources of
recruitment as all the vacancies cannot be filled from
one single source. They must weigh the cost involved,
flexibility, quality of candidates they can provide etc.
Advantages and Disadvantages of Internal
Recruitment
Advantages:
a) Sense of security develops among the employees.
b) Employees remain loyal to the organization
c) Labour turnover is reduced
d) People are motivated to become efficient
e) Don‘t need induction training
f) Better employer-employee relationship is
established
g) Employees in the lower ranks are encouraged to
look forward to rising to higher positions.
Disadvantages:
a) It may encourage favoritism
b) It limits the choice of selection to few candidates
available in the enterprise.
c) In case of extensions-New lines, Diversifications
etc, internal candidates may prove unsuitable.
d) Internal candidates respect tradition and may not
be bringing in new ideas.
Selection
Once the recruitment activities have succeeded in
attracting sufficient numbers of relevant applicants
from the external market, the aim of the subsequent
selection activities is to identify the most suitable
applicants and persuade them to join the
organization.
Under selection process the qualification of the
candidate is compared with the job requirement.
Salient features of selection process:
•The application details (forms, C.V‘s and letters)
•The Interview
•Tests
Salient features of Selection process Applications
References
Applications Interviews
Application Short
forms listing
•One to one Selection
•Two to one
C.V.’s Letters Process •Panels
decision
Selection Tests
•Intellectual ability
•Aptitudes
•Personality
Key stages in the selection process:
a) Short Listing of applications or C.V‘s
b) Inviting the short listed candidates for interviews
c) Conducting interviews (supported by tests where
appropriate)
d) Making a decision about choice of the candidates
e) Making an attractive offer and confirming it
f) Writing to unsuccessful candidates
Proper selection process will help in placing the right
candidate at the right job. Employees too will derive
maximum job satisfaction and reap maximum wages.
Labour turnover will reduce and overall efficiency will
increase.
Placement and Induction
It is the process of placing right candidate on the
right job.
According to Dale Yoder, Placement means ―The
determination of a job to which an accepted
candidate is to be assigned and his assignment to
that job‖.
Placement is an important aspect of selection
process. Once an offer of appointment is accepted, a
contract of employment exists. The letter of
appointment must include details of terms and
conditions attached to the work: Wages, working
hours, holidays, sick pay, pension schemes, company
rules, safety regulations etc. Having considered all
the terms and conditions, the recruit now signs a
document saying he understands and will abide by
them.
Induction is the process of introducing new recruits to
an organization and explaining their role within it.
It is an important process as the impression gained
by the new employees during this period can
influence their perceptions of the organization for the
years.
a) They are given the copies of firm‘s chart and an
explanation of individual position in it.
b) Details of efficiency standards, output quality,
security arrangements and so on are discussed.
c) New entrant is informed about the rules, working
conditions, privileges and activities of the
company, what it does, how it serves the
community etc.
d) Recruits are personally welcomed by the senior
members and then introduced to the colleagues.
e) He is guided whom to contact for help if they
experience any problem.
–Entrant should know whom to approach and the
correct procedure to follow.
4.2 Nature of Staffing
The managerial function of staffing is of continuous
nature. The managers have to give attention to the
staffing needs of the organization. The staffing policy
of the organization has to be developed on the basis
of long term requirement of the organization.
4.3 Staffing Principles
4.3.1 Principle of staffing objectives
The positions provided by the organization structure must
be staffed with personnel able and willing to carry out the
assigned functions.
4.3.2 Principle of staffing
The quality of management personnel can be ensured
through proper definition of the job and its appraisal in
terms of human requirements, evaluation of candidates and
incumbents, and appropriate training.
4.3.3 Principle of job definition
Specifications for the job rest on organization requirements
andon provision for incentives to induce effective and
efficient performance of the tasks involved.
4.3.4 Principle of managerial appraisal
Performance must be appraised against the management
action required by superiors and against the standard of
adherence in practice to managerial principles.
4.3.5 Principle of open competition in
promotion
Managers should be selected from among the best available
candidates for the job, whether they are inside or outside
the enterprise.
4.3.6 Principle of management development
The objective of management development is to strengthen
existing managers. The most effective means of developing
managers is to have the task performed primarily by a
manager's superior.
4.3.7 Principle of universal development
The enterprise can tolerate only those managers who are
interested in their continuous development.
4.4 Job
What a person does at work to satisfy an employer's
needs and expectations, in exchange for pay. A job
consists of responsibilities, duties and tasks that are
defined and can be accomplished, measured, and
rated.
4.5 Job Design
Organization is the strength of any business. The
more organized and efficient the different
components in the business are, the better it
functions and produces. Breaking down tasks
associated with each component in the system has
led to the concept of job design.
Job design:
It defines and delineates the tasks, duties and
responsibilities of job. This information is then used
to write job descriptions
The organization of activities to create the optimum
level of performance.
Elements of Job Design
a) Task Analysis
 What tasks will be done
 How each task will be done.
 How the tasks fit together to form a job
b) Worker Analysis
 Determines-Capabilities the worker must possess
 Responsibilities the worker will have
c) Environmental Analysis
 Used to analyze physical environment including:
 Location
 Lighting
 Temperature
 Noise
 Ventilation
Job-design analysis starts by looking at a job with a
broad perspective and swiftly moves toward
identifying the specific activities required to do the
job. This is done for the purpose of identifying and
correcting any deficiencies that affect performance
and motivation.
The main purpose of job design (or re-design) is to
increase both employee motivation and productivity.
Increased productivity can manifest itself in various
forms. For example, the focus can be that of
improving quality and quantity of goods and services,
reduce operation costs, and/or reduce turnover and
training costs.
On the other hand, increasing employees' motivation
can be achieved through increased job satisfaction.
Satisfaction and dissatisfaction are the two factors
that affect an employee's self-esteem and opportunity
for self-actualization in the workplace.
4.6 Methods of Job Design
4.6.1 Work simplification:
It is the analysis of a job's most basic components to
restructure or redesign them to make the job more
efficient.
4.6.2 Job enlargement:
The reverse of Taylor's work simplification theory is
job enlargement. This involves enlarging a job by
horizontally increasing the number of tasks or
activities required.
• Job enlargement is doing different tasks and not
just the same thing all the time.
• It may involve taking on more duties and adds
variety to a person's job.
• Horizontal loading is often used which is, giving
people more jobs to do, that require the same
level of skill.
• The rationale behind the theory is that an
enlarged job will increase job satisfaction and
productivity.
• An easy way to understand this process is by
citing an example. In a plastic container
fabricating plant an experienced die cutter might,
under the job simplification process, cut one
shape, a circle, from one color of plastic.
In a job enlargement program this single task
would be enlarged to cutting a multitude of shapes
from a variety of colors. Perhaps the die cutter would
cut all circles from six colors first, then all triangles
from the six colors, etc.
Or perhaps the cutter would alternate colors and
shapes. In this way there would be a varied selection
of activities to keep the employee involved.
• The process of job enlargement is relatively
simple and can be applied in a variety of
situations.
• Theoretically, job enlargement will motivate
employees to increase productivity.
• The motivation will occur from the relief of
boredom, since the diversity of change is
stimulation in and of itself. Furthermore,
employees will enjoy a greater feeling of
responsibility and personal competence since
additional abilities are utilized.
• The major criticism of the approach is that little is
actually achieved by adding to a dull job more of
the same tasks.
4.6.3 JOB ENRICHMENT
 It is an increase in the number of tasks that an
employee performs and an increase in the control
over those tasks. It is associated with the design
of jobs and is an extension of job enlargement.
 It aims to create greater opportunity for individual
achievement and recognition by expanding the
task to increase not only variety but also
responsibility and accountability.
 It allows the employee to take on some
responsibilities normally delegated to
management.
 It entails more self-monitoring and more planning
and controlling decisions. The traditional
information feedback loop between superior and
subordinate is altered in job enrichment. A single
employee may follow the project from beginning
to end.
 In order for a job enrichment program to produce
positive results, worker needs and organizational
needs must be analyzed and acted upon. The
motivation effect of job enrichment is alleged to
be greater and more powerful than that of job
enlargement. Like enlargement, enrichment
lessens boredom and increases feeling of
responsibility and competence.
 It helps in Lower staff turnover and less part of the factory and the next day they may
absenteeism. But in addition, it requires more work in a different part.
creativity and judgment, the recognition of  This avoids the employee becoming bored as with
alternatives, and review and control procedures. job rotation they are doing different jobs all the
Herein lies a problem with enrichment: Some time and learning new skills.
people are not willing (or able) to take on the  Multi skilling is when people have many skills so
responsibility. Furthermore, not all jobs can or they are able to carry out many different jobs.
should be enriched. Multi skilling benefits the employer as if they are
short of staff in one area, they can move people
4.6.4 Job rotation: across.
It allows an employee to work in different Advantages:
departments or jobs in an organization to gain better
 Less absenteeism
insight into operations. This, in itself, does not modify
 Broadens experiences
or redesigns the employee's job, but allows the
 Gives broad understanding
opportunity to increase his/her skills and knowledge
about other jobs. Disadvantages:
 Increased training costs
 Reduced productivity
 Job rotation is the movement between different
 Demotivates specialists.
jobs. One day a person may be working in one
 5
Directing (incl. Decision Making)
Overview: Communications in the Organization, Motivational Theories, Leadership, Decision Making
5.1 Communications in the b) If the two parties are far off, (even beyond the
Organization: reach of telephonic range), Written
communication is the only way out.
According to Newman and Summer,‖Communication
is an exchange of facts, ideas, opinions or emotions c) Can be kept as permanent records and can be
by two or more persons.‖ referred at any time.

Communication means the process of passing d) Serves as a solid base for taking action against a
information and understanding from one person to subordinate who disobeys it.
another. Demerits:
A proper understanding of information is very a) Greater chance of being misunderstood
important aspect of communication. b) Very Time consuming
Thus, communication is not merely transmission of c) No scope for face-to-face discussion.
information form one person to another but also d) Suffers from lack of flexibility
correct interpretation and understanding of
e) Difficult to maintain secrecy about the matter
information.
communicated.
Purpose of communication
f) Poorly written messages can lead to confusion.
Communication is of vital importance in any system.
3. Non-Verbal : People communicate in different
It is needed in all the areas; few of them are as
ways like through Facial expression, postures,
below:
gestures etc.,
1. Establish and dissemination of goals
Like: smile, nod or shrug of shoulder.
2. Recruitment
Usually non verbal communication is expected to
3. Orientation support the verbal communication.
4. Evaluation /Control Process Actions often speak louder than words.
5. To teach the employees about their safety.
6. Decision process
6. Coordination
7. To project the image of the company.
Forms of communication:
1. Oral: Information is given directly, either face to
face or through telephone. E.g., Lectures,
Interviews, Conferences, etc.,
Merits:
a) Its time and money saving device.
b) As there is an element of personal touch, it is
comparatively more effective.
c) Doubts can be clarified on the spot
d) Important points can be emphasized.
e) It provides more flexibility.
Demerits:
a) Not suitable for lengthy communication
b) No record of communication
Downward Communication:
c) Sometimes, Oral communication is not taken
Communications that flow down from superior to
seriously.
subordinates are known as Downward
d) If vocal expression is poor then it can be Communications.
misunderstood and misinterpreted.
This is the way by which Superiors
2. Written communication is always in black and
• Directs the efforts of his subordinates
white which can take the form of a Reports,
Handbooks, Letter, Memo, Notes, Circulars, etc., • Defines the goals of the organization
Merits: • Tells the subordinates what is expected.
a) Suitable for lengthy communication • Administers rewards and punishment.
Written downward communications are
memorandum, Letters, Handbook, Pamphlets,
procedures e-news displays.
Oral downward communication includes speeches,
Meetings, Instructions, Grapevine.
• Downward flow of information is time consuming.
• Information often gets distorted or lost as it
comes down.
Upward Communication:
Communications that flow down from subordinates to
superior are known as upward Communications.
These generally act as feedback.
It helps the management to know how far downward
communications have been understood and carried
out.
It also helps the management to know the grievances
or suggestions of the subordinates.
• It also helps the upper management to know
specifically about the production performance,
financial data, and marketing information and so
on.
• It is primarily nondirective and usually found in
participative and democratic environment.
Horizontal Communication:
It is also known as cross-wise or lateral
communication.
They refer to the communication among the
subordinates who are working on the same level of
organization. Such communication help coordinate
the activities of different departments. It avoids the
much slower procedure of hierarchical
communication. It cuts across the chain of command.
Likewise, they also talk about people working in an
organization.
• Grapevine reaches the subordinates informally.
• It spreads speedily.
• It is mostly oral.
• It usually gets changed during the process of
passage from one person to another.
Barriers to communication
The continuous force at work which tends to distort
communication and promote disorganization are the
barriers.
Few barriers are as follows:
• Badly/poorly expressed messages: They might
omit essential contents. They might talk too fast.
They might structure the sentences awkwardly or
with wrong selection of words.
• Faulty organization: If the span of control is too
big, communication will be poor.
• Restricting communication :
• Poor retention: Employees usually retains only
50% of the communicated information.
• Distrust of communicator: Some executives
modify the original communications. Such
executives lose the trust and confidence of their
subordinates.
• Lack of planning
• Poor listening and premature evaluation
• Information Overload
Principles of Effective communication
The success of manager depends on how well he
communicates. It is a most vital management tool.
• The manager who wants to communicate must be
clear in his mind about the objective of his
communication. He should know what he wants to
communicate
• It should be in easily understandable language.
• Should be adequate and complete in all respect.
• Medium of communication must be carefully
selected.
• Message should not be mutually conflicting
• There should be good atmosphere in the
organization.( Relationship should be good)
• There should be follow up of communication to
know whether or not the receiver has understood
the message correctly.
• Communicator should not act in the way that
contradicts his message.
• There should be proper provision of training to the
executives for improving their writing skills.
5.2 Motivational Theories:
5.2.1 Direction
Direction is a vital managerial function. For effective
implementation of any administrative decision,
planning, organizing and staffing are not enough. The
manager must stimulate action by giving direction to
his subordinates.
Direction means issuance of orders and leading and
motivating subordinates as they go about executing
orders.
According to Koontz and O‘Donnell,‖ Directing is the
interpersonal aspect of managing by which
subordinates are led to understand and contribute
effectively and efficiently to the attainment of
enterprise objectives.‖
Requirements of effective direction
1. Harmony of objectives
2. Unity of command
3. Direct Supervision
4. Efficient communication
5. Follow through
5.2.2 Motivation:
It is the process of channeling a person‘s inner drives
so that he wants to accomplish the goals of the
organization.
Motivation is an act of stimulating oneself or someone
else to get a desired course of action or to get a
desired reaction.
5.2.3 Features of motivation: c) Incentives :
1. Motivation is an act of managers: Its is one of The organization may provide additional
the important aspects of management. Mangers incentives, such as medical allowance, HRA,
motivate their subordinates by providing educational allowance, recreational allowance, etc.
monetary or non-monetary incentives. d) Special incentives :
2. Motivation is a continuous process: It is not a The company may provide special incentives for
onetime process, as human needs and wants are deserving employees for giving valuable suggestion
never ending .managers have to identify the or for special efforts on part of the employee.
emerging needs of their subordinates and strive
2. NON-MONETARY INCENTIVES :
to satisfy them.
a) Status or Job title:
3. Motivation can be positive or negative: There
By providing a higher status or designation, the
can be positive motivation and negative
employee can be motivated. Employees prefer and
motivation, positive motivation can be provided
are proud of higher designations.
by giving higher pay, power, position, etc
.negative motivation implies the use of penalties, b) Appreciation and recognition :
punishment, etc. Praise and recognition for good work done by the
4. Motivation is goal oriented: Motivation is a employee would definitely improve employees‘
behavioral concept. It directs human behavior morale.
toward accomplishment of goals. If properly c) Delegation of Authority :
motivated employees put in their best efforts in Delegation of authority motivates a subordinate to
order to achieve the goals. perform the tasks with dedication and commitment.
5. Motivation is complex in nature: Different When authority is delegated, the subordinate knows
individual behave differently to a given set of that his superior has placed faith and trust in him,
incentives. and as such he may be devoted to him job.
6. Motivation is an art: It is an art to encourage d) Working condition :
and influence subordinates to put in their best Provision for better working condition, such as
efforts. Given same set of incentives, two good ventilation, proper sanitation, air conditioned
different managers may provide different results rooms, compact and convenient machine, etc.
with the same set of peoples.
e) Job Security :
7. Motivation is system oriented: It‘s a combine
Guarantee of job security or lack of fear of
effect of three groups of factors.
dismissal, etc, can also be good way of motivating
Forces operating from within an individual, i.e. employees.
his nature, needs, values, etc.
f) Job enrichment :
• Forces operating in within the organization i.e.
Job enrichment involves providing more
the organization structure, superior-
challenging tasks, and responsibilities. For instance
subordinate relationship, nature of job,
an executive who is involved in preparing and
working condition, etc.
presenting report may be asked to formulate plans.
• Forces operating in the external environment This would make job of the employee more
i.e. culture, customs, religion, etc. challenging and satisfying.
8. Motivation is different from job satisfaction: g) Workers participation :
It is an act to satisfy needs and desires. Job
Inviting the employee to be member of quality
satisfaction only results when such needs and
circle, or a committee or some other form of
desires are fulfilled. Job satisfaction is an outcome
employee participation will motivate the employee.
of motivation.
h) Good superiors :
5.2.4 Factors that motivate a person:
Presence of good and mature superiors motivates
1. Monetary factors :
the subordinates.
a) Salaries and wages:
i) Cordial relations :
Salaries and wages is one of the most important
There must be good cordial relations throughout
factors. Reasonable salaries must be paid on time.
the organization, this would motivate the employee.
While fixing salaries, the organization must take
3. Other factors :
a number of factors in to consideration:
1. Providing training to the employee.
Cost of living, companies‘ ability to pay, 2. Proper promotions and transfers.
condition prevailing in market, capability of the 3. Proper performance evaluation and feedback, etc.
employee, etc 4. Flexible working hours.
b) Bonus : 5. Proper welfare facilities.
It refers to extra payment over and above salary 5.2.5 Need and Importance of Motivation
given to an employee as an incentive. 1. Higher efficiency :
 Efficiency is the relation between returns and
costs. When people are motivated they produce best
results with lowest possible cost. This is because
optimum utilization of the available resources.
2. Reduce absenteeism :
Proper motivation reduces absenteeism. Motivated
employee feels a sense of belonging toward the
organization
3. Reduces employee turnover :
When employee are provided with job security,
good pay, incentives, etc they may not leave the
organization.
4. Improves corporate image :
Satisfied employees are more loyal to the
company. They work with a sense of dedication and
commitment. This results in better relation with the
public, shareholders, clients, and others, which in
turns develop good corporate image.
5. Good relation :
Motivation reduces labour grievances and disputes.
It results in greater compliance and acceptance of
order and instruction.
6. Improved Morale :
Morale is the state of mind and willingness to
work. Proper motivation results in improved morale of
the employees. Even the best employee may create
problem or mistakes if their morale is low.
7. Reduced wastages and breakage :
Motivated employees take utmost care in handling
machines, material and other resources. This would
reduce wastage and breakage. Thus it results in
higher benefits to the organization.
8. Reduced Accidents :
When motivated employees work with due care and
concentration there are fewer chances of accidents,
even in accident prone industries.
9. Facilitates initiative and innovation :
Satisfied employees find out ways and means to
improve the efficiency of the organization. They
provide suggestions to improve quality and to reduce
cost.
10. Other benefits :
a) Increased job satisfaction to the employees.
b) Helps to overcome resistance to change.
c) Develops positive attitude in the employees.
5.2.6 Motivational Theories
1. Maslow‘s Need Hierarchy Theory
2. Herzberg‘s Two-factor Theory
3. McClelland‘s Achievement Theory
4. Victor Vroom‘s Expectancy Theory
5. Adam‘s Equity Theory
6. Skinner‘s Behavior Modification Theory
5.2.7 Maslow’s Hierarchy Needs
Self-
actualizati
on Needs
Ego And
Esteem Needs
Social Needs
Safety or Security Needs
Physiological Needs
1. Physiological Needs: These are the basic needs
of human beings. It includes food, clothing, and
shelter. Such needs lie at the lowest level of
hierarchy. According to Maslow, such needs to be
satisfied first, and then the other needs.
2. Safety or Security Needs: These needs come
second in the hierarchy of needs. Human beings
feel the need to be protected from the danger of
accidents, loss of job, mental tensions, etc.
3. Social Needs: Human beings also feel the need
to belong to a group or community. Nobody would
prefer to live in isolation from the rest of the
society or group. They prefer to be loved and
cared by others.
4. Esteem Needs: It refers to ego needs. People
want that others should respect them. They would
also prefer praise and recognition from others.
They want others to have good opinion about
them.
5. Self-actualization Needs: These needs lie at
the highest level of the hierarchy of needs. Such
needs induce a person to accomplish something
special which others have not done. The need for
challenging jobs, or the need of highest level of
promotion comes from these needs.
Salient Features of Need Hierarchy Theory:
1. Wide range of needs: People have a wide range
needs. The employees put in their efforts to
satisfy their needs. Humans needs are multiple
and inter-related.
2. Structure of needs: Human needs are arranged
into hierarchy. There are some needs at the lower
level, and there are some other needs at the
higher level hierarchy.
3. Lower level needs to be satisfied earlier:
Lower level needs must be satisfied either wholly
or partly before higher level needs emerge. A
higher level need does not become active, if lower
level needs remain unfulfilled.
4. A satisfied need is not a motivator: It is to be
noted that that a satisfied need is not a motivator.
In other words, it ceases to influence human
behavior. It is the unsatisfied need that acts as a
motivator.
5. Inter-dependence of needs: A higher level
need arises after a lower level need is completely
satisfied. Thus, safety needs would emerge after
the physiological needs are completely satisfied.
Importance of Need Hierarchy Theory:
1. This theory enables the managers to study
human behavior in different situations, and at
different times. Accordingly, managers make an
attempt to motivate employees by providing them
monetary and non-monetary incentives.
2. The analysis of physiological needs enables the
manager to frame proper wage policies, so that
adequate wages are paid to the employees.
3. The study of security needs enables the manager
to make the subordinates permanent by giving
them Job security.
4. The analysis of social needs enable the manger to
make the employees members of quality circles,
work committees or such other participative
systems. The manger may also invite suggestions
from the subordinates.
5. Ego needs facilitates promotion of employees, or
the employees are given better status or
designations. Deserving employees may be
selected as leaders of certain work groups.
6. A study of self-fulfillment needs enables the
management to provide challenging jobs to
dynamic and innovative employees.
Critical appraisal:
Maslow’s theory is criticized on the following
grounds:
1. All Individuals needs not have the same set
of needs: It is often noticed that a good number
of individuals who are satisfied once their
physiological needs and safety needs are satisfied.
Very few people strive to fulfill self-actualization
needs.
2. Needs need not follow the pattern of
hierarchy: There are cases where needs need
not follow the pattern of hierarchy as suggested
by Maslow. There are cases of individuals who
want to fulfill their self-actualization needs even
though their primary needs may not have been
fulfilled.
3. Needs need not be the only determinant of
behavior: There are other motivating factors
rather than needs alone. This includes
experiences, expectations, perceptions, that direct
the behavior of the individuals.
4. Oversimplification of needs: Maslow has
provided an oversimplification of human needs.
5.2.8 FREDRICK HERZBERG’s TWO FACTOR
THEORY
Herzberg and his associates found substantial
evidence indicating that employees have two sets of
needs.
A. One relating to Job Satisfaction
B. The other relating to Job Motivation
Job Satisfaction Factors:
According to Herzberg, there are certain factors which
must be satisfied otherwise people will be dissatisfied
with the job. He called such factors as Hygiene
Factors.
The Hygiene factors include:
 Salaries and wages
 Bonus and other incentives
 Job security
 Policies and Administration
Job Motivation factors:
According to Herzberg, it is not enough to satisfy job
satisfying factors. The job satisfying factors may
remove job dissatisfaction, but it does not means that
people may be motivated to work. Herzberg stressed
that job motivation factors,
Motivators must be satisfied if the people are to be
motivated to perform better.
The Motivators Factors include:
 Challenging tasks
 Appreciation and recognition
 Responsibility
 Delegation
 Carrier Development
5.2.9 Maslow Theory V/s Herzberg’s Theory
1. Originality:
Maslow theory is original piece of work on human
motivation, published in1954 , in the book
―Motivation and Personality‖.
2. Categories of needs/factors: According to
Maslow there are five categories of needs-
Physiological, Security, Social, Esteem and Self-
actualization.
3. Lower needs /hygiene factors :
a) Physiological needs.
b) Safety and security needs.
c) Social needs.
Herzberg theory is a modified version of Maslow
theory. It was first published in 1957 in the book ―job
altitudes‖, and then in1959in the book titled
―Motivation to work‖.
According to Herzberg, there are two factors;
 Hygiene factors eliminate job dissatisfaction.
 Motivators bring in job satisfaction.
 Policies and administration
 Interpersonal relations.
4. Upper needs/motivators:
a) Esteems needs.
b) Self Actualization needs.
Applicability:
Maslow theory has universals application. It is
applicable to lower level mangers
Emphasis:
 It emphasizes on all five sets of needs to motivate their relationship with their work, and thereby their
people. employer. However, awareness and cognizance of the
a) Working condition. wider situation - and crucially comparison - feature
b) Salary, status, security. more strongly in Equity Theory than in many other
c) Achievement, Responsibility. earlier motivational models.
d) Recognition. The Adams' Equity Theory model therefore extends
e) Development, challenging work. beyond the individual self, and incorporates influence
Herzberg‘s theory is more applicable to managerial and comparison of other people's situations - for
level rather than at lower level of workers. example colleagues and friends - in forming a
comparative view and awareness of Equity, which
It emphasizes on the motivators factors to
commonly manifests as a sense of what is fair.
motivate people.
When people feel fairly or advantageously treated
5.2.10 McClelland’s Need for achievement they are more likely to be motivated; when they feel
Theory unfairly treated they are highly prone to feelings of
According to McClelland, three important needs are: disaffection and demotivation. The way that people
measure this sense of fairness is at the heart of
1. Need for achievement Equity Theory.
2. Need for Affiliation Equity, and thereby the motivational situation we
3. Need for Power might seek to assess using the model, is not
If a person has high Need for achievement, they will dependent on the extent to which a person believes
set high goals and usually try to do most things on reward exceeds effort, nor even necessarily on the
their own than getting them done by others. belief that reward exceeds effort at all. Rather,
Those, who have high need for Power, will try to Equity, and the sense of fairness which commonly
obtain authority and exercise power. The person will underpins motivation, is dependent on the
try to influence others and winning arguments. comparison a person makes between his or her
reward/investment ratio with the ratio enjoyed (or
Those, who have high need for Affiliation, will reflect suffered) by others considered to be in a similar
the desire to interact with people socially. Social situation.
relationship takes precedence over task
accomplishment. Adams' equity theory
According to the need of the people, organizations
can improve the selection and placement processes.

5.2.11 Victor Vroom’s Expectancy Theory:

Under conditions of free choice, an individual is
motivated towards that activity which he is most
capable of rendering and which he believes has the
highest probability of leading him to his most
preferred goal.
It recognizes the importance of various individuals‘
needs and motivations.
It is more realistic.
It harmonizes the individual goals that are different
from the organizational goals.
It is more difficult to implement /apply, despite being
logically accurate.
This model well suits in those situations only where
the employees have the freedom to make their choice
among alternative courses of action or behavior. Adams called personal efforts and rewards and
other similar 'give and take' issues at work
5.2.12 J Stacey Adams - equity theory on job respectively 'inputs' and 'outputs'.
motivation Inputs are logically what we give or put into our
John Stacey Adams, a workplace and behavioral work. Outputs are everything we take out in return.
psychologist, put forward his Equity Theory on job These terms help emphasize that what people put
motivation in 1963. There are similarities with into their work includes many factors besides working
Charles Hendy‘s extension and interpretation of hours, and that what people receive from their work
previous simpler theories of Maslow, Herzberg and includes many things aside from money.
other pioneers of workplace psychology, in that the
Adams used the term 'referent' others to
theory acknowledges that subtle and variable factors
affect each individual's assessment and perception of describe the reference points or people with
whom we compare our own situation, which is This explains for example why and how full-time
the pivotal part of the theory. employees will compare their situations and input-to-
Adams Equity Theory goes beyond - and is quite output ratios with part-time colleagues, who very
different from merely assessing effort and reward. probably earn less, however it is the ratio of input-to-
Equity Theory adds a crucial additional perspective of output - reward-to-effort - which counts, and if the
comparison with 'referent' others (people we consider part-timer is perceived to enjoy a more advantageous
in a similar situation). ratio, then so this will have a negative effect on the
full-timer' sense of Equity, and with it, their personal
Equity theory thus helps explain why pay and
motivation.
conditions alone do not determine motivation.
Remember also that words like efforts and rewards,
In terms of how the theory applies to work and
or work and pay, are an over-simplification - hence
management, we each seek a fair balance between
Adams' use of the terms inputs and outputs, which
what we put into our job and what we get out of it.
more aptly cover all aspects of what a person gives,
But how do we decide what is a fair balance?
sacrifices, tolerates, invests, etc., into their work
The answer lies in Equity Theory. Importantly we situation, and all aspects of what a person receives
arrive at our measure of fairness - Equity - by and benefits from in their work and wider career, as
comparing our balance of effort and reward, and they see it.
other factors of give and take - the ratio of input and
output - with the balance or ratio enjoyed by other inputs equity outputs
people, whom we deem to be relevant reference dependent on
points or examples ('referent' others). comparing own
ratio of
Crucially this means that Equity does not input/output
depend on our input-to-output ratio alone - it with ratios of
depends on our comparison between our ratio 'referent' others
and the ratio of others.
Inputs are People need to Outputs are
We form perceptions of what constitutes a fair ratio
typically: effort, feel that there typically all
(a balance or trade) of inputs and outputs by
loyalty, hard is a fair balance financial rewards -
comparing our own situation with other 'referents'
work, between inputs pay, salary,
(reference points or examples) in the market place as
commitment, and outputs. expenses, perks,
we see it.
skill, ability, Crucially benefits, pension
In practice this helps to explain why people are so adaptability, fairness is arrangements,
strongly affected by the situations (and views and flexibility, measured by bonus and
gossip) of colleagues, friends, partners etc., in tolerance, comparing commission - plus
establishing their own personal sense of fairness or determination, one's own intangibles -
equity in their work situations. heart and soul, balance or ratio recognition,
Adams' Equity Theory is therefore a far more enthusiasm, trust between inputs reputation, praise
complex and sophisticated motivational model in our boss and and outputs, and thanks,
than merely assessing effort (inputs) and superiors, support with the ratio interest,
reward (outputs). of colleagues and enjoyed or responsibility,
The actual sense of equity or fairness (or inequity or subordinates, endured by stimulus, travel,
unfairness) within Equity Theory is arrived at only personal sacrifice, relevant training,
after incorporating a comparison between our own etc. ('referent') development,
input and output ratio with the input and output others. sense of
ratios that we see or believe to be experienced or achievement and
enjoyed by others in similar situations. advancement,
promotion, etc.
This comparative aspect of Equity Theory provides a
far more fluid and dynamic appreciation of motivation 5.3 Leadership
than typically arises in motivational theories and Leadership is an important aspect of managing.
models based on individual circumstance alone.
The essence of leadership is followership. It is the
For example, Equity Theory explains why people can willingness of people to follow that makes a person a
be happy and motivated by their situation one day, leader. People tend to follow those whom they see as
and yet with no change to their terms and working providing a means of achieving their own desires,
conditions can be made very unhappy and wants and needs.
demotivated, if they learn for example that a
Leadership is defined as influence, i.e., the art or
colleague (or worse an entire group) is enjoying a
process of influencing people so that they will strive
better reward-to-effort ratio.
willingly and enthusiastically towards the
It also explains why giving one person a promotion or achievement of group goals. The success of industrial
pay-raise can have a demotivating effect on others. enterprise depends a lot upon the quality of its
Note also, importantly, that what matters is leadership.
the ratio, not the amount of effort or reward per se.
According to Peter Drucker,‖ Leadership is the lifting 1. Mental and physical energy
of man‘s visions to higher sights, the raising of man‘s 2. Emotional stability
performance to a higher standard, the building of 3. Knowledge of human relationship
man‘s personality beyond its normal limitations‖. 4. Empathy or social sensitivity
According to Alford and Beatty, ―Leadership is the 5. Objectivity
ability to secure desirable actions from a group of 6. Personal motivation
followers voluntarily without the use of coercion.‖ 7. Communication skill
8. Teaching skill
According to Keith Davis,‖ leadership is ability to
9. Social skill
persuade others to seek defined objectives
10. Technical competence
enthusiastically.
Fayol, explained these trait as
5.3.1 Difference between Leader and Manager 1. Good health
2. Physical fitness
Leader Manager
3. Intelligence and mental vigor
1. Leaders have 1. Manager always 4. Moral qualities
informal power has some formal 5. Knowledge and managerial ability
(i.e., ability to authority Ordway Tead specified these leadership traits in the
influence. 2. A manager is ten qualities
2. A person appointed
1. Physical and Nervous energy
emerges as a 3. Manager seeks
2. Sense of purpose and direction
Leader. those objectives
3. Enthusiasm
3. Generally the which his
4. Friendliness and affection
objectives of subordinates do
5. Integrity
subordinates are not regard as
6. Technical mastery
the their own.
7. Decisiveness
objectives/goals 4. Managers may
8. Intelligence
of leader. not have
9. Teaching skill and,
4. Leaders imply followers.
10. Faith
existence of
Limitations of Traits Approach:
followers.
Leader‘s traits have not been a very fruitful approach
to explain the leadership.
5.3.2 DIFFERENT APPROACHES TO LEADERSHIP 1. Not all leaders possess all the traits.
2. It is difficult to define traits and also to measure
There have been many researches on the concept of
the traits in each leader.
the leadership and its effectiveness in the
3. This approach over-looks the situational qualities
organization. The basic question which is under the
of leader.
consideration over here is, ―What characteristic does
4. It implies that training cannot make a man a
a good leader possess?‖ And
leader.
―What is the most effective leadership style?‖
Generally, there are three basic and important 5.3.2.2 BEHAVIOURAL APPROACH
theories: This theory tries to find out the answer to the
• Trait Approaches question ―What determines the leadership?‖ This
• Behavioral Approaches approach emphasizes what leaders do actually on the
job and the relationship of this behavior to leader
• Contingency Approaches
effectiveness.
5.3.2.1 TRAIT APPROACHES
Prominent in the behavioral approach is the notion
This theory of leadership by the name itself says that that leaders are not born but can be trained.
it is concerned more with the TRAIT (personal
Leadership behavior can be studied on three points:
abilities) of the leader.
1. Motivation
Ralph M. Stogdill identified specific traits related to
leadership: 2. Authority
1. Few Physical Traits (Energy, Appearance, height), 3. Supervision
2. Intelligence and ability traits, 1. Motivation: From the point of view of Motivation
3. Personality traits (Adaptability, Aggressiveness, leadership behavior can be negative or positive.
enthusiasm and self confidence) , • In positive behavior, leader‘s emphasis is on
4. some task related traits (such as persistence, rewards to motivate the subordinates.
achievement drive and initiative),
• In negative behavior, leader‘s emphasis is on
5. and some social traits ( cooperativeness ,
penalties and punishments.
Interpersonal skills, administrative ability)
George R. Terry found that the leader must have the 2. From the point of view of Authority, leadership
following traits: behavior can be
 • Autocratic
• Democratic
• Free Rein
a) Autocratic Leadership:
In this type of leadership,
1. The leader alone determines policies and
makes plans.
2. He orders others what to do and how to do.
3. It demands strict obedience and relies on
power.
4. It can be authoritarian as well as benevolent.
5. In Authoritarian style one remains in constant
fear. Where as in Benevolent style one
remains under gratitude.
b) Democratic Leadership: Also known as
participative or person oriented leadership.
1. In this type of leadership the entire group is
involved in and accepts responsibility for goal
setting and achievement
2. Subordinates have considerable amount of
freedom of action
3. Leader shows more concern for people than
for production.
4. The task of leader is to encourage constructive
inter-relationship among employees and to
reduce intra-group conflicts.
c) Free Rein :
In this type of leadership, leader exercises
absolutely no control.
He only provides the information, materials and
facilities to his men to enable his men to
accomplish the objectives.
This style of leadership can be a disaster if he
does not know the competence and integrity of
his people and their ability to handle the kind of
freedom.
3. From the point of view of supervision, Leadership
style can be
• Employee oriented: cares more for the welfare
of employees than for production.
• Production oriented: Cares more for
production than for the welfare of his
subordinates.
5.3.2.3 Contingency Approach
Fiedler‘s suggested this approach to leadership.
The theory holds that people become leaders not only
because of the attributes of their personalities but
also because of various situational factors and the
interactions between leaders and group members.
There is no one best style of the leadership under all
conditions. Effective leadership style varies within the
situation. The effective leader himself should study
the situation and should find out which style would be
most appropriate to the given circumstances.
Hence,
―A SIMPLE COOK-BOOK APPROACH FOR SELECTING
THE BEST LEADERSHIP STYLE DOES NOT EXIST‖
5.4 Decision Making
Decision Making is an essential part of management.
A manager has to take many important series of
decisions. Like, where to invest, what to do about
employees, who are always late, where should the
firm‘s new warehouse be built, etc. Hundreds of
decisions are made by the managers daily,
consciously and subconsciously. Decision Making is
choosing among the alternatives, keeping in mind the
goal/purpose of decision.
It permeates through all managerial functions like
Planning, Organizing, Direction and Control.
1. Planning-Objectives and policies are laid down
which requires decisions making.
2. Organizing - Deciding the structure of the
organization, nature and form of organization,
division of work, delegation of authority, fixing of
responsibility, etc. involves decision making.
3. Directing – Deciding on the instructions and
orders to be given.
4. Controlling – Deciding on the performance
standards for control, strategic control points, and
procedure for control.
5.4.1 Types of Decisions:
5.4.1.1 Programmed and Non Programme
1. Programmed – Decisions that are made in
accordance with some policy, rule or procedure.
Generally repetitive, routine and easiest for the
managers to make.
e.g.: Deciding on salary of employees who have
been ill, recording office supplies etc.,
2. Non-programmed – Non routine decisions and
non repetitive.
No definite rule or procedure exists
If the problem has not been arisen before or if
deserves a custom-tailored treatment, it must be
handled by Non Programmed Decision.
In programmed decisions two managers will reach
the same result. But in non programmed decisions
two managers will probably end up with different
decisions.
Hence in non programmed decision making we can
differentiate good managers from the bad ones.
5.4.1.2 Major and Minor Decisions
It depends on the importance of the decision.
The relative importance of the decisions can be
determined by-
1. For how long in the future will the decision
commit the company? A decision which has
long range impact. Like, Replacement of men by
machinery or diversification of the existing
product line, can be major decisions. Decision on
 the storage of raw material for a particular period,
can be considered as minor decisions.
2. Impact of the decision on other functional areas-If
it affects only one functional area then the
decision is minor else it‘s a major decision.
3. Recurrence of decision – Decisions which are rare
and has not taken place before are usually major
decisions and are taken at higher levels. Decisions
which recur very often become minor decisions as
they are repetitive and are taken at lower levels.
4. Qualitative factor that enter the decision -
Decision that involves certain subjective factors
are important decisions. Subjective factors are –
Ethics, Principles of conduct, values, social and
political beliefs etc.
5.4.1.3 Routine and Strategic Decisions
Routine, tactical, or housekeeping decisions are those
which are supportive rather than central to the
organization‘s operations. They are taken to achieve
the efficiency in the ongoing activities. They are
related to present activities.
Done for short term
e.g. Provision for air conditioning, better lighting,
parking facilities, cafeteria service etc.
Strategic Decisions are made by higher level
managers and requires large funds and lengthy
deliberations (discussions)
Done for long term
e.g. Decision for automation of the plant, Changing
product line, lowering the price of the product.
5.4.1.4 Individual and Group decisions
Individual decisions are taken where
a) Mostly routine kind of activity is involved.
b) Analysis of variables is easy.
c) Definite procedures are known to deal with the
problem.
Group decisions –
These are important and strategic decisions affecting
nearly the entire organization. The managers of the
departments and the affected people are involved.
Advantages of Group Decisions
a) Increased acceptance by those affected – Because
the affected are also involved in the decision
making, they know the problems involved and this
will lead to increased acceptance by them.
b) Easy implementation of the decision – Because
there will be more coordination from all those
involved so this will lead to fast and easy
implementation of the decision.
c) Easier communication – Less communication
required to implement the decision because all of
them were involved in the decision part and most
of the communication part was taken care at
decision making time only.
d) More information processed – because many
people are involved there will be more points
discussed to get the required decision. So we get
better decisions as views of the concerned are
involved.
Disadvantages of group decision making
1. Longer durations required for decisions
2. Group can be indecisive – It may happen that no
decisions are made as most of the time gets
wasted in blaming each other.
3. Groups can compromise – Peer pressure can lead
to conformity of decisions which are far from the
ideal one.
4. Groups can be dominated – Influential people can
decide the course of decision making, leading to
decisions making where most of the people
involved are unhappy.
5.4.2 Approaches to tackle disadvantages of group
decision making
5.4.2.1 Nominal Group technique:
Members first silently and independently generate
their ideas on the problem in writing. They then
present their ideas to the group without
discussion. All this ideas are summarized on a
black board. The recorded ideas are discussed for
the purpose of clarification and evaluation. Finally
each member silently gives his individual rating to
each view through voting and the outcome of the
voting decides the group decision.
5.4.2.2 Delphi Technique:
This technique is used for a group which is
dispersed geographically.
Questionnaires are sent to the group
members.
After receiving the answers from all the group
members the feedback report along with the
newly developed questionnaires are sent to all the
group members for further probing on the
response for the first questionnaire.
After receiving the response from all the group
members a group decision is taken.
5.4.2.3 Steps in Rational Decision Making
Rational Decision Making is that decision which when
chosen leads to attainment of the desired ends.
1. Recognizing the problems
2. Deciding priorities among problems
3. Diagnosing the problem.
4. Developing alternative solutions or courses of
action
5. Measuring and comparing the consequences of
alternative solutions.
6. Converting the decision into effective action
and follow-up of action.
 6
Controlling
Overview: Concepts and Principle of Controlling, Basis Control Processes, Open Loop, Closed Loop and Feed
forward Control Mechanisms, Essentials of a good control system
6.1 Controlling
Control is a primary management task. The main
object of control is to bring to light the variations
between the standards set and performance, and
then to take necessary steps to prevent the
occurrence of such variations in future. It is the
process of ensuring the operations proceed according
to plan.
 According to Mockler ―Management control can be
defined as a systematic effort by business
management to compare performance to
predetermined standards, plans, or objectives, in
order to determine whether performance is in line
with these standards and presumably in order to
take any remedial action required to see that
human and other corporate resources are being
used in the most effective and efficient way
possible in achieving corporate objectives.‖
 According to George R. Terry,‖Controlling is
determining what is being accomplished i.e.,
evaluating the performance and if necessary,
applying corrective measures so that the
performance takes place according to the plans.‖
 According to E.F.L.Brech,‖Control is checking
current performance against predetermined
standards contained in the plan, with a view to
ensuring adequate progress and satisfactory
performance.‖
 Control activities seek to keep the system output
in line with the original plan, or to enable the
system to change safely to meet the new
conditions.
 Control is necessary because unpredictable
disturbances occur and cause actual results to
deviate from the expected or planned results.
Disturbances can range from minor matters such as a
short delay in the delivery of raw materials, to
disturbances which threaten the organization itself
e.g., entry of new competitors in the market.
6.2 Purpose or need for control
1. To measure progress: There is a close link
between planning and controlling the
organization‘s operations.
In planning phase, we establish the goals and
objectives of the organization and the methods for
attaining them.
In controlling phase, measurement of progress
towards the goal is done.
As Henri Fayol says‖ In an undertaking, control
consists in verifying whether everything occurs in
conformity with the plan adopted, the instructions
issued and principle established.‖
2. To uncover deviation: Once the organization is
set into motion towards its objectives, events
occur that tends to pull it ―off target‖.
A good control system is one that effects the
corrections to the organization before the
deviations become serious.
Events which pulls the organization ―off target‖
are:
• Change: It is an integral part of any organization‘s
environment. The control function enables
managers to detect changes that are affecting
their organization‘s products or services. Like :
Emergence of new product, Discovery of new raw
materials, Markets shift etc.
• Complexity: Today‘s vast and complex
organizations, with geographically separated
plants and decentralized operations, make control
a necessity.
Diversified product lines need to be watched
closely to ensure that quality and profitability are
being maintained.
Organization‘s various markets- Domestic and
Foreign require close monitoring.
• Mistakes: Managers and their subordinates often
commit mistakes like- Wrong part are ordered,
Wrong pricing decisions are made, problems are
diagnosed incorrectly, etc.
A control system enables a manger to catch these
mistakes before they become serious.
• Delegation: By delegating the authority to
subordinates, their own responsibility is not
reduced.
By implementing some control system only, can a
superior determine whether his subordinates are
performing or not.
3. To indicate corrective action: Controls are
needed to indicate corrective actions, so that the
system can comply with the set goals/objectives.
6.3 Steps in Control Process:
Three steps involved in control process are:
1. Establishing Standards
2. Measuring and comparing actual results
against standards.
 3. Taking corrective action.
1. Establishing Standards: The first step is to
establish Standards against which results can be
measured.
The entire operation cannot be observed, thus
each organization must develop some key areas
for the purpose of control. Some Key areas could
be: Market position, Profitability, Productivity,
Personnel Development, Employee attitudes etc.
The standards must be defined in quantitative
terms as far as possible. It should not be
expressed in general terms like: ―Cost should be
reduced‖ or ―Orders should be executed quickly‖.
Instead it should be ―Overheads must be reduced
by 12 percent‖. Or ―All orders must be executed
within three working days‖.
Standards must be flexible to adapt to changing
conditions.
Types of standards
1. Physical standards: Labour hours per unit of
output, units of production per machine hour.
Etc
2. Cost standards: direct and indirect cost per
unit produced, material cost per unit, selling
cost per unit of sale etc.
3. Revenue standards: Average sale per
customer, sales per capita in the market area.
etc.
4. Capital Standards: Rate of return on capital
invested, ratio of current assets to current
liabilities, etc.
5. Intangible standards: Competence of
managers and employees, success of a public
relation programme, etc.
Standards must emphasize on the achievement of
results rather than on conforming to the rules and
methods.
2. Measuring and comparing actual results
against standards: Measurement of
performance can be done by personal observation
(appraisal), by a study of various summaries of
figures, reports, charts and statements. With well
organized control system, the comparisons of
actual figures with the standard figures become
easier. Comparisons reveal variations. Few
variations are desirable like -output above
standard or expenses below standard. But other
variations are not desirable like variation/change
in the delivery schedule agreed with the
customer.
3. Taking corrective action: After comparing the
actual performance with the prescribed standards
and finding the deviations, the next step is to
correct these deviations. Corrective actions should
be taken without wasting time, so that normal
position can be restored quickly. Manager should
be able to determine the correct cause for
deviation.
Cause could be : Poor and inadequate machinery
and equipment, defective selection of personnel,
defective system of training, defective system of
remuneration, inadequate communication system,
lack of motivation of subordinates, etc. Based on
the cause, proper remedial measure should be
taken.
Control system would be most effective when the
time lag between the output and corrective action
is as short as possible.
Two factors which influence the speed of control
are – Organization structure and reporting period.
If an item of information has to pass through
several levels of the organization‘s hierarchy,
before effective action can be taken, then there
will be delays.
6.4 Types of Control Methods
Two basic types are: Future oriented and past
oriented controls.
6.5 Past –oriented:
(Also known as ‗Post-action Controls)
Measures give results after the process. They
examine what has happened in the past in a
particular period. E.g., Inspection of goods and
services, school grade reports, accounting reports
etc. This method is used to plan future behavior in
the light of past errors or successes. It also provides
basis for rewarding, training, disciplining, or
promoting individuals.
Types of Past oriented Control methods
6.5.1 Closed loop system:
In such systems the feedback, based on the output
is measured and is fed back to make the appropriate
alternations to the input. Thus forms a close loop.
Most of the mechanical systems like- Thermostats, in
heating systems, are close loop systems.
Control as a closed loop system
Identification
Input Process or
Deviations
(Man, operation Output
Of
Money & Towards (Goal)
Materials) goals
Feedback
Programme of
Analysis of
Corrective
Causes of
Action and its
Implementation
deviations
In business, stock control system with planned level
of stock is a close system. The actual levels are
measured and compared with the plan and
adjustments made to the stock replenishment order
quantities to bring stock levels in line with the plan.
• Most of the operational and tactical level systems
are closed systems.
• This type of control system is best suited to more
stable conditions, where existing plans and
 targets are appropriate and where clear cut
quantifiable standards are set, against which
results of the output can be compared.
6.5.2 Open loop systems:
• No feedback loop exists and control is external to
the system and not an integral part of it.
• Control action is not automatic and may be made
without monitoring the output of the system.
E.g., Immersion heater without an automatic
thermostat
Control is therefore not an integral part and heater
must be 1externally controlled by switching it on and
off at appropriate times.
At operational level, such systems would be rare and
also it would be dangerous, if some form of automatic
control built in control is not applied.
At higher level, where environment is unpredictable
or turbulent and management intervention becomes
essential, an open system can be used.
6.6 Future –Oriented (Feed forward
Control Mechanisms):
Also known as feed-forward controls or steering
controls.
It measures the results during the process so that
action can be taken before the job is done or the
period is over. It serves as a warning –posts to direct
attention rather than to evaluate the
outcomes/results. e.g., Cash flow and fund flow
analysis, Network planning etc. These two controls
(past oriented and future oriented) are not alternative
to each other. Most organizations use both these
control systems.
Examples of feed forward: Company hearing of a
possible industrial dispute would make alternative
production arrangements, such as engaging non-
union labour, in- advance withdrawal of labour.
6.7 Essentials of effective control
systems /Comparison of Past
oriented and Future oriented
controls
1. Suitable: The control system should be
appropriate to the nature and needs of the
activity. Controls used in sales department will be
different from those used in finance and
personnel.
2. Timely and forward looking: The control
system should be such that it should enable the
subordinates to inform their superiors
expeditiously about the threatened deviations and
failures.
• The feedback system should be as short and quick
as possible. So that, the managers can take
immediate corrective actions, before the problem
becomes too serious.
• Although, generally managers prefer a forecast of
what might occur, the next week or next month,
to avoid the problem itself. E.g., cash control
forecast tells about cash needs in advance, thus
enables the manager can take corrective actions
immediately.
3. Objective and Comprehension: The control
system should be both objective and
understandable.
• Objectivity: It specifies that the results must be
clear and definite.
• Understandable : Avoidance of red-tapeism, and
providing direct access to information to the
employees
4. Flexible: The control system should be flexible to
suit the needs of any change in the environment.
5. Economical: The benefit derived from a control
system should be more than the cost involved in
implementing it.
• To spend a dollar to save 99cents is not control,
rather its wastage.
6. Prescriptive and Operational: The control
system must not only detect deviations from
standards but should also provide solutions, in
order to be effective.
• It must disclose where failures are occurring, who
is responsible for them, and what should be done
about them.
7. Acceptable to organization members: When
standards are set unilaterally by upper level
managers, there is a danger that employees will
regard those standards as unreasonable and
unrealistic.
8. Reveal exceptions at strategic points: Small
exceptions in certain areas have greater
significance, than larger deviations in other areas.
E.g., 5% deviation from the standard in office
labour cost is more important than 20% from the
standard in cost of output.
9. Motivate people to high performance: A
control system is most effective if it motivates
people to high performance.
• Mostly people respond to challenge. To meet with
tough standards, will provide greater sense of
accomplishment than to meet easy standards.
10. Should not lead to less attention to other
aspects: Control system is only one phase of
 operation and thus other aspects of operations 6.8 Control in an organization
should not suffer. Management control is concerned with present
e.g., if controls put pressure to increase the performance and future objectives and it can be
output then, the quality of output, prevention of divided into several functional areas:
wastes, care of equipment etc., should not be 1. Financial Management control
neglected.
a) Working capital management – cash flow, debtors
Comparison of Past oriented and Future and stocks.
oriented controls:
b) Formulation, monitoring, evaluation of financial
and operating budgets.
Inputs Process Outputs c) Assessment of accounting operational controls.
d) Capital expenditure decisions for replacement and
enhancement.
2. Production Management control
Future-oriented Past-oriented 3. Research and Development Management control
Control Control 4. Marketing Management control
5. Personnel Management Control includes:
Feedback a) Recruitment, interviewing, and hiring
Feed Forward b) Welfare activities
c) Health and safety
d) Assessment of personnel operational controls.
e) Remuneration and compensation schemes.
 7
Production and Operations Management
Overview: Production planning, aggregate planning, MRP, Selective inventory control, EOQ and ordering
systems, Production methods - job, batch, flow, continuous production; CAM and FMS, Quality control- Quality
Costs, Statistical Quality Control; Control charts and their uses

7.1 Production and Operations energy deposits)

Management Hospital Doctors, Nurses, Health services,
Staff healthy patients
Production management, in particular, is concerned
Equipments,
with the provision of goods. The production function
facilities, energy
of an organization exists in order to make available
goods or services required by the customers. It is the Universit Staff, equipment, Educated
y facilities knowledge Students,
central part of the manufacturing process. Its
Research
responsibility is to plan, resource and control the
processes involved in converting raw materials and
components into the finished goods, required to In a manufacturing Organization, organization
satisfy the needs and wants of the organization‘s structure of the production function is as follows:
existing and potential customers.
Operations/Production management is the Production Director
management of a system which provides goods or
Manager, Technical
services to or for a customer, and involves the Manufac Manager Maintenanc
Production
design, planning and control of the system. turing
(Productio e
Manager Planning
n
Operation management as a transformation And control Engineer)
Manager

process:
An organization, whether it is a manufacturing, Production Scheduling
Assembly Product

Work study Value

Research Design
Materials planning

Machinery Plant
ordersProgressing

Quality Control
Manufacturing

Stores/inventory

Development
Quality control
retailer, educational establishment, hospital, or even
Inspection*
Processing

Equipment
Purchasing

Buildings
analysis
Works
government agency, exists to satisfy the needs of its
customers or consumers, i.e., those who are the
recipients of what is produced or services carried out
by the organization.
Thus an operation can be defined as ―A process,
method or series of acts especially of a practical
nature.‖ The above chart can defer depending upon the
type of production, the relative standing of group
Production Management such as quality control, purchasing and maintenance,
and the extent to which sophisticated computerized
Inputs systems are in operation.
Energy Transformation Quality control is at three sub units:
Goods
Materials (Conversion) or • Manufacturing (as shopfloor inspection),
Labour Process • Production Planning and Control (as quality
Services
Capital processes, materials and purchased items)
Information
• Production engineering (Responsible for quality
of design and with overall responsibility for
Quality Control standards in production).
Feedback Information for
Outside Control of process inputs Manufacturing Manager: Responsible for
Information And process technology manufacturing and assembly processes. He works in
accordance with the schedules submitted by the
production planning and control. He is also
responsible for recruitment, training, rewarding and
retention of employees.
Operatio Inputs Output
Manager, Production planning and control:
n
Responsible for providing framework and impetus for
Bank Cashiers, Staff, Financial production.
Computer Services
Equipment, facilities, (Loans, Technical Manager or production Engineer: They
provides link between marketing and production, so
that products can be produced according to the needs
and wants of the customer. E.g., Development and
application of computers in the production process.
Maintenance Manager: Responsible for the overall
maintenance of all machinery, equipments etc.
Thus, the production function is to provide goods
required by its customers, in a way that it meets with
the profit, growth and other objectives of an
organization.
7.2 Production Planning
Modern production processes are complex and costly.
Machines, Computers, Materials of all kinds, and
labour, all have to be blended together, to enable the
production system, to carry out its operations in a
cost –effective way. Thus, production process
requires careful planning and controlling.
Elements of production planning and control system
are:
1. Translate the customer’s requirements, as defined
by final pre-production design and preliminary
sales forecasts, into production instructions.
2. Prepare production schedules and programmes:
Schedules are basically timetables. They are
prepared in detail where the sequence of
operations and its priorities are specified. The
main objective of preparing schedule is to ensure
that the work is completed on time and within
budgeted costs.
3. Plan the supply of materials, parts, components
etc.: It involves purchasing, stock control, and
MRP(Material Resources Planning)
4. Plan availability of machines, specify jigs, tools
etc.: It includes availability, capacity and loading
of machines. Carefully planned loading can reduce
the material waiting time, Reduces idle machine
time. (Plans refers to short term plans - for period
of, from one week – one month)
5. Ensure labour requirements: It involves detailing
of the number and types of employees required.
It also involves payment and incentive, to be paid
to each employee. It also involves providing
training to labours, in machine operation and
safety, if a new machine or process is to be used.
6. Set production targets
7. Maintain stock and purchasing records
8. Progress orders through the factory: It is basically
a monitoring and reporting task, which also
involves some ‗chasing up ‗of progress in
situations where orders have fallen behind
schedule.
9. Liaise with the marketing department: It is
important to ensure that the productive effort is
meeting the customer‘s needs. It involves,
informing the customers about the difficulties
during production process and to intimate them
the difference in the quality and deviation from
the standards, to the customers.
10. Raise final production documents (Delivery notes,
invoices etc): The output of the production system
should be accounted for, invoiced and delivered to
the customers. Thus, the final step is to ensure
that the appropriate paperwork is available and
correctly completed.
Although, the planning process is a very complex
task, but most of the decisions are programmable
types of decisions. Therefore, its possible to apply
computer to the process. Computers can undertake
masses of calculations very rapidly and also can
perform separate operations at the same time and
also are able to store huge amount of information.
Benefits of computer applications in preparing and
maintaining schedules, stock levels, Progress
documents etc. are:
• Effective control over the processes concerned.
• Ability to adapt quickly to avoid difficulties.
• Ability to take advantage of opportunities arising
from the speed and accuracy of feedback
information received from the computer.
7.3 Aggregate Planning
It is attempting to match the supply of and demand
for a product or service by determining the
appropriate quantities and timing of inputs,
transformation, and outputs. Decisions made on
production, staffing, inventory and backorder levels.
7.3.1 Characteristics of aggregate planning
• Looks at aggregate product demand
• Looks at aggregate resource quantities.
• Possible to influence both supply and demand by
adjusting production rates, workforce levels,
inventory levels, etc., but facilities cannot be
expanded.
7.3.2 Production Plan (manufacturing
aggregate plan)
A managerial statement of the period-by-period
(time-phased) production rates, work-force levels,
and inventory investment, given customer
requirements and capacity limitations.
7.3.3 Staffing Plan (service aggregate plan)
It is a managerial statement of the period-by-period
staff sizes and labour-related capacities, given
customer requirements and capacity limitations.
7.3.4 Objectives of Aggregate Planning
Objective of aggregate planning is to minimize total
cost over the planning horizon.
Other objectives that should be considered are:
• maximize customer service
• minimize inventory investment
• minimize changes in workforce levels
• minimize changes in production rates
• maximize utilization of plant and equipment
7.4 Purchasing
The primary responsibility of Purchasing/procurement
department is to secure sufficient and suitable raw
materials, components, other goods, and services, to
ensure that the manufacturing process is fully
supplied with all its materials, and also its cost
effective.
Activities of purchase department:
1. Appraisal and selection of suppliers
2. Collating up-to-date information about suppliers,
prices, distribution methods etc.
3. Purchasing goods and services at prices which
represent the best value to the business in the
long term.
4. Maintenance of adequate stock/inventory levels.
5. Establishing and maintaining effective working
relationships with relevant departments
(Production, Marketing and Finance)
6. Developing effective links with existing suppliers
and maintaining good relationships with potentials
suppliers and with competitors.
Purchasing decisions are often risky and involves
considerable costs. The purchase manager has to
exercise his responsibilities in close collaboration with
other colleagues. Generally, Purchasing decisions can
only takes place after due agreement with financial,
production or marketing colleagues.
7.4.1 Definitions:
Usage (Output) reduces stocks over a period of
time. Such usage will invariably absorb some of the
buffer stock unless planned deliveries are made on
time.
Buffer Stocks are reserved stocks held for
emergency shortages.
Lead Time is the time between orders placed and
delivery made. As soon as the delivery is made stock
shoots up again, until further usage reduce them.
7.4.2 Steps involved in purchasing
1. Receiving requisition from appropriate authority
2. Selection of suppliers to negotiate quantity,
quality, price and delivery of goods.
3. On successful completion of the above point, an
order with the supplier is placed. The order can be
a contract for over a period of time, it could be
spot or one-off (small order).
4. Maintenance of records of orders made, orders
fulfilled, delivery dates, invoices etc.
5. Arrangements for the originating requisition either
directly from supplier or via stores and amend
stock/delivery records as appropriate.
Purchasing mix
In purchasing material goods, issue of quantity,
quality, price and delivery are crucial in several
respects. All these issues are described by key term
―Purchasing Mix‖.
1. Quantity: Quantity of goods to be ordered and
time at which they should be ordered are
important. With insufficient quantities at a
particular time, will cause costly delays in
production. Whereas, on other hand, with larger
the quantity of goods ordered, the more cost will
be required, to maintain the temporarily idle
stock. Thus, an optimum way of balancing the
costs of insufficient stock against the costs of
holding stock (tied-up capital, storage space,
insurance, damage etc) is essential.
There are various techniques used by operation
research scientists to work out the economic order
quantity (EOQ) for each item and to set the
optimum re-order levels too. The quantity to be
ordered as well as the time to place an order is
also dedicated by
• the future supply (effected due to economic or
political pressures)
• Favorable trends in short term prices.
Economic Order Quantity : The optimum
quantity of each product that must be ordered to
balance the inventory holding costs against the
order processing costs; holding costs increase
with more inventory, while order processing costs
decrease.
2. Quality: The quality of goods purchased should
be
 Suitable to the manufacturing process
 Suitable to the needs /wants of a customer.
To decide the quality of a raw materials /goods,
the purchasing department has to work closely
with both production and marketing department.
Inspection of goods received is vital to check that
the supplier is fulfilling the order to the correct
specification.
3. Price: The purchasing department must aim to
the price that best suits the organization by taking
into account quality, delivery and relative urgency
of goods etc. This may not always be the lowest
price available, but which represents the best
value over a period of time.
4. Delivery: One of the factors which purchasing
department must consider is the appraisal and
selection of suppliers, to ensure reliable delivery
of goods.
• The lead time between an order and a delivery is
important aspect of stock control. where lead time
certain, stock control becomes easier, as
compared with uncertain lead time.
• It not only affects the stock, but also production.
7.5 MRP- Material Requirement
Planning
7.5.1 Material Requirements Planning - (MRP)
It is a system for effectively managing material
requirements in a manufacturing process. It is an
integral production process designed to ensure that
materials (raw materials, components, sub-
assemblies and parts) are available when required. It
makes recommendations to reorder materials.
MRP begins with the items listed on the Master
Production Schedule and determines the quantity of
all components and materials required to fabricate
(put together) those items and the date that the
components and material are required. MRP is
accomplished by exploding the bill of material,
adjusting for inventory quantities on hand or on order
and offsetting the net requirements by the
appropriate lead times. Information systems have
long been an important part of the manufacturing
environment.
MRP is a set of techniques that uses bill of material
data, inventory data, and the master production
schedule to calculate requirements for materials. By
adopting MRP, manufacturing plants hope to achieve
a relatively low level of stocks (inventory), a
reduction in warehousing and associated costs, and a
faster turnaround time for finished goods.
7.5.2 Just-in-time Systems (JIT)
It represents a good step forward from MRP. The JIT
aims to coordinate the supply of materials so that
they arrive just when they are needed –neither
before nor afterwards, but just in time. This approach
to material planning and inventory management has
been used with great success by a number of large
Japanese Companies.
Theoretically, the system should maintain no stock
(Buffer stocks/reserves) but in practice, minimum
stock should be held.
An analogy to JIT can be Electric Locomotives. And of
MRP – Steam Locomotives
JIT systems require total commitment from the
workforce and its suppliers. There is no room for
errors such as faulty components, delays in delivery
etc.
This approach is based on twin assumptions:
1. Uninterrupted production flows
2. Fully acceptable quality of materials.
It works best in stable production environment
It relies heavily on the efficiency of suppliers and
their dedication to total quality.
7.5.2.1 Benefits of JIT are:
1. Simplified planning and scheduling.
2. Reduction in manufacturing time.
3. Increase equipment utilization.
4. Reduce scrap and wastage
5. Challenge management to consider why buffer
stocks are required and thus to analyze the
production process with a view to making
improvements.
6. Improved quality
This system is basically inflexible. It is not easy to
implement.
7.6 Inventory Control
Inventory of an organization is its idle resources at
any particular point in time. In any manufacturing
organization the inventory can be describe as:
• Raw materials and purchased items
• Work in Progress (Semi finished goods/sub-
assemblies etc): Goods in intermediate stages of
production.
• Finished goods.
The reason for maintaining inventory levels are:
1. Raw Material:
a) To take advantage of bulk buying
b) To smooth out irregularities in supply
c) To ensure internal supply to production.
2. Work in progress:
a) To act as buffer between production processes.
3. Finished goods
a) To ensure availability of goods to meet demand
b) To smooth out fluctuations in demand.
Two basic questions are:
• How much to order to replenish stocks?
• When to order?
O.R scientist applies certain mathematical and
statistical formulae to determine, when to place an
order and how much stock should be maintained.
7.7 Economic Order quantity Model
(EOQ Model)
To determine Order Quantity we can use EOQ Model.
We need to know
a) Ordering cost i.e., Expenses on the following:
Requisition, preparation of purchase order,
administration cost, transportation cost etc
b) Holding cost: Expenses on the following:
Storage cost, insurance cost etc.
Inventory control is used to ensure that the costs of
buying and holding stock are minimized, taking into
account the necessary inventory levels for operating
the business and keeping the customer supplied.
7.7.1 Assumptions of EOQ Model:
1. The demand for a given period (say for a year) is
known.
2. The demand is even throughout the period.
3. Inventory orders can be replenished immediately.
4. The cost per order is constant regardless of the
size of order.
5. The cost of carrying is fixed percentage (%) of the 7.7.4 Criteria for judging the inventory system
average value of inventory. Apart from the objective of minimizing the cost of the
firm, the other criteria are:
7.7.2 EOQ Formula:
1. Comprehensibility
U = Annual Demand
2. Adaptability
Q = Quantity ordered
3. Timeliness
F = Cost per order
1. Comprehensibility: The Inventory control
C = percent carrying cost
system varies from simple to complex, but
P = price per unit regardless of its complexity or simplicity, it should
TC = Total cost of ordering and carrying be clearly understood by all the concerned
On the above assumptions, the total cost of ordering departments. Its purpose and logic must be
and carrying inventories are: transparent to all.
𝑈 𝑄 2. Adaptability: A certain degree of flexibility and
𝑇𝐶 = ∗ 𝐹 + ∗ 𝑃 ∗ 𝐶 + 𝑈 ∗ 𝑃 adaptability must be designed into the system to
𝑄 2
make it more versatile. It must provide, for every
possible new products, new situations.
Ordering cost = U/Q *F 3. Timeliness: Inventories may suffer loss due to
Carrying Cost = Q/2 *P*C the following factors:
Purchase Cost = U*P (independent of quantity  Obsolescence, caused by changes in
ordered) technology and shift in consumers taste.
 Physical deterioration with the passage of time
The carrying cost varies directly with the order size
 Price fluctuation because of inherent volatility
(since average level of inventory is one-half of the
of certain commodities.
order size) whereas the ordering cost varies inversely
with the order size. Inventory system should be able to induce timely
action. Inventory system should be able to handle
To determine the minimum point of the total cost
these things, and should be able to take corrective
curve, set its derivative equal to zero:
steps.
𝑈 𝑄
𝑑𝑇𝐶 𝑑 𝑄 ∗ 𝐹 + 2 ∗ 𝑃 ∗ 𝐶 + 𝑈 ∗ 𝑃 7.7.5 Selective Inventory Control
= =0
𝑑𝑄 𝑑𝑄 In most inventories, a small proportion of items are
𝑈𝐹 𝑃𝐶 used substantially and a large proportion of items
− 2+ =0
𝑄 2 accounts for small usage. (In terms of monetary
value of annual consumption)
2𝐹𝑈
𝑄 = ABC/ Selective Inventory Analysis, uses a selective
𝑃𝐶
approach to inventory control, which calls for a
U = annual Sales = 20000units greater concentration of effort on inventory items
F = Fixed cost per order = Rs.2000 accounting for the bulk of usage value.
P = Purchase price per unit = Rs.12 This approach classifies inventories into three
categories: A, B and C.
C = carrying cost = 25 per cent of inventory value
It is done with twofold aim-
2 ∗ 2000 ∗ 20000 a) To reduce capital investment in inventories and
𝑄= = 5164
12 ∗ 0.25 b) To lessen the likelihood of running out of
important
EOQ model assumes that material can be procured
instantaneously and hence implies that an order can Items needed for production are all items used in
be placed when inventory level drops to zero. But in production, ranging from expensive machine parts to
real world, procurement of material takes time, and nuts and bolts, are listed in order of their cost, for a
hence order level must be such that inventory at the given period. (For example, the number of items used
time of ordering, suffices to meet the needs of during one week multiplied by their unit cost)
production during the procurement period. If the  The most expensive items, constituting perhaps
usage rate of material and lead time for procurement 10 per cent of the period‘s outlay, are classed A;
are known specifically, then ordering level will be:  The next most expensive item, comprising an
Ordering level = Lead time in days ∗ average daily usage additional 20 per cent of the period‘s
expenditures, are classed B;
7.7.3 Monitoring and controlling Inventories
 All others are classed C.
There are various measures for judging the
effectiveness of inventories: Since they (item A) represent a high investment,
inventories of A items are kept as low as possible;
• Just In Time System (JIT)
inventories of B items are also kept low, but with a
• Selective Inventory Control slightly greater safety margin against depletion; and
inventories of C items are much larger and less
closely controlled.
7.8 Types of production Methods
There are number of ways in which the production
process/method can be classified and these will affect
the nature of task. The classifications are mainly
applicable to manufacturing but are also acceptable in
Services when layouts are considered. Process choice
is important since it has implications for the way the
system operates and is not quick to change.
The three broad categories of production are:
1. Job
2. Batch
3. Mass production
7.8.1 Job:
It is also termed as Jobbing production or unique
production. These products are small, tailor-made
components, huge pieces of equipment or large single
item such as ship. Generally, the product is made for
a particular customer or to a particular order. It is
found in industries like – Heavy engineering (e.g..,
production of electricity generating plant), ship
building and civil engineering (e.g. Bridge
construction, a new building), a film, or for a one-off
services e.g., a consultancy assignment. It is also
found in the industries where prototype models or
spare parts or tailor –made items are produced. e.g.,
designer dress, handmade shoes, etc. Every factory,
usually have jobbing department somewhere or the
other. The production is usually made in-house and
then transported to the customer and commissioned
before acceptance. Since the parts produced in this
system are unique, both planning and controlling are
not easy.
7.8.1.1 Key characteristics of Jobbing
Production
1. No standardization: A wide variety of different
operations are performed under varying
circumstances.
2. Varying sequences of operations in varying
circumstances.
3. There are sequence of operations but they are not
repeated
4. General purpose machinery and equipment
5. Varied work layout, depending upon operation.
6. Unpredictable demands in stores.
7. Skilled Workforce with wide range of skills.
8. Adaptable and equally skilled supervision.
Many of these conditions make it difficult to plan,
integrate and control the types, sequence and timing
of operations. The idle time for both men and
machines cannot be avoided. Thus the entire
manufacturing process tends to be relatively
expensive.
7.8.2 Batch:
It is the production of standardized units, parts, in
small or large lots (batches).
• It is found in light engineering industry.
• The products of batch are dealt with
systematically in lots or batches. Once each lot is
processed in the current operation they move to
the next operation.
• Same equipments are used for a number of
different products.
• E.g., Subcomponents produced for another
manufacturer, Car Components etc.
• Problem with batch production is to determine the
optimum size of batches.-
• If too many units are produced, stocks will lie idle
or go to waste; if too few are produced, then the
items will go out of the stock.
• General purpose equipments and skilled labour
are used. This gives high flexibility but low
efficiency, with problems in controlling
inventories, schedules and quality.
• It is a halfway between Jobbing and Mass
production.
7.8.2.1 Key characteristics of Batch
Production
 Standardized set of operations, carried out
intermittently (occasionally) , as each batch
moves from one operation to the next.
 General purpose machinery and plant are used.
 Heavy shop-floor stores requirement
 Narrower range of skills required
 Emphasis on production planning and progressing
 Relatively short production runs.
These characteristics lead to a well controlled and
efficient method of production. Its main disadvantage
is time delay caused by the queuing effect, waiting
for each batch to be completed before moving on to
the next operation. This problem can be overcome by
changing to an assembly line operation which is a
prominent feature of flow production, or mass
production.
7.8.3 Mass Production
The principle of Mass production was first adopted by
Henry Ford.
There are two kinds of Mass production:
a) Unit mass production
b) Flow/continuous mass production.
7.8.3.1 Unit mass production:
 Such production systems are based on high
demand created by mass market.
 In unit mass production, small range of products
is produced in large quantities by ‗flowing‘
uninterruptedly from one operation to the next
until completion.
 Linear sequences of operations are used to make
the product or services, with equipment dedicated
to that product or small range of products.
 Several basic materials are processed through
successive stages into one final product.
 It is more automated and standardized than a line
process.
 The capital cost is high as specialized machines
are required for production.
 Once the production line is set up, the control
becomes relatively simple.
 It is not used in services because there is no
labour content.
 Process is essentially repetitive where each
product passes through the same sequence of
operations. E.g., Motor vehicle manufacturing,
Food preparation in McDonald‘s, Bank Operations
– Cheque Processing.
 This process is very efficient but inflexible.
7.8.3.2 Key features of Mass production
 Specialized machines and equipments, set out in a
line formation.
 Highly standardized methods, tools and materials.
 Long production runs for individual products.
 Narrow range of skills and specified range of
operations required by workforce at any one point
in the line.
 Controls can be exercised because of the
standardized nature of the entire process.
 Mass production methods are the most efficient
way of producing large quantities of articles or
items.
 Its main drawback is that it requires human
beings to adapt themselves to the production
process.
7.8.3.3 b) Flow /Continuous Mass production
 The start-up costs of these processes are
generally high, so they tend to be run
continuously with little or no labour
intervention.
 E.g., Petrochemicals, Beer production, steel-
making Paper-making, Electricity, cement
production etc.
 Such production methods are continuous for
weeks or months .
 The control system in such methods becomes
almost automatically self –regulating.
Continuous production is a method used to
manufacture, produce, or process materials without
interruption. This process is followed in most oil and
gas industries and petrochemical plant and in other
industries such as the float glass industry, where
glass of different thickness is processed in a
continuous manner. Once the molten glass flows out
of the furnace, machines work on the glass from
either side or either compress or expand it.
Controlling the speed of rotation of those machines
and varying them in numbers produces a glass ribbon
of varying width and thickness.
Continuous production is largely controlled by
production controllers with feedback. The majority of
transducers and controllers employ PID (Proportional,
Integral, and Derivative) control which controls the
final output element based on the variables response
to the control element.
The most important difference between batch
production and continuous production is that in
Continuous the chemical transformations of the input
materials are made in continuous reactions that occur
in flowing streams of the materials whereas in Batch
they are done in containers.
7.8.4 New technology in Manufacturing
It can be summarized as, ―The application of
computing and microelectronics to the planning,
resourcing and controlling of the manufacturing
process, from the design stage to the completion of
the product.‖
a) Computers in production control: Computers
handles Stock control, sales orders, purchase
orders, machine scheduling, capacity planning,
tooling lists and work scheduling. Firms which
uses computers in production planning and
control, enables in higher productivity, by better
utilization of machines and reduced overheads.
b) Computer-aided design (CAD): CAD is used to
translate engineering concepts into engineering
design by means of programs. CAD programs are
capable of providing 3-dimensional
representations on a screen.
c) Computer-aided manufacturing (CAM):
d) Robots: Robots are the programmable machines
that can replicate a limited range of human
actions.
• It is used where the employee are reluctant to
undertake repetitive, dirty or noisy work.
• It can be used in handling dangerous tasks –
handling radioactive materials.
• Helps in reducing production costs, once
programmed, they produce accurate results.
e) Control Devices and process Measurement:
Devices can be used to monitor and record the
variables like – pressure, temperature and
constituents levels. etc. e.g., Fluorescent
spectrometer can analyze samples of the product
and produce a complete chemical analysis of
constituents of its material.
The above applications can be combined as:
1. Computer-integrated Manufacturing (CIM)
2. Computer-aided engineering
3. Flexible manufacturing systems (FMS)
7.8.4.1 Computer-aided Manufacture (CAM)
It is a general term which refers to any production
system in which manufacturing plant and test
equipment are controlled by computer.
• CAM is more than just metal-cutting.
• It embraces important engineering processes such
as welding, assembling and painting.
• CAM is applicable to processes where parts are
complex and accuracy is vital.
CAM system can be expected to achieve:
1. More speedy production of parts.
2. A consistently high level of product quality.
3. Ability to achieve high production levels even
when skilled craftsmen are in short supply.
The software of CAM generates numerical control
(NC) tapes for the computer control of machines
(CNC- Computerized Numerical Control machines)
and robots. CNC machines handle turning, drilling,
milling and sheet metal working.
One of the examples is FMS (Flexible Manufacturing
Systems).
7.8.4.1.1 The Benefits of CAD/CAM
• Greatly improved productivity of designers.
• Reduces the waiting list of projects to be tackled
by the design department
• Development of uniform design standards
throughout the organization.
• Improved quality and consistency of finished
products
• Simplified quality control through automatic
testing and inspection.
7.8.4.2 Flexible Manufacturing Systems (FMS)
Flexible Manufacturing Systems (FMS) is one, where
a small group (or cell) of Computerized Numerical
Control (CNC) machine tools is used, in a coordinated
way, for producing components, without manual
intervention, in a small batch operation.
A typical FMS consists of the following:
1. A group of NC machines each with the
capacity to manufacture a range of parts
2. A number of robots and wire-controlled work
carriers
3. A computer control station
Such systems can lead to
1. Reduced work-in-progress
2. Reduced stock-levels
3. Faster throughput times
4. Quicker change-over times
5. Lower unit costs
7.9 Quality Control
In physical world of production, numerous control
systems are in operation. One is Quality Control. The
control of quality rests on the assumption that, in
mass production, no two units are exactly identical,
but it is possible to produce large quantities of
almost, identical goods.
Thus, almost identical goods can be produced with
certain tolerances and customers can accept items
with those tolerances, not beyond that. The role of
quality control is to ensure that appropriate standards
of quality are set and those variances beyond the
tolerance are rejected.
Thus, Quality Control is a system for setting quality
standards, measuring performance against those
standards and taking appropriate action to deal with
deviations, outside performance tolerances. Quality
control activities can be very costly, as it represents
an overhead cost in the production area. The degree
of time and resources spent on them such as price,
consistency, safety and legal requirements. E.g.,
highly priced porcelain will be subject to far higher
quality controls than household earthenware. E.g.,
Pharmaceutical products are subject to health
controls, backed by legislation, and thus require
highest standards of quality.
7.9.1 Inspection
Inspection is an important part of quality control.
One must make a choice between - whether to carry
out 100 % inspection or lesser amount on a sampling
basis.
• When perfect quality is needed, e.g., in Nuclear
reactor plant, 100% inspection is applied.
• In batch or mass production, 100% inspection is
not always required.
In 100% inspection, the inspector has to carry out
inspections in noisy and busy surrounding, and thus
their concentration gets affected. Due to which even
in 100% inspection, few percent % of defective items
are also passed. The most widely used techniques of
inspection are random sampling. Random Sampling
means that a batch is accepted or rejected on the
basis of the number of rejects found after taking a
random sample from the batch.
Continuous sampling is used in Mass production and
entails an initial 100% inspection until a pre-
determined number of correct items have passed in
succession. Then random sampling begins and
continues until further reject appears. Again 100%
inspection is recommended and the cycle is repeated
• Inspection
• Control begins with inspection of raw materials
and other items purchased from suppliers and
continue with inspection during production, and
ends with a final inspection before delivery to the
customer.
• The responsibility for checking quality on the shop
floor is to ensure adherence to the organization‘s
quality standards.
These standards are set with several objectives in
mind:
1. To produce product which are satisfactory to the
customer (Quality, reliability ,Variety etc)
2. To produce products which are consistent with the
organization‘s responsibility to its workforce,
shareholders and stakeholders.
3. To attain above points within agreed level of
inspection costs.
Three main reasons for inspecting work:
1. To accept or reject items
2. To control the process of producing the items
3. To improve the process itself.
7.10 Statistical Quality Control
Two main methods dealing with these issues are:
‗Process control and Acceptance sampling‘ are the
two methods of ―Statistical Quality Control‖.
7.10.1 Process control:
It consists of checking items as they progress
through the production process, comparing them
against standards and taking any immediate
corrective action to prevent further faults.
Process controls can be expedited by the use of
control charts and automatic process control.
7.10.1.1 Control Charts
Control charts show the actual performance against
standard performance and the amount of deviation,
in a graphical form. Control charting is one of the
tools of Statistical Quality Control (SQC) It is the
most technically sophisticated tool of SQC. It was
developed in the 1920s by Dr. Walter A. Shewhart of
the Bell Telephone Labs. Dr. Shewhart developed the
control charts as a statistical approach to the study of
manufacturing process variation, for the purpose of
improving the economic effectiveness of the process.
These methods are based on continuous monitoring
of process variation. A typical control chart is a
graphical display of a quality characteristic that has
been measured or computed from a sample versus
the sample number or time. The chart contains a
center line that represents the average value of the
quality characteristic corresponding to the in-control
state. Two other horizontal lines, called the upper
control limit (UCL) and the lower control limit (LCL)
are also drawn. These control limits are chosen so
that if the process is in control, nearly all of the
sample points will fall between them. As long as the
points plot within the control limits, the process is
assumed to be in control, and no action is necessary.
However, a point that plots outside of the control
limits is interpreted as evidence that the process is
out of control, and investigation and corrective action
is required to find and eliminate the assignable
causes responsible for this behavior. The control
points are connected with straight line segments for
easy visualization. Even if all the points plot inside
the control limits, if they behave in a systematic or
nonrandom manner, then this is an indication that the
process is out of control.
7.10.1.1.1 Analysis of Patterns on Control Charts
A control chart may indicate an out-of-control
condition either when one or more points fall beyond
the control limits, or when the plotted points exhibit
some nonrandom pattern of behavior. The process is
out of control if any one or more of the criteria is
met.
1. One or more points outside of the control limits.
This pattern may indicate:
a) A special cause of variance from a material,
equipment, method, or measurement system
change.
b) Mismeasurement of a part or parts.
2. A run of eight points on one side of the center
line. This pattern indicates a shift in the process
output from changes in the equipment, methods,
or materials or a shift in the measurement
system.
3. An unusual or nonrandom pattern in the data. A
trend of seven points in a row upward or
downward. This may show
a) Gradual deterioration or wear in equipment.
b) Improvement or deterioration in technique.
Cycling of data can indicate
a) Temperature or other recurring changes in the
environment.
b) Differences between operators or operator
techniques.
c) Regular rotation of machines.
d) Differences in measuring or testing devices
that are being used in order.
7.10.1.1.2 Types of control charts
1. Control charts for Attributes.
a) p chart
b) c chart
c) u chart
2. Control charts for Variables.
a) X bar chart
b) R chart
7.10.1.1.3 Uses of Control charts
Control chart is a device for describing in a precise
manner what is meant by statistical control. Its uses
are
a) It is a proven technique for improving
productivity.
b) It is effective in defect prevention.
c) It prevents unnecessary process adjustments.
d) It provides diagnostic information.
e) It provides information about process capability.
7.10.1.2 Automatic Process control:
In this, the sensing and measuring devices are built
into the machine concerned to provide immediate
information and immediate corrective actions.
Such controls are feasible where
1. Accurate measurement is possible
2. Where continuous inspection is highly desirable
3. Where reliability of inspection is important.
7.10.2 Acceptance Sampling:
This is where customer samples, a batch of newly
delivered goods, and either rejects or accepts the
batch on the basis of an acceptable quality level
(Usually a small of percentage of rejects per batch).
If the number of rejects in a sample is in excess of
the agreed percentage, the whole batch is returned to
the supplier.
The samples can be checked by attributes or
variables.
• Objective measurement in inspection is called
Checking by variables.
• Subjective measurement in inspection is called
Checking by attributes.
The checking by attributes, involves human judgment
instead of a ‗scientifically‘ measured fact. Human
inspection is most suited to instances where
a) Objective standards are not available.
b) Where discretion is required in analyzing and
assessing faults and errors.
This approach is most likely to apply to the more
complex issues of quality control.
7.11 Benefits of Quality Control
a) Reduction in cost of scrap or re-working
b) Reduction in complaints from customers
c) Enhanced reputation for company‘s product
d) Feedback to designers and engineering staff about
performance of product and machines required to
produce them.
7.12 TQM –Total Quality Management
It is applied where there is a defined culture of
quality awareness and quality improvement in every
process, in every department and at every level in
the organization. Organization practicing TQM have a
long term commitment to quality and consider quality
to be core value of the organization.
 They take an external view of quality as compared
with traditional internal views.
 Internal view of quality concentrates on ensuring
that items produced conform to their specification
within accepted tolerances.
 This view considers that quality costs money and
as production costs must be minimized, quality
factors are always limited by their costs.
 External view, Pioneered by Japanese, places
much emphasis on original design which the
customer ordered.
 It considers quality at the heart of the production
process, where every part will be fit for its
purpose and will be right first time.
 With this philosophy, there is emphasis on
continual improvement of the product and
preventing errors rather than relying on post
production inspection to reject faulty items and to
correct mistakes.
7.12.1 Key points of TQM advocated by William
Edwards Deming:
a) The organization, at all levels, must accept and
practice their commitment continuously to
improve customer satisfaction.
b) Quality improvement must be embedded in the
organization's culture from top to bottom.
c) Aim for constant improvement in product and
processes.
d) Encourage self-improvement and education at all
level.
e) Choose suppliers for quality and reliability rather
than price.
f) Encourage cooperation and teamwork and develop
trust throughout the organization.
g) Provide adequate training and equipment and
encourage pride in their own work and the
product.
A feature of TQM is that a closer link is established
between top management and shop floor operators.
Operatives are encouraged to take decisions and
accept more responsibility. As a consequence, the
formal structure and middle management are
reduced or eliminated.
Quality Circles are another facet of the total quality
approach which originated in Japan.
7.13 Quality Circles
Quality circles are small groups of about 8-10
employees, which meet together on a regular basis to
discuss day-to-day issues such as quality,
productivity, and safety etc.
The objectives of such groups are:
 Making improvement
 Organizing their implementation: It involves a
degree of decision making to the shop floor
situations.
With quality circles, we delegate the real power to
employees at shop floor, not only by suggesting them
regarding quality, but also to implement those
suggestions.
1. Membership of Quality Circles is voluntary, but
usually consists of many shop floor employees
and foreman or supervisors. It consists of both
skilled and unskilled employees such as quality
engineers and inspector.
2. Each circle selects its leader
7.13.1 Task of Quality Circles
a) Identify problems in local work situations.
b) Select a problem for solution
c) Set realistic target for improvement (e.g. to
reduce wastage rates by 15% over next 12
months)
d) Propose plan to local management
e) Implement and test plan
f) Revise plan, where necessary, and monitor
results.
Quality circles provide means of achieving employee
participation on the shop floor. The primary
responsibility of Quality circles is not only reducing
costs but also to improve quality, use of equipment,
efficiency and safety.
7.13.2 Benefits of Quality Circles
a) Greater awareness of shop floor problems by
circle members.
b) Greater confidence in tackling problems and
generating solutions on the part of circle members
c) Improved productivity and quality and safety.
d) Improved motivation, commitment and confidence
on the shop floor.
7.14 Quality Costs
What is the cost of quality? Does it raise the price of
goods and services? Are huge savings possible by
implementing continual improvement efforts? These
questions are not easy ones, but quality is
measureable, as are its costs. Cost of quality (COQ)
is a phrase coined by Philip Crosby, noted quality
expert and author and originator of the ―zero defects‖
concept, to refer to the costs associated with
providing poor-quality products or services. Many
quality practitioners thus prefer the term cost of poor
quality (COPQ). Like all things, there is a price to pay
for quality. This total cost can be split into two
fundamental areas:
a) Non Conformance. This area covers the price
paid by not having quality systems or a quality
product. Examples of this are:
1. Rework. Doing the job over again because it
wasn't right the first time.
2. Scrap. Throwing away the results of your work
because it is not up to the required standard.
3. Waiting. Time wasted whilst waiting for other
people.
4. Down Time: Not being able to do your job
because a machine is broken.
b) Conformance: Conformance is an aim of quality
assurance. This aim is achieved at a price.
Examples of this are:
1. Documentation: Writing work instructions,
technical instructions and producing
paperwork.
i.
2. Training: On the job training, quality training,
etc.
3. Auditing: Internal, external.
ii.
4. Planning: Prevention, do the right thing first
time.
5. Inspection: Vehicles, equipment, buildings and
people.
7.14.1 Four segments of quality costs:
1. Internal Failure. This area covers the costs that
are borne by the organization itself such as scrap,
rework, redesign, modifications, corrective action,
concessions and overtime.
a) Failure costs that arise before your company
supplies its product to the customer. Along with
costs of finding and fixing bugs are many internal
failure costs borne by groups outside of Product
Development.
b) The costs of the wasted time, the missed
milestones, and the overtime to get back onto
schedule are all internal failure costs.
2. External Failure. This area covers the costs that
are borne by the customer such as equipment
failure, warranty, administrative cost in dealing
with failure and the loss of goodwill.
a) Costs associated with defects found after the
customer receives the product or service.
b) Costs that result from poor quality, such as the
cost of fixing bugs and the cost of dealing with
customer complaints.
c) Failure costs that arise after your company
supplies the product to the customer, such as
customer service costs.
d) External failure costs are huge. It is much cheaper
to fix problems before shipping the defective
product to customers.
3. Appraisal: This area covers finding defects by
inspection, audit, calculation, test and
measurement. Costs incurred to determine the
degree of conformance to quality requirements.
4. Prevention: This area covers avoiding defects in
planning, preparation, training, preventative
maintenance and evaluation.
a) Costs of activities that are specifically designed to
prevent poor quality.
b) Examples of "poor quality" include coding errors,
design errors, mistakes in the user manuals, as
well as badly documented or NON-maintainable
complex code.
7.14.2 Total Cost of Quality:
The sum of costs: Prevention + Appraisal + Internal
Failure + External Failure.
The objective of Total Quality Cost is to achieve
measurable improvement in materiel quality and
quality cost reduction on a systematic basis.
The purpose of the Total Quality Cost Model is to
Provide quality cost information to enable
informed, effective decision-making related to
cost of quality
Identify failure costs to facilitate appropriate
corrective action
iii. Identify appraisal and prevention targets for Internal Failure External Failure
improvement  Bug fixes  Technical support
iv. Enable results tracking  Regression calls[9]
v. Identify relationships between improvement testing  Preparation of
actions and results to enable ―what if‖ analysis  Wasted in-house support answer
user time books
 Wasted tester
 Investigation of
time
customer
 Wasted writer
complaints
time
 Wasted marketer  Refunds and
time recalls
 Wasted  Coding / testing
advertisements of interim bug fix
[7] releases
 Direct cost of late  Shipping of
shipment [8] updated product
 Opportunity cost
 Added expense of
of late shipment
supporting
The graph shows that there is a minimum Total
multiple versions
Quality cost, which is a combination of prevention,
of the product in
appraisal and failure. Reducing any of these reduces
the field
the total. The key to minimum cost, is striking the
correct balance between the three. Clearly prevention  PR work to soften
reduces both appraisal and failure costs, however drafts of harsh
eventually the cost of prevention itself starts to reviews
increase the total cost and so this must be controlled  Lost sales
and set at an effective level.  Lost customer
Total Quality Cost Analysis includes a goodwill
measurement of Quality Costs. Quality costs are  Discounts to
those costs encountered when efforts are aimed at resellers to
avoiding defects (preventive actions), looking for encourage them
defects (appraisal activities), or repairing and/or to keep selling
recovering from a defect (failure resolution). the product
Figure 1: Examples of Quality Costs Associated  Warranty costs
with Software Products.
 Liability costs
Prevention Appraisal  Government
 Staff training  Design review investigations[10]
 Requirements  Code inspection  Penalties[11]
analysis  Glass box testing  All other costs
 Early prototyping  Black box testing imposed by law
 Fault-tolerant  Training testers
design 7.15 Quantitative Techniques/
 Beta testing
 Defensive Operation Research Techniques
 Test automation
programming
 Usability testing (OR)
 Usability analysis
 Pre-release out- Operation Research Techniques are used in decision
 Clear specification
of-box testing by making, planning and controlling. It encompasses a
 Accurate internal customer service collection of techniques which apply scientific
documentation staff methods to complex problems in organizations.
 Evaluation of the OR involves scientific models or conceptual
reliability of framework to represent real situations.
development
The model utilizes mathematical and statistical terms
tools (before
to express the variables involved in decision making.
buying them) or
of other potential Techniques are: Network Analysis (PERT and CPM)
components of The chief benefits of such techniques are that they
the product assist in analysis of problem and also develop the
solution.
Advantages of O.R Models
• Provides a basis for solution of complex problems • Large number of factors were taken into account
in static or dynamic situations. at one time.
 8
Marketing Management
Overview: Overview of Marketing function, Product, Price, Promotion and Distribution strategies, Marketing research and its
role
8.1 Marketing
Every business or public organization has its market,
i.e., group of existing and potential buyers and users
of its goods and services. A market may consist of a
mere handful of people (e.g., customers of antiques)
or may consist of millions (e.g., consumers of
breakfast cereals). The marketing concept takes the
view that the most important stakeholders in the
organization are the customers. This means that the
customers form the starting point for the
organization's corporate strategy.
 Marketing is…. ―The management function which
organizes and directs all those business activities
involved in assessing and converting customer
purchasing power into effective demand for a
specific product or services and moving the
product or services to the final consumer so as to
achieve the profit target or other objectives of the
company.‖
 Marketing is the one function of management
which has to be more concerned with, what is
going on outside the organization than, with what
is happening internally. Marketing activities are
conducted mainly across the external boundaries
of the organizational system, and they are
undertaken by managers of all kinds, not only by
marketing specialists.
8.1.1 Kinds of Organizations based upon
marketing
Different kinds of organization are there, based on
how they regard their customers:
1. Production oriented: In such organizations, the
concentration is on production efficiency,
distribution and cost, in order to attract customers
to its products. This works well when the demand
is well ahead of supply, and where lower cost will
encourage people to buy.
2. Product Orientation: In such organizations, the
organizations stands or falls by the quality of its
product. The thinking behind this orientation is
that customers buy products or services rather
than solutions to problems. E.g., Education, Arts,
Journalism etc.
3. Sales orientation: In such cases, the concept is
that people will not buy until they are persuaded
to buy by positive selling. Thus, the focus is on
selling skills than on the needs of the buyers.
E.g., Life insurance Companies.
4. Market oriented organization is one which
focuses on the needs of its customers. Its primary
concern is to find out what the customers‘ needs
and wants are, so as to meet them with the
highest level of customer satisfaction. This
approach is called ‗marketing concept‘ and is
found in supermarket chains and in numbers of
travel agencies.
8.1.2 Needs and wants of consumer:
Needs are the basic physical and psychological drives
arising from being human. E.g., Need for food,
clothing etc. They are the basic necessities. Whereas
wants are specific desires directed towards fulfilling
the basic needs. e.g., the need for food could be
transformed into a specific desire (want) for roasted
chicken, or bread-and –cheese. Human beings have
relatively fewer needs, but can generate enormous
number of wants. Thus, marketing is directed in
creating and changing people‘s wants.
The marketing role in an organization is carried out
by numerous individuals.
a) Senior managers, advisers, prepares the
marketing plan i.e., examines the market place
and assesses the organization's ability to meet
current and future demands on its resources.
b) Middle level managers also carry out marketing
role when dealing with issues related to public.
E.g., when a production manger meets customers
to discuss the quality problem or a minor design
change; he is fulfilling a marketing role.
c) Finally marketing department is there, its staff
does Assesses customer wants, Obtains customer
reactions, organizes sales and distribution etc.
8.2 Marketing Mix
A vital element in every marketing strategy is
marketing mix. The concept was first expounded by
Professor Neil Borden of Harvard University in 1940‘s,
when he identified 12 key variables in the typical
marketing programme.
Later these 12 variables were reduced to 4 main
headings.
1. Product
2. Price
3. Promotion
4. Distribution
Marketing mix is the central part of an organization‘s
marketing tactics.
Once the market situation (Customers,
competitors, suppliers, middlemen etc) has been
identified and evaluated and the decision has
been made to penetrate or develop a market, the
role of the marketing mix becomes crucial.
The time is a vital factor in assessing the particular
mix to be offered to a market. Any market situation
can change rapidly over a short period of time (e.g.,
when a major competitor is suddenly declared
bankrupt).
By using marketing mix as an organization's
marketing plan, it is possible to adapt speedily and
profitably, to changes in the marketing environment.
Thus, the development of mix to meet conditions at a
particular point or period in time is essentially a
contingency approach to marketing management.
Price :
Product
Variety Basic Price
Quality Discounts
Brand Name
Packaging etc. Credit items
etc.
TARGET
MARKET
TIME
Promotion
Advertising Distribution
Channels
Personal selling
Sales Force
Sales
promotion Coverage
Transport etc
Publicity etc
8.3 Product
Product is anything that is offered to a market for its
use or consumption. The product can be a physical
object or a service of some kind. The product offered
by a manufacturer consists of physical items, such as
machine tools, television sets, loaves of bread etc.
Products offered by service industries include hospital
care, dental treatment, holiday arrangements and
accountancy services. The range of products offered
by an organization is called ‗product mix‘.
Examples of product mix are:
a) Motor car manufacturer: Cheap, basic family
runabout, medium-priced family saloons, estate
cars, executive saloons, sport cars etc. Within
these product lines, various other refinements can
be offered e.g.., 2 door and 4 door versions of
family saloons, Variations in engine sizes, range
of colors etc.
b) District Hospital: Surgical and medical services,
diagnostic services, Para-medical services etc.
Within each product line, various alternative
services are offered e.g., Accident services,
general surgical, coronary care, X-radiography,
Physiotherapy and so on.
“People generally want to acquire the benefits of the
product, rather than its features.”
e.g., we want hospitals, for improvement of health or
treatment. Whether these things are achieved by
surgery, or by drugs, or by nursing care, or by
modern diagnostic apparatus, is a matter of
secondary importance.
Thus, customers buy the benefits of a product, and
organizations sell the benefits of that product. The
selling effort is not just confined to Promotion
element in the marketing mix. It begins by being
designed into the product itself. So, the very
existence of a product range is a selling point for a
product. The other aspects are: Quality, Brand,
Packaging, and after sales services.
a) Brand: One important method used to sell
benefits is by branding products. This means
applying the organization's ‗signature‘ to its
product by the use of special names, signs or
symbols. Brand names like: Coco Cola, parker,
Philips. Branding is a feature of consumer
products. It is far less common in industrial
products.
b) Packaging: It is the presentation of a product to
the market. Package not only provides protection
(Foodstuffs, dangerous liquids and delicate pieces
of machinery), but also it reinforces the brand
image and the point-of-sale attraction to the
buyer. Goods like soft toys and items of clothing
may not need such protection, but here other
considerations apply such as the appearance of
the goods on shelf, or the possibility of seeing the
contents through the packaging and convenience
of the pack. e.g., Cold Drink can be opened safely
by pulling the ring.
c) After sales Services: Some products are sold
with emphasis on after sales service, warranties,
guarantees, technical advice and similar benefits.
Computer suppliers frequently provide customer
training as an integral part of their product
package. Car retailers sell vehicles with various
kinds of warranties concerning replacement of
faulty parts at the supplier‘s expense. Such
facilities are applicable to both the individual
consumers, and to the industrial or commercial
buyers. Now-a-days, Consumer protection lobbies
/cells are formed to provide after the sale
services.
8.3.1 Product Life Cycle
Products typically pass through five major stages in
its life.
a) Introduction: Unit Cost are high (because they
include the development costs), sales and profits
are low. Few competitors, price relatively high.
b) Growth: Sales rise rapidly. Profits at peak level,
Price softens, increasing competition, unit cost
decline, mass market.
c) Maturity: Sales continue to rise, but more slowly.
Profits level off (stable). Competition at its peak.
Price softens further. Mass market.
d) Saturation: Sales Stagnate. Profit shrinks.
Measures taken against remaining competition.
Prices fiercely competitive. Mass market begins to
evaporate.
e) Decline: Sales decline permanently. Profits low or
even zero. Product is withdrawn from the market.
 The total length of time over which a product may
decline depends on a variety of factors, such as
 Its relevance to basic needs.
 Its adaptability in the light of economic trends
and
 Whether it is the focus of short term fads or of
long lasting fashions. E.g.,
i) The basic food stuffs like packet of coffee
or loaf of bread will have relatively long life
cycle.
ii) In economy, where cost of energy is high,
the motor car with high petrol (fuel)
consumption will tend to have short life
cycle.
iii) Pop records/CDs/Cassettes etc or other
leisure items develops out of fashion and
reappears over the course of time.
Taking into account the various stages of product life
cycle and the period of time concerned, it is possible
to
a) plan the product mix
b) plan the development and introduction of new
products
c) Plan the withdrawal of obsolete or unprofitable
products.
d) Set the revenue targets for each product within
the total range.
Seeing the current position of the product in its life
cycle, it is possible to assess the potential growth of
sales, degree to which the prices can be made soft in
order to maintain the market share. Thus, product life
cycle contributes an important role in forecasting and
planning of product.
8.4 Price
The next important element in the marketing mix is
the price. It is important because it is the only
element of the mix which produces revenue. All
others are only costs.
 Cost of production (development)
 Ability to generate sufficient revenue and profits
 Desired market share for the product
 Prices being offered by the competitors.
Prices are important at certain times like:
 When new product is introduced
 During periods of rising costs of production.
 When competitors change their price structure.
 When competitors change other elements of
marketing mix. (e.g., improving quality or adding
features without increasing prices)
a) When a new product is introduced, the price
tends to be high on account of the initial
development and marketing costs. Such products
tend to be for higher income groups or specialist
interest groups. As the product begins to attract
sales and initial costs starts covering, the prices
can be reduced and the production volume can be
increased.
It is possible to introduce a product with a
very low price in order to obtain a foothold in a
new market, and to increase the share of the
existing market. A bargained price may well
attract considerable sales and at the same time
discourage competitors. e.g., the cheap flight
rates of Jet airways. The danger associated with
this is that, the price may be so low that the
business may fails to generate sufficient revenue
to cover its operating and capital costs. Few
products stand still in terms of their costs.
b) Various costs which influences the price of a
product:
1) Labour costs increase from year to year.
2) Material costs and energy costs are
generally irregular and tend to increase.
3) Interest rates are usually variable.
Thus the cost of financing product fluctuates.
Many costs can be offset by productivity
savings. But the costs which cannot be
absorbed by improved productivity are the
crucial ones.
c) In certain situations, just to gain temporary
advantages over competitors, prices are raised
by lowest possible margin and few attractions are
offered along with it. Like extension of 1 years
warranty period into 2 years warranties period.
d) The activities of competitors play an important
role in taking pricing decisions. If the product
offers no particular advantages over what others
are offering, then if the competitor is dropping the
prices, you too follow the same. But, if you can
offer other advantages in the marketing mix, then
there won‘t be any pressure to adjust the prices
according to competitors.
Pricing is a very flexible element of marketing mix
and enables firms to react swiftly to competitive
behavior. Competitors may throw out a challenge by
improving the product and offering a better
distribution service. If price is dominant issue for
buyers, then they will prefer lower price to slightly
higher quality or improved distribution arrangements.
If price is not the major factor in the buyer‘s analysis,
then marginal extra quality and delivery terms may
prove to be more attractive.
Price is important factor in determining the relative
standing of one product or product line with another
within the product line.
It is important for e.g., say a Motor car manufacturer
sells different models, with different capacities e.g.,
between 1600cc – 1 liter models, with 2 doors and 4
doors versions etc. If 1600 cc models are selling well
but 2 liters models are not, then the seller may
reduce the differentials to attract the buyers to 2
liters cc model.
The concept of loss leader is also applied to internal
price differentials. This means that one product in a
line is reduced to below cost levels with the aim of
attracting attention to the product line or range as a
whole.
For e.g., a new fiber-tipped pen, in a range of such
pens offered by a newcomer to the market, may be
sold at a loss in order to draw attention to a range as
a whole and to establish a share of the total market.
Loss leader can be a very good way in establishing
the range in the market.
8.5 Promotion
Every product needs to be promoted, i.e. it needs to
be drawn to the attention of the market-place, and its
benefits need to be identified.
The principle methods of promotion are:
1. Advertising
2. Personal selling
3. Sales promotion and
4. Publicity.
It is in these areas that marketing departments come
into their own. They provide bulk of expertise and
carry biggest amount of responsibility.
Aim of organization‘s promotional strategy is to bring
existing or potential customers from state of relative
unawareness of the products to a state of actively
adopting them.
Stages in which customer behavior can be identified
are:
 Unawareness of product
 Awareness of product
 Interest in product
 Desire for product
 Adoption/purchase of product
The four methods of promotion are applied to each
stages of customer behavior. These promotional
methods may vary with varied market/customer. The
methods of promotion like advertising are very
effective in reaching to consumer market but are of
little significant to industrial markets, where personal
selling is more important.
8.5.1 Advertising:
It is the process of communicating persuasive
information about a product to target markets by
means of the written and spoken word, and by visual
material. There are five principle media of
advertising:
a) The press – newspapers, magazines, journals etc.
b) Commercial Television
c) Direct Mail
d) Commercial radio
e) Outdoor- Hoarding
In terms of expenditure, the most expensive medium
is Press and then comes television.
Following questions must be considered before
placing an advertisement for a product
a) How much should be spent on advertising?
b) What message do we want to put across?
c) What are the best media for our purposes?
d) When should we time our advertisements?
e) How can we monitor advertising effectiveness?
a) Advertising Expenditure: Decision about
advertising will usually be made in conjunction
with assessments about the position of the
product in its life –cycle. If the product is at the
Introductory stage -- more amounts of resources
will be put into advertising.
Decline stage – little or no expenditure done for
advertising.
Saturation - Advertising may be used to score
points off the competition e.g., ‗our vehicle does
more miles per gallon than theirs. ‗
In deciding how much to spend on advertising,
various options can be adopted by the company:
 Percentage-of-sales approach: where
advertising expenditure is related to sales
revenue. But it discourages innovative
approaches to advertising expenditure and
does not allow for distinctions to be made
between products or sales territories.
 Base the advertising on what the competition
is spending.
b) Advertising Message: Probably the most
important aspect of any advertising campaign is
the decision about – what to say to the
prospective customers and how to convey it.
It is the Advertising Message that makes the
people aware of the product and favorably inclines
towards it.
The advertising copy (text) also aims to make
people desire the product. Basically, the aim of
the message is to turn the customers‘ needs into
wants.
Advertising aims in achieving the following:
a) Increase customer familiarity with a product (or
variations of its product range)
b) Inform customers about specific features of a and desire, but personal selling clinches
product (confirm/secure/finalize) the deal.
c) Inform customers about the key benefits of a In industrial markets, personal selling plays an
product extensive role.
d) Indicates distinctive features or benefits of a Steps in personal selling:
product. (by comparing with competing products) 1. Establishing customer contact
e) Establishing credibility of a product 2. Arousing interest in the product
f) Encourage potential customers to buy the product 3. Creating a preference for product
To achieve the above aims, the advertisers 4. Making a proposal for a sale
usually have to abide by a number of laws and 5. Closing the sale
codes of practice. 6. Retaining the business
Most countries exert some degree of state control In customer market, or mass market, advertising
over the content and form of advertising. plays a vital role in the first three stages. After that,
The content of the advertisement should not personal selling becomes important.
contain anything offensive to a particular group in In industrial market, advertising does not play any
society, nor should it contain information or role, it only based on personal selling.
suggestions which are misleading. Personal selling is the most expensive form of
c) What is the best way of putting a message Promotion.
across? Companies which utilize an aggressive sales policy,
It is an important as we have to decide how to get based on personal selling, are said to be adopting a
the message over to the customers. The choice of Push strategy whereas those relying on advertising
media depends on the organization‘s are said to be adopting a Pull strategy.
requirements in terms of: The tasks of a sales representative:
• The extent of coverage sought to reach • After-sales servicing (dealing with technical
customers. queries)
• The frequency of exposure to the message. • Gathering information (feedback on customer
• Effectiveness of advertisement i.e., will it make a reactions, competitors‘ activities etc)
relevant impact? • Communicating regular information to customers
• The timing of advertisement and prospective buyers (new catalogues etc)
• The cost involved. • Prospecting (looking out for new selling
If wide coverage is sought (e.g., new banking opportunities)
services) then television advertisement, put out at To fulfill the above mentioned duties, the sales
a peak viewing time, would be most effective. representatives need to have the following
If the advertisement requires being information about:
displayed/shown frequently, then hoarding are • Own organization (customer policies, resources
useful as TV advertisement will incur more cost. available, organization structure etc)
For effectiveness, Newspapers, Local magazines • The product on offer (goods , services , ranges
are useful, but the right selection of newspaper/ etc)
magazine is important. • Sales and profit targets
Direct mail is also effective but is expensive. • Customers (size, type, location etc)
Organizations must weigh the anticipated benefits • Sales plan for their territory
against the costs involved, to take the final
• Promotional material (brochures, catalogues etc)
decision.
• Techniques of selling (creating interest, dealing
Advertising Effectiveness:
with objections, closing a sale etc)
Two aspects are there.
The sales force can be organized on the basis of
1. On sales.
1. Territory /geographical areas
2. How much brand awareness in the market.
2. Product
Actual evaluation of advertising/marketing, about
3. Customer
whether it is effective and how much it is effective
is difficult to measure. 1. Territory: Territory is allocated on the basis of
workload and potential sales. The use of territory
8.5.2 Personal Selling: helps to reduce the costs of travel,
However vivid the message is out over by accommodation and related expenses and also
advertising, there is no substitute for the final face- eases the administrative burden of controlling the
to-face meeting between the buyer and the sales force.
seller/representative. Advertising creates the interest 2. Product: Allocating work according to the product.
In such sales, specialists sales representatives are
 required who can deal with technical as well as
general queries. (e.g., computer sales)
3. Customer: Sales force organized on this basis
must have thorough knowledge of their
customers‘ needs and sales records.
The effectiveness of sales representatives can be
measured on the basis of the following criteria:
1. Net sales achieved (per product, per customer)
2. Call rate (number of calls in a given period)
3. Value of sales per call
4. Number of new sales/new customers
5. Sales expenses in proportion to sales achieved.
The performance of sales force cannot be taken in
isolation as marketing involves other aspects too.
8.5.3 Sales promotion:
Sales promotion activities are a form of indirect
advertising designed to stimulate sales mainly by the
use of incentives.
Various forms of sales promotional activities:
1. consumers oriented Promotions
• Free samples
• Twin pack bargains (two for the price of one)
• Temporary price reduction
• Point-of-sale demonstrations
2. trade customers oriented Promotions
• Special discounts
• Bonus/prizes for sales representatives
• Provision of display material
Sales promotion is push strategy of promotion. It
aims to push sales by offering various incentives. It is
used most frequent in the field of consumer products.
Objectives of promotion directed at consumers:
a. Draw attention to a new product or line
b. Encourage sales of slow moving items
c. Stimulate off-peak sales of selected items
d. Achieve higher levels of customer acceptance
/usage of a product or product line.
Objectives of a trade oriented promotion:
a. Encourage dealer/retailer cooperation in pushing
particular lines.
b. Persuade dealers/retailers to devote increased
shelf space to organization‘s products.
c. Develop goodwill of dealers/retailers.
The evaluation of sales promotion is never a clear cut
matter. The most popular method of evaluation is to
measure sales or market share before, during and
after promotion period. The other method could be to
interview a sample of consumers from the target
market and checking on Dealer‘s stock-levels, shelf
space etc.
8.5.4 Publicity:
Publicity is different from all the other methods of
promotion, as it does not involve any cost. E.g.,
Mouth Publicity.
Publicity is news about the organization or its
products, reported in the press and other media
without charge to the organization. Publicity usually
comes under public relations, which is concerned with
mutual understanding between organization and its
public.
Sponsorship events in arts and sports are a form of
publicity. Concerts, both live and recorded are backed
by sponsors. Publicity itself is free, but the costs of
sponsorship are not. Nevertheless, such activities
contribute significantly to an organization‘s public
image.
A costly way of publicity is donations i.e. donating
substantial sums of money towards an academic or
research institution.
Thus, patronage of sports, arts and learning are
useful means of gaining public image for the
organization and its products.
8.6 Distribution
The last element of marketing mix is distribution. The
purpose of distribution is to move the product or
service to the final consumer.
Distribution is primarily concerned with
1. Channels of distribution
2. Physical Distribution
Channels of distribution: Channels are the
marketing institutions which facilitates the movement
of goods and services from their point of production
to their point of consumption. Some channels are
direct. Like when computers are sold to the
customers. Majority of the products use indirect
channels. Indirect means there are number of
intermediaries between the original producer and the
final buyer. The various channels of distribution are:
Manufacturer Customer
A
Manufa Wholes Custom
Retailer
cturer aler er
B C
Manufacturer Wholesaler Customer
D
Manufacturer Retailer Customer
Channel A, i.e., a Direct channel is more found in
industrial markets than in consumer markets.
Manufacturer of Goods like -machine tools,
computers, ships and other large or expensive items,
move their items directly to the buyers, without
involving middlemen or intermediaries.
Reasons for Direct channel:
 Industrial Markets: Relatively small number of
customers; Need for technical advice and support
after sales; lengthy negotiations on price between
manufacturer and customers; dialogues required
where product is to be custom built.
 Consumer markets: Lower cost incurred
comparison with other channels.
Channel B is an indirect channel. Such channels of
distribution are required for
 mass market consumer goods.
 Where the manufacturer sells a wide range of
products over a wide geographical area. E.g.,
manufacturers of foodstuffs, confectionery,
footwear, clothing ,soaps etc.
The middlemen like wholesaler acts as link in the
chain.
Wholesalers buys in bulk from manufacturer, stores
the goods, break them down into small quantities,
undertake promotional and advertising activities,
deliver to retailers, and arranges credit and other
services for them.
Retailer makes the product available to the
consumers at the point-of-sale. Retailers provide
various advantages to the customers like, stocks of
items, displays of various kinds of goods, opportunity
to put in small quantities, convenient access.
For a manufacturer and wholesaler, a Retailer is an
outlet for their product and an important source of
market intelligence concerning customer buying
habits and preferences.
Channel C is a short indirect channel as retailer is
omitted. This kind of operation can be found in mail-
order businesses, and in cash and carry outlets. In
mail-order businesses large range of goods are
offered. They buy from the manufacturer, store and
subsequently distribute direct to customers on a
nation –wide basis.
Their ability to attract customers relies on
1. Comprehensive, colorful and well produced
catalogues.
2. Use of part-time agents, working on commission
basis.
It does not offer any price advantages over retail
business. But it is a convenient way of choosing
goods and there are always credit facilities available.
With wider use of computers and telephone links,
mail-order business is rapidly growing.
Cash and carry outlets deal in groceries.
wholesalers directly trade with customers to
1. Keep down inventory levels
2. For rapid turnover of stock
For customers it‘s advantageous as
1. They get items at significantly lower price
2. Opportunity to buy small bulk quantities
Channel D is another shorter indirect channel.
In such channels, wholesalers are omitted.
Retailers dominates and multiples on their own.
Generally such retailers concentrate on one range of
goods only E.g. footwear traders.
They buy in bulk from manufacturers or imports and
directly distributes to their retail outlet. They usually
in offer a wide selection of lines, and are competitively
priced.
Large retail groups handle a diversity of goods. E.g.,
Ebony, DMarts. Such channels are advantageous to
the customers than to manufacturers.
Physical Distribution
Channels of distribution are marketing institutions
whereas Physical distribution is a set of activities.
Channels of distribution provide the managerial and
administrative framework for moving products from
suppliers to customers. Whereas
Physical distribution provides physical means of doing
so.
It is concerned with order processing, warehousing,
transport, packaging, stock/inventory levels and
customer service.
The degree of physical distribution depends on the
proportion of total costs taken up by distribution
costs.
8.7 Market Segmentation
It is undertaken by suppliers in order to get a clearer
picture of the market place in order to offer a
particular marketing mix to one or more segments.
Market segmentation can be defined as the sub-
division of a market into identifiable buyer-groups, or
sub-markets, with the aim of reaching such groups
with a particular marketing mix.
It enables them to cultivate a particular part, or
segment, of a market. Some footwear chains
exclusively meets the demands of fashion conscious
teenagers, others aim at middle-aged market where
comfort and quality are more important than current
fashion. E.g., in the private motor-car market, there
are several sub-markets, ranging from buyers who
are looking for sports cars, those who are interested
in family saloons, those looking for economical car.
Depending upon the market, the manufacturer and
the distributor has to vary their marketing mix. The
product, price range, manner of promotion and
distribution arrangements must all be considered in
the light of differing requirements of different market
segments.
The
Market segmentation is important in consumer
markets.
Basis for segmentation:
1. Geographical
2. Demographic
3. Buyer- behavior
1. Geographical -- Regions, populations, Density,
Climate etc. e.g., Skiing equipment, Food items.
2. Demographic – Subdivision is done on the basis
of age, gender, occupation and class. e.g.,
Magazines, Journals
Segmentation by social class: Upper middle class,
Middle class, skilled working class, Working class,
etc. Social class influences tastes, values and
attitudes of individual.
3. Buyer Behavior --usage rate (usage rate is
volume purchased) some users use the product
frequently whereas some use the same product
on a seldom basis. e.g., Regular readers of
Newspapers will buy it daily but the same
newspaper will be purchased by others if coverage
of an interesting event or match is there.
Industrial Segmentation takes place on one or more
of the following basis:
1. Types of buyer (Public service, Private firms etc)
2. Customer size (Large, medium, small)
3. Class of buyer (e.g., buyers insists on quality or
service or economy)
4. End-use (Routine/ non-routine, specialized/
general etc.)
5. Usage rate (Regular or infrequent)
6. Location (Domestic or overseas, regional/national)
E.g., a computer supplier will apply different
marketing mix to two different markets –
1. Private company
2. Schools
In the first market i.e., Private Company, complete
package will be offered like computers with printers,
scanners, etc at competitive price. Regular follow-up
will be conducted. Whereas in the second market i.e.,
School, computers will be offered at cheap price and
only specified items will be provided instead of
complete package.
Benefits of market segmentation from seller‘s point of
view:
1. Better market picture (especially in relation to
marketing opportunities between segments of
that market)
2. Enables to tailor marketing mix to suit the needs
of particular segment.
Benefits of market segmentation from buyer‘s point
of view:
• Their needs are met in a more appropriate way.
8.8 Market Research
Marketing research is fundamental about the
acquisition and analysis of information required for
the making of marketing decisions.
The two basic areas in which the information is
sought are
1. Markets (existing and potential)
2. Marketing tactics and methods.
Markets orients towards what is happening outside
the organization, in the market place.
The second is oriented towards the way in which the
organization is responding internally to its customers,
present and future.
Information is required in marketing because of the
following trends in the market:
• Shift from purely local to wider national and
international markets
• Trend towards competition based on non-price
weapons.
The organizations must seek out information about
the distant markets, since generally they are familiar
to the local markets.
The trend towards non-price competition requires
firms to evaluate their own methods of assembling
the marketing mix for their market. Like better after-
sales services or more effective advertising as
compared to competitors. Etc.
For marketing research, we can gather the data from
primary and secondary sources.
Primary sources are customers, wholesalers,
competitors etc.
Secondary sources are sales reports, information
from Government statistics, trade, banking and other
reports, press reports, marketing agencies etc.
Secondary data are Published information or data
from the records of company. Secondary data can be
obtained easily and cheaply, but may be less relevant
or up-to-date.
Steps in Market research study:
• Definition of problem
• Design of study/project, with reference to data
collection methods (surveys etc), instrumentation
(questionnaires )
• Field work (utilizing questionnaires , structured
interviews)
• Data analysis (using statistical and O.R
techniques)
• Presentation of report
Marketing operates on the external boundaries of the
organization. Its main object of attention is customer
(market place) and their responses, non responses
etc. This is the area where market research is
applied. e.g., if the market share for a product is
falling, then to clarify the problem, the company will
put number of questions:
What is the situation for competitors? Is market
expanding, stable or declining?
What is the company‘s reputation with its existing
customers? And so on.
Some of these questions can be answered by the
analysis of secondary data and others by the analysis
of primary data.
Primary data is frequently collected by means of
surveys, based on questionnaires, interviews and for
such surveys specialist research organizations/
agencies are employed.
 Market research agencies play a significant role in 2. Marketing strategy
market research and are formed by the firms. They a) Corporate objectives
generally consist of research specialists, to handle
b) Marketing Objectives
such highly skilled operations.
c) Marketing plans (Strategy)
Such agencies use trained interviewers and
structured forms for gathering information. d) Marketing resources
Both these methods, interview and questionnaire e) Strengths and weaknesses
concentrates on what the customer likes or dislikes 3. Marketing Plans and Control
rather than why. a) Sales forecasting
The, why part, is covered in motivational research, b) Market plans
where concentration is on attitudes and motives of
c) Product development
customers. It requires expertise of psychologists for
design and interpretation of such surveys. d) Control procedures
Advantages Disadvantage e) Marketing research
s 4. Marketing Mix
Wide Coverage. Difficult to a) Evaluation of products, pricing policies,
onnaire
Questi

Low Cost construct. advertising and sales promotion, channels of

s

Low return rate distribution and sales force

5. Profitability and cost effectiveness
More flexible than Costly and
a) Profitability of products and markets
Questionnaires. time-
Structured
Interviews

Product can be consuming. b) Marketing costs

shown to Permits 6. Marketing Organization
consumer. interviewer and a) Management structure
Target population consumer bias.
b) Staff motivation
can be controlled.
Better Is only applied c) Efficiency
understanding of
to small d) Training
Motivational

consumer Groups.
Research

e) Relationships with other departments.

Decisions. Costly and time
This critical assessment is valuable to organization‘s
consuming.
corporate planning as well as to its marketing
Not easy to
planning. The main disadvantages are those of time
interpret
and cost. It involves considerable amount of time to
results.
conduct audit and this time is expensive in labour
The other prime aspect of marketing research is the
costs.
way in which the organization responds to the
demands of the market-place. The most important
8.9 Marketing Organization
methods of evaluating the organization‘s total
marketing effort are by employing a marketing audit. There are several ways of looking at marketing. Some
organizations see it as an extension of their
This is an independent examination of an production process, others as the means by which
organization‘s marketing objectives, marketing their product or service is brought to the attention of
activities and marketing environment with the
the marketplace.
primary aims of assessing present effectiveness and
of recommending future action. Few organizations see marketing as essentially a
selling activity and also there are those who see
The audit needs to be carried out on a periodic rather marketing as an activity which begins and ends with
than on an adhoc basis, and like any other rational
the customers.
evaluation, needs to be conducted in a systematic
way. The audit may be carried out by the Depending upon the kind of values/thinking etc, we
organization‘s own staff or by external consultants. form different marketing departments in different
organizations.
The requirements of the tasks are objectivity,
independence and suitable experience. A systematic
audit would encompass the following aspects:
1. Marketing Environment
a) Economic and demographic trends
b) Technological change
c) Legal developments
d) Social change
e) Markets, customers, competitors, suppliers, Earlier marketing was only a sales activity. Later,
middlemen etc. with the concept of long term market developments,
marketing concept gained importance. c. Preparing in conjunction with other departments,
suitable marketing strategies to meet
opportunities identified.
d. Selling and distributing the organization‘s
products
e. Developing new products in the market-place.
f. Designing and implementing approved marketing
plans.
g. Acquiring sufficient and suitable information, both
internal and external, concerning the
organization‘s products, and their impact on
consumers, competitors, suppliers and others in
the market-place
Key objectives of any marketing department h. Ensuring that the organization‘s products are
To contribute to the organization‘s corporate aims in brought to the attention of existing and potential
respect of profitability, growth and social customers by means of suitable advertising and
responsibility by promotional methods.
a. Proposing and seeking acceptance for, i. Promoting a reputable image for the organization
improvements in the organization‘s marketing in the market-place.
policies.
b. Seeking out and identifying advantageous
marketing opportunities.
 9
Financial Management
Overview: Accounting Principles, balance sheet and profits and loss statements, Working capital Management, Cost
concepts, break even analysis, Investment decisions - Pay Back Period, NPV, IRR
 10
Human Resources Management
Overview: Nature and Function of HRM, Human Resource Planning - HR information system, Performance appraisal System,
Rewards and Incentive schemes
10.1 HRM
Human resources may be defined as the total knowledge,
skills, creative abilities, talents and aptitudes of an
organization's workforce, as well as the values, attitudes,
approaches and beliefs of the individuals involved in the
affairs of the organization. It is the sum total or aggregate
of inherent abilities, acquired knowledge and skills
represented by the talents and aptitudes of the persons
employed in the organization.
The human resources are multidimensional in nature. From
the national point of view, human resources may be defined
as the knowledge, skills, creative abilities, talents and
aptitudes obtained in the population; whereas from the
viewpoint of the individual enterprise, they represent the
total of the inherent abilities, acquired knowledge and skills
as exemplified in the talents and aptitudes of its
employees.
Human Resources Management concerns with the human
side of enterprises and the factors that determine workers‘
relationship with their employing organizations.
It covers wide range of subjects – Employee relations,
training and motivation; organization of physical and social
conditions of work; and personnel management.
10.1.1 Human Resource Management: Defined
Human Resource Management has come to be recognized
as an inherent part of management, which is concerned
with the human resources of an organization. Its objective
is the maintenance of better human relations in the
organization by the development, application and
evaluation of policies, procedures and programmes relating
to human resources to optimize their contribution towards
the realization of organizational objectives.
In other words, HRM is concerned with getting better
results with the collaboration of people. It is an integral but
distinctive part of management, concerned with people at
work and their relationships within the enterprise. HRM
helps in attaining maximum individual development,
desirable working relationship between employees and
employers, employees and employees, and effective
modeling of human resources as contrasted with physical
resources. It is the recruitment, selection, development,
utilization, compensation and motivation of human
resources by the organization.
10.1.2 Human Resource Management: Evolution
The early part of the century saw a concern for improved
efficiency through careful design of work. During the middle
part of the century emphasis shifted to the employee's
productivity. Recent decades have focused on increased
concern for the quality of working life, total quality
management and worker's participation in management.
These three phases may be termed as welfare,
development and empowerment.
10.1.3 Nature
Human Resource Management is a process of bringing
people and organizations together so that the goals of each
are met. The various features of HRM include:
1. It is pervasive in nature as it is present in all
enterprises.
2. Its focus is on results rather than on rules.
3. It tries to help employees develop their potential fully.
4. It encourages employees to give their best to the
organization.
5. It is all about people at work, both as individuals and
groups.
6. It tries to put people on assigned jobs in order to
produce good results.
7. It helps an organization meet its goals in the future by
providing for competent and well-motivated employees.
8. It tries to build and maintain cordial relations between
people working at various levels in the organization.
9. It is a multidisciplinary activity, utilizing knowledge and
inputs drawn from psychology, economics, etc.
10.1.4 Scope
The scope of HRM is very wide:
1. Personnel aspect-This is concerned with manpower
planning, recruitment, selection, placement, transfer,
promotion, training and development, layoff and
retrenchment, remuneration, incentives, productivity
etc.
2. Welfare aspect-It deals with working conditions and
amenities such as canteens, creches, rest and lunch
rooms, housing, transport, medical assistance,
education, health and safety, recreation facilities, etc.
3. Industrial relations aspect-This covers union-
management relations, joint consultation, collective
bargaining, grievance and disciplinary procedures,
settlement of disputes, etc.
10.1.5 HRM: Beliefs
The Human Resource Management philosophy is based on
the following beliefs:
1. Human resource is the most important asset in the
organization and can be developed and increased to an
unlimited extent.
2. A healthy climate with values of openness, enthusiasm,
trust, mutuality and collaboration is essential for
developing human resource.
3. HRM can be planned and monitored in ways that are
beneficial both to the individuals and the organization.
4. Employees feel committed to their work and the
organization, if the organization perpetuates a feeling of
belongingness.
5. Employees feel highly motivated if the organization
provides for satisfaction of their basic and higher level
needs.
6. Employee commitment is increased with the 10.1.8 Functions of HRM
opportunity to discover and use one's capabilities and
potential in one's work.
1. Staffing:
7. It is every manager's responsibility to ensure the Manpower or human resource planning
development and utilization of the capabilities of a) Job analysis: competency matrix
subordinates. b) Job description/Position description
c) Job evaluation
10.1.6 Objectives
d) - Determination of actual number of employees needed
1. To help the organization reach its goals.
for various jobs
2. To ensure effective utilization and maximum
Recruitment and selection of people
development of human resources.
a) Attracting talent
3. To ensure respect for human beings. To identify and
satisfy the needs of individuals. b) Selection process
4. To ensure reconciliation of individual goals with those of c) Motivating the talent to join the organization
the organization. 2. Training and Development
5. To achieve and maintain high morale among Induction
employees.
Acclimatization process for new employees
6. To provide the organization with well-trained and well-
Training
motivated employees.
a) Competency mapping and gap analysis
7. To increase to the fullest the employee's job
satisfaction and self-actualization. b) Appraisal
8. To develop and maintain a quality of work life. c) Training need assessment
9. To be ethically and socially responsive to the needs of d) Training process
society. Development
10. To develop overall personality of each employee in its a) Potential assessment
multidimensional aspect. b) Development process
11. To enhance employee's capabilities to perform the Career planning
present job.
a) Fast track (talent management)
12. To equip the employees with precision and clarity in
transaction of business. b) Normal career path management

13. To inculcate the sense of team spirit, team work and 3. Motivation
inter-team collaboration. Appraisal
a) Appropriate appraisal system
10.1.7 Functions
b) Appraisal process
In order to achieve the above objectives, Human Resource
Management undertakes the following activities: Compensation and benefits
1. Human resource or manpower planning. Determination of salary and benefit packages
2. Recruitment, selection and placement of personnel. Rewards
3. Training and development of employees. a) Recognition motivation
4. Appraisal of performance of employees. b) Monetary motivation
5. Taking corrective steps such as transfer from one job to 4. Maintenance
another. Communication
6. Remuneration of employees. Installing and maintaining two way communication
7. Social security and welfare of employees. Health
8. Setting general and specific management policy for Design/Selection and implementation of health schemes
organizational relationship.
Safety
9. Collective bargaining, contract negotiation and
a) Awareness creation
grievance handling.
b) System for safe working conditions
10. Staffing the organization.
Employee relations
11. Aiding in the self-development of employees at all
levels. a) Establishing fairness
12. Developing and maintaining motivation for workers by b) Designing and implementing employee relations policies
providing incentives. and procedures
13. Reviewing and auditing manpower management in the Legalities
organization a) Dispute
14. Potential Appraisal. Feedback Counseling. b) Grievances
15. Role Analysis for job occupants. c) Unions
16. Job Rotation. d) Employment related legalities
17. Quality Circle, Organization development and Quality of e) Health and safety related legalities
Working Life.
10.1.9 Major Influencing Factors 11. The career of the employees should be planned in such
In the 21st century HRM will be influenced by following a way that individualizing process and socializing
factors, which will work as various issues affecting its process come together for fusion process and career
strategy: planning should constitute the part of human resource
planning.
1. Size of the workforce.
2. Rising employees' expectations 10.2 Differences between Personnel
3. Drastic changes in the technology as well as Life-style Management (PM) and Human
changes.
4. Composition of workforce. New skills required.
Resources Management (HRM)
5. Environmental challenges. X PM HRM
1 Personnel mean Human resource
6. Lean and mean organizations.
employed management (HRM)
7. Impact of new economic policy. Political ideology of the
persons of an is the management
Government.
organization. of employees‘
8. Downsizing and rightsizing of the organizations. Management of knowledge,
9. Culture prevailing in the organization etc. these people is aptitudes, abilities,
personnel talents, creative
10.1.10 Futuristic Vision
management abilities and
On the basis of the various issues and challenges the (PM). skills/competencies.
following suggestions will be of much help to the philosophy
2 PM is traditional, HRM is continuous,
of HRM with regard to its futuristic vision:
routine, on-going
1. There should be a properly defined recruitment policy in
maintenance- development function
the organization that should give its focus on
professional aspect and merit based selection.
oriented, aimed at improving
administrative human processes.
2. In every decision-making process there should be given
function.
proper weightage to the aspect that employees are
involved wherever possible. It will ultimately lead to 3 PM is an HRM follows the
sense of team spirit, team-work and inter-team independent systems thinking
collaboration. function with approach. It is not
3. Opportunity and comprehensive framework should be independent considered in
provided for full expression of employees' talents and sub-functions. isolation from the
manifest potentialities. larger organization
4. Networking skills of the organizations should be and must take into
developed internally and externally as well as account the linkages
horizontally and vertically. and interfaces.
5. For performance appraisal of the employee‘s emphasis 4 PM is treated like HRM is considered a
should be given to 360 degree feedback which is based a less important strategic
on the review by superiors, peers, subordinates as well auxiliary management
as self-review. function. function.
6. 360 degree feedback will further lead to increased focus 5 PM is reactive, HRM is proactive,
on customer services, creating of highly involved responding to anticipating, planning
workforce, decreased hierarchies, avoiding demands as and and advancing
discrimination and biases and identifying performance
when they arise. continuously.
threshold.
6 PM is the HRM is a concern for
7. More emphasis should be given to Total Quality
exclusive all managers in the
Management. TQM will cover all employees at all levels;
it will conform to customer's needs and expectations; it
responsibility of organization and
will ensure effective utilization of resources and will the personnel aims at developing
lead towards continuous improvement in all spheres department. the capabilities of all
and activities of the organization. line managers to
8. There should be focus on job rotation so that vision and carry out the human
knowledge of the employees are broadened as well as resource related
potentialities of the employees are increased for future functions.
job prospects. 7 The scope of PM The scope of HRM
9. For proper utilization of manpower in the organization is relatively views the
the concept of six sigma of improving productivity narrow with a organization as a
should be intermingled in the HRM strategy. focus on whole and lays
10. The capacities of the employees should be assessed administering emphasis on building
through potential appraisal for performing new roles people. a dynamic culture.
and responsibilities. It should not be confined to 8 PM is primarily HRM takes efforts to
organizational aspects only but the environmental concerned with satisfy the human
changes of political, economic and social considerations
recruitment, needs of the people
should also be taken into account.
selection and at work that helps to
administration of motivate people to
 manpower. make their best wider. compared to
contribution. HRM is narrower.
9 Important HRM considers work 3 HRM manages and HRD focuses on
motivators in PM groups, challenges develops the human those learning
are and creativity on the elements of an experiences
compensation, job as motivators. organization in its which are
rewards, job entirety on longer organized for a
simplification term basis. specific period to
and so on. bring about the
10 Improved It is the other way desired
satisfaction is round (performance behavioral
considered to be is the cause and changes.
the cause for satisfaction is the 4 HRM emphasizes that HRD emphasizes
improved result). employees, their
mainly on
performance. abilities and their
training and
11 Employee is Employee is treated attitudes constitute
development of
treated as an not only as economic an important
employees.
economic unit as unit but also a social organizational
his services are and psychological resource that should
exchanged for entity. be used effectively
wages/salary. and efficiently to
12 PM treats Employee is treated achieve organizational
employee as a as a resource and as as well as employees'
commodity or a a human being. goals.
tool or like 5 HRM takes decisions HRD thus
equipment that on HRD plans. depends on the
can be bought decisions of
and used. HRM.
13 Employees are HRM treats 6 HRM takes care of all HRD focuses on
considered as employees as profit the human needs and upgrading the
cost centers and centers and tries to satisfy these skills and
therefore, therefore, the needs so that the competencies of
management management invests employees are the employees in
controls the cost in this capital motivated from all the order to improve
of labor. through their angles to contribute the performance
development and their best to achieve of the employees
better future utility organizational goals. on the job.
14 PM‘s angle is HRM angle HRM at its center has HRD. HRD's cooperation is
that employees emphasizes on the important for overall success of HRM. HRD has to
should be used mutual benefits, both work within the realm of HRM and therefore, its
mostly for of employees and objectives should be in tandem with the broader
organizational their families and objectives of HRM. Thus, HRM and HRD are
benefits and also the company. interdependent.
profits.
15 PM preserves In HRM 10.4 Human Resources Planning
information and communication is It is the comparison of an organization‘s existing
maintains its one of its main tasks labour recourses with forecast labour demand, and
secrecy. which take into hence the scheduling of activities for acquiring,
account vertical, training, deploying and possibly discarding labour is
lateral and feedback done.
type communication. Specific activities are:
10.3 Differences between Human Resource 1. Estimation of labour turnover for each grade of
Management (HRM) and Human Resource employee and the examination of the effects of
Development (HRD) high or low turnover rates on the organization‘s
X HRM HRD performance.
1 HRM is a subset of HRD is a subset 2. Analysis of the consequences of changes in
the entire of HRM working practices and hours
management 3. Predicting future labour shortages
processes of an 4. Devising schemes for handling the human
organization. problems arising from labour deficits or surpluses.
2 Scope of HRM is Scope of HRD as
5. Analysis of the skills, educational backgrounds,
experience, capacities and potentials of
employees.
Effective Human Resources Planning (HRP)
results in the right people doing the right things in
the right place at precisely the right time.
HRP should help management in making decisions
concerning recruitment, the avoidance of
redundancies, training and staff development, and
the estimation of the cost of employing labour.
Redundancies can be avoided by preparing ―skills
Inventories‖ (details of capabilities, qualification,
and experience of the existing employees). This is
required to inform management of all the jobs that
existing employee might be capable of undertaking.
COMPANY OBJECTUIVES
1. Demand For Labour
a) How Many?
b) What Kind?
c) When?
d) Where?
2. Supply of Labour
a) Present supply minus wastage
b) External labour market factors
c) Changes in hours, Productivity or working
conditions.
d) Possible and economic increase in supply of
labour, e.g., use of part time workers
3. Human Resources Plan
a) Recruitment/redundancy Programme
b) Training and Development Programme
c) Industrial relations policy
d) Accommodation plan
10.4.1 Planning Procedure
Certain principles should be applied while preparing a
human resource plan,
1. Plan should be detailed, as expenditure
constraints are involved.
2. It should not extend too far into the future,
accurate prediction of distance future is difficult.
3. All alternative courses of action should
considered.
4. It should be concise and easy to understand.
5. Instructions to individuals and departments must
be incorporated into the plan.
10.4.2 Steps in the HRP Process
In drafting the human resource plan the organization
must consider the demand for labour, its potential
supply and the external environment.
By studying the interaction of these factors, it can
produce a plan showing how many and what kind of
employees are expected to be required in the future.
Main points to be considered are as follows:
1. Creation of an HRP group: Including the
managers in charge of the main functions within
the organization.
2. Statement of Human resources objectives in
the light of the organization‘s objectives by
considering:
a) Capital equipment plans
b) Reorganization ,e.g., centralization or
decentralization
c) Marketing plans
d) Financial Institutions
e) Changes in products or in output
3. Present utilization of human resources
a) Number of employees in various categories
b) Estimation of labour turnover for each grade of
employee and the analysis of the effects of
high or low turnover rates on the
organization‘s performance
c) Amount of overtime worked
d) Amount of short time
e) Appraisal of performance and potential of
present employees
f) General level of payment compared with that
in other organizations
4. External environment of the organization
a) Population trends
b) Recruitment position
c) Local housing and transport plans
d) National agreements dealing with conditions of
work
e) Government policies on education, retirement,
regional subsidies etc.
5. Potential supply of labour
a) Effects of local emigration and immigration
b) Effects of recruitment or redundancy by local
firms
c) Possibility of employing categories not now
employed, e.g., Part-time workers
d) Changes in productivity, working hours and/or
practices.
6. Forecasting: HRP are the predetermined
responses to anticipated future events.
be
7. Human resources Audit: Management needs to
set out all its available information on the
organization‘s existing personnel, taken from the
‗skill inventory‘. Analysis of such information is
set out in a separate document, ‗Human
resource Audit’. This document is a list of
abilities, performance records, and apparent
potential of each of the organization‘s department
and its employees. The aim to create such
documents is to match the present and future
human resources, against current and forecast
requirements.
10.4.3 Benefits of Human Resources Planning
1. The organization will be ready to adapt future
HRM activities to meet changing circumstances.
2. Foreseeable pitfalls of future events might be
avoided.
3. Measures to influence future events can be
initiated by the organization itself.
4. Decision concerning future HRM activities can be
taken in advance, using all the data available and
considering all available options.
5. Planning forces the organization to assess
critically the feasibility of its HRM objectives.
6. Labour shortfalls and surpluses may be able to be
avoided.
7. It helps the firm create and develop employee
training and management succession
programmes.
8. Management is compelled to assess critically the
strengths and weaknesses of its labour force and
personnel policies.
9. Coordination and integration of worker‘s efforts is
improved.
10.5 Human Resource Information
System
A HRIS is a systematic procedure for collecting,
storing, maintaining, retrieving and validating data
needed by an organization about its human
resources. It is a part of MIS.
The Human Resource Information System (HRIS) is a
software or online solution for the data entry, data
tracking, and data information needs of the Human
Resources, payroll, management, and accounting
functions within a business. Normally packaged as a
data base, hundreds of companies sell some form of
HRIS and every HRIS has different capabilities. Pick
your HRIS carefully based on the capabilities you
need in your company.
Typically, the better The Human Resource
Information Systems (HRIS) provide overall:
1. Management of all employee information.
2. Reporting and analysis of employee information.
3. Company-related documents such as employee
handbooks, emergency evacuation procedures,
and safety guidelines.
4. Benefits administration including enrollment,
status changes, and personal information
updating.
5. Complete integration with payroll and other
company financial software and accounting
systems.
6. Applicant and resume management.
The HRIS that most effectively serves companies
tracks:
1. attendance and PTO use,
2. pay raises and history,
3. pay grades and positions held,
4. performance development plans,
5. training received,
6. disciplinary action received,
7. personal employee information, and occasionally,
8. management and key employee succession plans,
9. high potential employee identification, and
10. Applicant tracking, interviewing, and selection.
An effective HRIS provides information on just about
anything the company needs to track and analyze
about employees, former employees, and applicants.
Your company will need to select a Human Resources
Information System and customize it to meet your
needs.
With an appropriate HRIS, Human Resources staff
enables employees to do their own benefits updates
and address changes, thus freeing HR staff for more
strategic functions. Additionally, data necessary for
employee management, knowledge development,
career growth and development, and equal treatment
is facilitated. Finally, managers can access the
information they need to legally, ethically, and
effectively support the success of their reporting
employees.
10.6 Performance Appraisal
Performance appraisal or merit rating is one of the
oldest and most universal practices of management.
Appraisal is the analysis of employees‘ past
successes and failures, and the assessment of their
suitability for promotion or further training. It refers
to all the formal procedures used in working
organizations, to evaluate the personalities,
contributions and potential of group members.
Earlier, Employee‘s merit like initiative, dependability,
personality etc, were compared with others and
ranked or rated.
These days the emphasis is more on the Performance
part i.e., what the man does rather than what he is.
Appraisals can be made by superior, subordinates or
peers or by self.
Appraisals can be done on a day-to-day basis, semi
annually or annually.
In appraisals, we do three types of reviews:
Performance review: Analysis of employee‘s past
successes and failures
Potential Review: Assessment of subordinates‘
suitability for promotion or further training.
Reward Review: To determine salary hikes.
10.6.1 Purpose of Appraisal
1. It can serve as a basis for job change or
promotion: By establishing whether the worker
can contribute still more in a different or a higher
job, it helps in suitable promotion and placement.
2. It serves as a guide for formulating a suitable
training and development Programme, by
identifying the strengths and weaknesses of an
employee.
3. It serves as a feedback to the employee.
4. It serves as an important incentive to all the
employees, who are by the existence of an
appraisal system, assured of the management‘s
continued interest in them.
5. It provides a rational foundation for the payment
of piece work, wages, bonuses etc.
6. It serves as a means for evaluating the
effectiveness of devices for the selection and
classification of workers.
7. The regular appraisal system enables the
superiors to be more observant as, they will be
appraising the performances of their juniors and
will be justifying those estimates.
10.6.2 Essentials of a good Appraisal system
1. Easily understandable: Appraisal System should
not be complex and too time consuming.
2. It must have the support of all line people who
administer it: If the line people think it is too
theoretical, too ambitious, too unrealistic, or that
it has been foisted on them by those who have no
comprehension of the demands on the time of
operators, they will resent it.
3. System must fit in that particular organization‘s
operations and structure.
4. System should be both valid and reliable:
Validity of rating is the degree to which, they are
truly indicative of the intrinsic merit of employees.
Reliability is the consistency with which the
ratings are made, either by different raters or by
one rater at different times.
5. System should have built-in incentives i.e.,
reward should follow satisfactory performance.
6. System should be periodically evaluated to be
sure that it is continuing to meet its goals.
10.6.3 Criteria of Performance Appraisal
Number of criteria are there, which may be used to
measure the proficiency of employee.
They can be broadly categorized into two: Objective
and Subjective.
Objective Criteria: Amount of production, work
sample tests, length of service, amount of training
required, absenteeism, accidents etc. It can be used
at lower level where jobs are more specific and
clearly defined.
Subjective Criteria: Extend of upward
communication of ideas, degree of knowledge about
corporate goals, contribution to socio-cultural values,
rating of employee‘s job proficiency by their
superiors, peers and subordinates. These are
dependent on the human judgement and opinion and
are subject to errors. These are applied where jobs
are more complex and vague.
10.6.3.1 Performance criteria for Operatives
1. Quantity and quality of output in a given period.
2. Work Sample tests: This serves as the measure of
proficiency.
3. Length of services: It is considered that the longer
the worker is with the organization the more
successful he is. That reflects his ability to adjust
to the working conditions, ability to get along with
fellow workers, his satisfaction etc.
4. Amount of training necessary: When training
period is expensive to the organization, training
time can be used to measure of a worker‘s
proficiency. The worker who requires longer time
to learn is considered inferior to one who learns in
a relatively short time.
5. Rating by supervisors : Opinion of foreman or
managers about the characteristics of a worker
like - job knowledge, cooperativeness,
dependability, attendance, regard for safety,
ability to deal with people, etc.
6. Number of accidents in a given period
7. Number of absents in a given period
10.6.3.2 Performance criteria for Middle
Level Managers
1. Quantity and quality of output in a given period.
2. Labour cost per unit of output in a given period.
3. Material cost per unit of output in a given period
4. Total cost per unit of output in a given period
5. Rational use of overhead facilities
6. Coordination among supervisors
7. Degree of knowledge among supervisors about
corporate goals and policies.
8. Extent to which front-line supervisors regard
themselves as managers and behave likewise.
9. Extent of upward communication of ideas,
information and queries from front-line
supervisors.
10.6.3.3 Performance criteria for Top
Managers
1. Return of capital employed
2. Labour productivity indices (improvements in
labour productivity arise from capital investment,
better work methods, better personnel policies,
etc)
3. Degree of knowledge among middle level
managers about corporate goals and policies.
4. Extent to which middle-level managers regard
themselves as managers and behave likewise.
5. Extent of upward communication of ideas,
information and queries from middle-level
managers
6. Contribution to socio-cultural values of the
environment (this aspect is essential to determine
whether the organization has secured a niche for
itself as a worthwhile institution in society.
10.6.4 Performance Appraisal Methods
10.6.4.1 Ranking Method:
It is Oldest and simplest method. One man is
compared with all the other men and places him in a
simple rank order. (From best to worst)
Pitfalls are:
1. Highly subjective
2. Various components of person‘s performance are
not done.
3. It use is difficult in large group, when the rater
cannot compare several people simultaneously.
4. Difference between ranks is not equal at different
positions
Thus paired comparison technique of ranking has
evolved.
1. Here each individual is compared with every other
person.
2. The final rank is determined by the number of
times he was judged better than others.
3. Number of comparison = N (N-1)/2
E.g., in a group of 50 individuals, there would be
1225 separate comparisons.
Thus its process is quite time consuming.
10.6.4.2 Rating Scale Method
It is used where the large groups of people are
appraised and also where the absolute difference
between the rated individuals are required.
Two types of scales are used:
Discrete: The rater tick mark the category which he
feels best describes the person being rated. e.g.,
Characteristics is ‗Job knowledge‘ can be divided into
five categories on a discrete scale:
Exceptionally
Average
Average
Average
Below
Poor
Above
Good
Continuous (or graphic): There are four kinds of
standards used in rating scales -- numerical or
alphabetical,
Descriptive-adjective, man-to-man, and behavior
sample.
• The problem with numerical or alphabetical
scales is that the numbers or alphabets which are
used to describe the various categories of
characteristics do not convey the same meaning
to all raters.
• In Man to man rating scale, the standards are
very concrete because these are neither numbers
nor alphabets, but the persons of varying ability
whom the rater has selected and ranked in the
ability under consideration. Thus a scale of men is
created for each trait.
10.6.4.3 Checklist Method:
In this method we use a list consisting of number of
statements about the worker and his behavior. Each
statement on this list is assigned a value depending
upon its importance.
The rater is asked to place a plus, minus and question
mark sign in front of each statement depending on
whether he feels the description applies, does not
apply, or there is doubt.
The final rating is taken as the average of the scale
values of all statements that his superior has checked
in rating the person.
Since the values do not appear on the list, so the
rater does not know how highly he has rated an
individual, thus helps in giving unbiased rates.
Various problems are :
Difficult to prepare the good checklist.
Separate checklists are required for each job as
statements used in one checklist to evaluate one
category of workers cannot be used in another
checklist to evaluate the other category of workers.
10.6.4.4 Forced Choice Method:
This form consists of number of statements which
describes an individual being rated. These statements
are grouped. Sometimes all these groups have
favorable statements, sometimes all have
unfavorable statements and sometimes have both
favorable and unfavorable statements.
• When the groups have all unfavorable or all
favorable statements, then the rater must check
one statement which he believes best
characterizes the individual being rated.
• When each group has both favorable and
unfavorable statements, then the rater makes two
checks in each group, one for the statement which
best describes the individual and one for the
statement which is least descriptive.
• The weightage for each statement is unknown to
the rater and the individual‘s rating is determined
by adding together the weights of each of the
statements that have been checked.
• It is expensive.
10.6.4.5 Critical Incident Technique:
In this method, first we draw, for each job, the list of
the critical job requirements .i.e., those requirements
that are vital for the success and failure of the job.
E.g., For the Job of Salesman following can be the
critical factors:
1. Follow ups: Requests, Complaints, Orders
2. Planning ahead
3. Communicating true information to managers and
customers.
4. Carrying out promises
5. Persisting on tough accounts
6. Pointing out uses for other company products
besides the salesman‘s own line.
7. Using new sales techniques and methods
8. Preventing price-cutting by dealers and customers
9. Initiating new selling ideas.
10. Knowing customer requirements
A good salesman has to handle all or most of these
factors to succeed.
Once all the factors are identified, the supervisors will
observe and record instances and events of on the
job behavior falling under any of these factors as they
take place.
In this way a performance record of a man is
recorded for his future evaluation.
Pitfalls:
• It is difficult to identify all the critical factors.
• The severity of incidents may influence the
supervisors‘ opinion.
• Supervisors may not recall the incidents
completely and may be his records may be
subject to moods.
Confidential Report: It is prepared by the
immediate supervisor, and is a major determinant of
the subordinates‘ promotion or transfer. The format
and pattern of the report varies with organization.
Assessment Center: It is used where the
organization needs to predict future performance
more accurately for promotional decisions.
Here individuals from different departments
are brought together to spend few days working on,
individual or group assignments, similar to the ones
they will be handling, if they are promoted.
This is observed by group of people and thus
the ranking is based on pooled judgement of
observers.
1. People chosen by this method are better than
chosen by any other method.
2. Not well known People from comparatively low
status department, can be allowed to compete
with the people from more well-known
departments.
3. This has effects of equalizing opportunity,
improving morale, and enlarging the pool of
possible promotion candidates.
10.6.5 Appraisal Interview:
The performance appraisal of a worker is generally
followed by an interview which serves as a feedback
for him. Feedback will be effective if less time lapse
will be there between performance appraisal and the
interview.
According to Norman Maier, three types of appraisal
interviews are:
10.6.5.1 Tell and sell:
Objective:
a) to let employee know how he is doing
b) To gain employee‘s acceptance of the evaluation
c) To get the employee to follow the plan that is
outlined for his improvement.
In this type of interview, the interviewer comes with
diagnosis and remedy.
Benefits:
1. It is very effective with young and new
employees. They are inexperienced and insecure
and require the advice and assurance of an
authority figure.
2. It helps in persuading the person to change in the
prescribed manner.
10.6.5.2 Tell and listen:
Objective:
1. To communicate the evaluation to employee but
also to drain-off his feelings aroused by the
evaluation.
2. Interview is divided into two parts:
3. In first part he covers the strong and weak points
of the subordinate‘s job performance and avoids
interruption and controversy by postponing any
points of disagreement for later consideration.
4. In second part, they explore the subordinate‘s
feeling about the evaluation.
5. The interviewer listens to all the disagreements
and encourages the subordinates to express their
feeling about the evaluation.
The interviewer is not a directive counselor during the
second part of the interview.
Skills required are: Careful Listening, Making effective
use of pauses, responding to the feelings in order to
show that one understands them.
Benefits:
1. It creates good relationship between superior and
subordinate during the interview.
2. The subordinate is likely to leave the interview
with favorable attitude towards the superior.
3. It tends to encourage upward communication.
4. Makes the management employee-minded rather
than production-minded.
10.6.5.3 Problem solving Interview:
Objective:
Employee development
1. The appraisal of subordinate is not directly
communicated to them. Because awareness of
weakness is not essential for development.
2. Interviewer acts as a helper.
3. Based on diagnosis and judgement.
4. Interviewer limits his influence and stimulates
thinking rather than supplying remedies or
solutions.
5. He considers all the ideas on job improvement
that employee brings up.
6. He sees the job as employee sees it, rather than
making his own viewpoint.
7. The employee is asked to review the year‘s
progress and discuss the problems, needs,
innovations, satisfactions, and dissatisfactions he
has encountered.
10.6.6 Appraisal of Management
Measuring the proficiency at managerial level is the
most difficult area of performance appraisal.
Objective criterion of management is usually
applicable at lower level only.
Factors affecting Managerial Performance
Before doing appraisal, it is good to survey the
following constraints within which management is
working.
1. Environment Constraints: There are several
constraints which may be outside the control of
the middle level manager and to ignore all such
facts in judging the performance would not be
fair. E.g., if the quality of manpower is
deteriorating over a period of time or if the
market is contracting for a product, due to which
both productivity and profit is suffering.
In such a case, if the selection of persons and
planning of market have been done at higher
levels, then the performance appraisal of the
Middle level manager should not be affected.
2. Organizational leadership: The kind of top level
leadership must also be taken into account, as
the nature of top level leadership determines, to
a large extend, the kind of loyalty and
commitment of managerial personnel to the goals
of an organization.
Effective top leadership orients and motivates the
entire organization for better performance. Managers
at every level become highly performance conscious.
Interdependence of sub-systems:
Example: The sub-standard output of the production
department could be - Due to some trouble at the
planning stage, about the production and purchase
department or due to poor quality purchases made by
purchase department. Thus while appraising the
manager, the systematic and logical cause –effect
tracing of performance should be done at all levels.
10.6.7 Organizational Structure :
According to Burns and Stalker, two types of
Organizations are there: Organismic or
Mechanistic.
Organismic: Have flexible organizational
relationships.
1. Elaborate organizational charts or manuals are
nonexistent.
2. Minimal formal organizational consciousness.
3. Such structures rapidly adjust with the changing
environmental situations.
4. Such organizations are more innovative.
Mechanistic: Are more rigid.
1. Relationships and responsibilities are clearly
defined.
2. Formal structural pattern in the form of charts are
available.
3. They are more static and tend to carry out almost
fixed strategies in a relatively stable environment.
4. Qualities like initiative, drive and imaginations are
not encouraged.
Depending upon the kind of organization structure,
the appraisal will get effected.
10.6.8 Management by Objectives (MBO)
A popular appraisal technique is MBO.
Level 1: It is a process which ideally begins at the top
of the organization with the establishment of specific
organizational objectives.
Level 2: Managers working with their bosses establish
objectives for each department that are consistent
with the organization‘s objectives.
This process repeats down to the lowest level
managers in the organization.
The appraisal starts with the setting of various
objectives at various levels by the process of meeting
between managers and their bosses.
During the meeting, they decide:
• Task to be accomplished by the manager.
• Time period in which task has to be accomplished.
• The basis on which progress will be judged.
When the fixed time is over, they meet again to
review the accomplishments and set further
objectives for the future.
Format of the formal document (Refer Book –
Tripathi/Reddy)
Advantages of MBO:
• Since the managers themselves are involved in
setting the objectives, so they will be more
committed to accomplish the goals.
• The objectives of each department and consistent
with the overall objective of the organization, thus
ensures that people and departments do not work
at cross purpose.
• It encourages more systematic evaluation of
performance, as it is judged on the basis of
degree of accomplishment of specific objectives.
Pitfalls:
• It is sometime not feasible to set specific
objectives for a time period. E. g., in research
department it‘s difficult to say what is to be
achieved /accomplished with next six months.
• Jobs that involves speculation, trial and error or
based on unknown factors cannot use this method
easily.
• It deals only with the individual‘s present job‘s
performance. It overlooks his past performance
and also does not identify his future potentials.
• It involves too much paper work and meetings,
due to which managers might not get time for
their routine work.
• It presumes a certain level of trust throughout the
hierarchy, which may not actually exist.
10.6.9 Limitations of Appraisal Methods
The limitations arises due to
1. Method itself.
2. Due to the way supervisor makes his evaluation.
Limitations can be divided into two categories:
1. Intrusion of subjective Criteria.
2. Defensiveness of employee
10.6.9.1 Intrusion of subjective criteria:
1. Halo Effect: It is the tendency of superior to
allow his good impression of one or more
important work characteristics of an individual to
carry over the total evaluation.
E.g.
a) Superior who is fond of punctuality, may rate a
punctual worker higher on various factors,
although they may have little to do with
punctuality.
b) Those that have done good work in the distant
past may be assumed to be good in the recent
past too.
c) Those who agree with the boss and are skilled
flatterer get better rating than their performance
justifies.
2. Hypercritical or ‘Horns’ effect: It is the
tendency to rate the people, lower than their
performance justifies. e.g., Superior is a
perfectionist, so his level of expectation is high.
He might rate his people lower than he should.
3. Central tendency and leniency: superior may
give average grades to most of the
characteristics, due to lack of definitive
information.
4. Reluctance to ‘Play God’: Some managers are
unwilling to ‗play God‘ by judging others. They
usually fill the forms (appraisal) at the last
moment and treat the entire process
casually.Subjective approach: If the superior
appraises performance solely in terms of
executive qualities, then the rating may vary on
the basis of how well the rater likes or gets along
with subordinate. Fortune of the subordinate will
fluctuate with the change in the top positions.
10.6.10 Limitations of Performance
Appraisal
• Danger of favoritism, biasness and stereotyping
by managers who conduct appraisals.
• Possibility of inconsistent criteria, in assessing the
caliber of employees.
• All information might not be available.
• Assessors might focus on specific cases of
outstanding good or bad performance while
ignoring employee‘s overall ability.
• This system involves extra work which managers
might be reluctant to accept. Hence the process
becomes a ritualistic chore to be completed as
quickly as possible.
10.6.11 Advantages of Appraisal
• Appraise become aware of what exactly is
expected of them and of their status in the eyes
of their line managers, as boss and employees
are compelled to meet and discuss work related
problems.
• Promotes two way communications between boss
and worker.
• Appraisal monitors the feasibility of targets set by
the higher management, who receive valuable
feedback on problems encountered when
implementing policies.
• It enables the bosses to learn about employees
and true nature of their duties. Conducting
appraisals managers remain in touch with the
staff of their department.
• Clear identification of obstacles - organizational
problems as well as individual difficulties.
• Unknown skills might be uncovered which can
help Management to identify the needs for
training, to avoid redundancies and to prepare
effective HRP.
10.6.12 How to make appraisal system
more effective:
1. Try to gain the acceptance from the employees or
their leader for the proposed appraisal system.
2. Feedback of poor performance should not be
directly given by the immediate superior, rather
should come from some higher level.
10.7 Reward and Incentive Schemes
Promotion, Transfer, Demotion and
Dismissal
Reward and Incentive Schemes
A good compensation plan, well administered, has a
salutary effect on the entire organization.
• It enables in retaining the services of desirable
employees.
• Rewards them according to merits and ability.
• Raises their morale and productivity.
• Explains them ‗why and how‘ of their
compensation.
• Simplifies wage and salary administration and
control.
• Makes promotions and transfers easy.
• Employees will be happier in their work.
• Cooperation and loyalty are more pronounced.
• Keeps labour costs within reasonable limits.
On the other hand,
With no compensation plans, compensations will be
determined subjectively on the basis of haphazard
and arbitrary decisions, which will create frictions and
low morale in an enterprise.
There can be both monetary and non-monetary forms
of compensation prevalent in an enterprise.
10.7.1 Primary compensation (Monetary):
It is the most basic element by which individuals are
attracted to an organization, persuaded to remain,
and induced to engage in a behavior beneficial to the
organization. It is non-variable payment.
The monetary incentives are based on the following
factors:
a) Internal Alignment: It involves job evaluation
which determines the relative worth of the jobs in
an enterprise.
b) External Alignment (Pricing the Job): It involves
comparison of present company‘s wage rates with
others in the community.
Demand and Supply of labour: With short supply
of labour, wages may be high, whereas if supply is
sufficient, then wages will be low.
Labour Unions: With strong and organized labour
unions, they will get more bargaining power.
Cost of living: This aspect is essential, to make both
ends meet.
Competition: With perfect competition, the
salary/wages may be at par with others. E.g.,
software industries
Prevailing wage rates:
Ability to pay:
Job requirements: Like, if more specialized
knowledge is required or more mental work involved.
e. g., Call Centers, State Regulation
Incentive Compensation: Payments are based on
the factors like individual output or group output. It is
variable payment. It is also called as ‘payment by
results‘. It is a managerial device of increasing the
workers‘ productivity. It is also a method of sharing
profits with workers by rewarding them financially,
for their increased rate of output.
Applied in Mining, Rubber industries, Textile and
Metallurgical Industries.
Basic principle of this compensation is to offer
additional money, to motivate the workers to perform
better.
Advantages:
• Less need for supervision.
• Increase productivity.
• Decrease absenteeism
• Increase Punctuality
• Better discipline and industrial relations.
Disadvantages:
• Jealousy may arise among workers because some
are able to earn more than others.
• Workers will tend to overwork and undermine
their health.
• Sacrifice quality for the sake of quantity.
10.7.2 Non-monetary Incentive:
• Assigning Important and interesting work.
• Fair treatment
• Praise
• Credit for good work
• Security of tenure
• Happy environment
• Good competition
• Participation and access to information.
The manager must study the psychological
framework of each individual and decide the type of
incentives -Monetary or Non-Monetary.
The importance of two types of incentives –monetary
and non-monetary, can be determined by
a) The need for achievement
b) His position in the hierarchy.
Generally financial incentives motivate people at
lower level effectively.
Whereas the people in managerial positions are
motivated by non monetary incentives like increase in
power or responsibility.
10.8 Promotions
A promotion takes place when an employee moves to
a position higher than the one formerly occupied. His
pay, responsibility and status also increase.
10.8.1 Dry promotion: When the promotion is
associated with no increase in the pay-
scale.
• Promotion schemes provide an opportunity to the
present employee to move to the jobs that
provides greater satisfaction and prestige.
• It also offers opportunity to management to
provide recognition and incentives to the better
employee.
• It serves as an orderly, logical and prompt source
of recruitment for the management to fill
vacancies as they arise.
• It is quick, inexpensive and suitable to
management as they are aware of the abilities of
their subordinates.
Drawback:
• Results in ‗inbreeding‘: In this company‘s ideas
and habits are perpetuated and little new thinking
is able to occur.
• System becomes stagnant, repetitious and overly
conformist.
• The newer employees introduced at lower levels,
will have little influence.
• In small organizations, it (Promotions) has little
significance, but is significant in big organizations
with vertical job relationships.
• Unfair discrimination in promotion can upset and
demotivate staff members.
10.8.2 Two types of Promotions:
1. Horizontal: Minor promotions within the same
classification of a job. E. g., from lower division
 clerk – upper division clerk. Second grade
foreman – first grade foreman.
2. Vertical: Crosses the boundaries of a job
classification. E.g., Promotion of clerk – office
superintendent. Foreman – Production Manager
Rank in the job: Here rank is more tied to the job
than to the man.
Content of the job- skills, responsibilities, and
efforts, determines its place and pay in the hierarchy
of jobs. To be promoted the person should move to
the greater responsibility from his present
assignments.
Rank in the man: Rank is tied to the man than to
his job. Levels of skills and performance determine
the job‘s place in the hierarchy of jobs, instead of the
contents of the job.
To be promoted, the man needs not to be moved
from his present assignment, but must acquire
greater proficiency. E.g., Professors, Assistant
professor, associate professor, Professor
10.8.3 Requirements of a sound Promotional
Policy
1. It must provide for a uniform distribution of
promotional opportunities throughout the
organization. Ratio of internal promotions to
external recruitments should be same at various
levels in the departments.
2. It must ensure consideration of all eligible in-
service candidates and not of the few highly
‗visible‗ones only. Promotion should be open for
all the individuals within the company.
3. Should have definite system for the selection of
employees who are to be promoted from within
the promoted zone. Promotion criteria should be
common. (Merit and Seniority)
4. Promotional policy should not compel reluctant
employee to accept promotion.
5. Promotions must be sanctioned by the concerned
line heads. Personnel department should only
send the names of the potential employees and
their history records, but the concerned
department should take the ultimate decision.
6. It must provide suitable follow up, counseling and
review.
7. After one month or so, personnel department
should hold a meeting, with the promoted person
and his new superior, to determine whether all is
going well.
8. Review of promotional decision by higher
management becomes essential, to satisfy
employees who accuse the management of being
unfair and unjust.
10.8.4 Criteria for promotion: Merit v/s Seniority
It is best to promote those, who are more capable
without seeing his seniority. But, rarely merit is given
complete control, as it is considered highly
subjective, which encourages inequities and
favoritism, in promotions.
Thus, seniority is considered as the criteria for
promotion.
Advantages (Seniority): It is objective means of
distinguishing among personnel.
• It is simple and exact.
• It gives feeling of security and improves the
morale of the employees.
• It prevents people leaving an organization. Thus
reduces labour turnover.
Disadvantages:
• Leads to promotion of incompetents.
• Accumulation of years of experience or any length
of service does not always produce ability.
• It adversely affects the morale of the meritorious
workers and drives able and ambitious men, out
of the organization.
• If seniority is the only criteria for promotion, no
individual will take initiatives to perform better or
to learn new skills.
10.8.5 Transfers
• A transfer is a move to a job within the company
which has approximately equal importance, status
and pay.
• To manage human resources in a constructive
way, it is sometimes necessary to transfer
employees to other jobs.
• Sometimes, it is required because employee is
unhappy or dissatisfied in his or her present job.
• In some organization it is the custom for the least
satisfactory employees to be transferred from one
department to another.
• In some organizations, transfers are used as a
means of developing promising employees by
giving them experience in several departments.
Transfers increases job satisfaction under the
following circumstances;
• Need for transfer is explained.
• Unsatisfactory employees are not dealt with by
transferring them to other department.
• No employee is transferred against his or her
wish.
• An employee transferred to another district is
given financial assistance from the organization to
cover removal costs, legal fees, refurnishing etc.
10.8.6 Dismissal
Dismissal means termination of employment by
1. Employer with or without notice
2. Failure of employer to renew a fixed term contract
3. Employee‘s resignation, with or without notice.
The third point is also termed as ―Constructive
Dismissal‖.
It means the employer is behaving so unreasonably
that, the worker has no alternative, but to quit.
Normally, the employer must give the employee impossible the fulfillment of a contract of
notice of dismissal, but sometimes dismissal without employment.
notice is permissible. Examples: Theft, Persistent drunkenness, violence,
Such dismissal is termed as ―Summary dismissal" and abusiveness to customers or colleagues, willful
could occur when an employee‘s behavior makes disobedience, or incompetence that immediately
causes damage to the employer‘s business.
 11
Information Systems and Managerial Functional Areas
Overview:
 Emergence of Digital Firm in the existing era of IT, Information needs of management at various level of an organization,
flow of information in the organization: top down, bottom up and integrated.
 Information System: Meaning, nature and their role
 Approaches to Information Systems: Technical Approach, Behavioral Approach and Socio Technical Approach.
 Types of Information Systems in Organization: Decision Support System, MIS, Expert System, Knowledge Management
System, Transaction Processing System.
 Importance of information systems in supporting various levels of business strategy formulations and decision makings,
Software and Hardware Requirements for developing efficient Information System (It is expected that such discussion
should cover the latest developments taking place in software and hardware).

11.1

11.2 Types of Information Systems in Organization

11.2.1 Decision Support System (DSS)

Definition: A Decision Support System (DSS) is an umbrella term used to describe any computer application that enhances the
user’s ability to make decisions. More specifically, the term is usually used to describe a computer-based system designed to
help decision-makers use data, knowledge and communications technology to identify problems and make decisions to solve
those problems.
Types of DSS
Since the definition of Decision Support Systems can be stretched to include almost any application that processes data there is
some confusion as to exactly what constitutes a DSS. In an effort to clarify the term, DS systems can be separated into seven
broad categories, each aiding decision making by different methods.
Communications Driven DSS
A C-D DSS is a type of DSS that enhances decision-making by enabling communication and sharing of information between
groups of people. At its most basic level a C-D DSS could be a simple threaded e-mail. At its most complexity it could be a web-
conferencing application or interactive video.
Communication-Driven DSS will exhibit at least one of the following characteristics:
 Supports coordination and collaboration between two or more people
 Facilitates information sharing
 Enables communication between groups of people
 Supports group decisions.
Data-Driven DSS
Data-driven DSS are a form of support system that focuses on the provision of internal (and sometimes external) data to aid
decision making. Most often this will come in the form of a data warehouse – a database designed to store data in such a way
as to allow for its querying and analysis by users.
Another example of a data-driven DSS would be a Geographic Information System (GIS), which can be used to visually
represent geographically dependant data using maps.
Document-Driven DSS
Document-driven DSS are support systems designed to convert documents into valuable business data. While data-driven DSS
rely on data that is already in a standardized format that lends it to database storage and analysis, document-driven DSS
makes use of data that cannot easily be standardized and stored.
The three primary forms of data used in document driven DSS are:
 Oral (i.e. transcribed conversations)
 Written (i.e. reports, memos, e-mail and other correspondence)
 Video (i.e. TV commercials and news reports)
None of these formats lend themselves easily to standardized database storage and analysis, so managers require DSS tools to
convert them into data that can be valuable in the decision making process.
Document-driven DSS is the newest field of study in Decision Support Systems. Examples of document-driven tools can be
found in Internet search engines, designed to sift through vast volumes of unsorted data through the use of keyword searches.
Knowledge-Driven DSS
Knowledge-driven DSS are systems designed to recommend actions to users. Typically, knowledge-driven systems are
designed to sift through large volumes of data, identify hidden patterns in that data and present recommendations based on
those patterns.
Model-Driven DSS
Model-driven support systems incorporate the ability to manipulate data to generate statistical and financial reports, as well as
simulation models, to aid decision-makers. Model-based decision support systems can be extremely useful in forecasting the
effects of changes in business processes, as they can use past data to answer complex ‗what-if‘ questions for decision makers.

In addition to these basic types of DSS there are also two additional factors: whether the DSS is spreadsheet-based, web-based
or something else entirely.
Spreadsheet-based DSS
Model- and Data-driven DS systems can be built using spreadsheets. Spreadsheets offer decision-makers easy to understand
representations of large amounts of data. Additionally, spreadsheet data is arranged in such a way as to make it easy to
convert the data into visualizations to further aid decision-makers.
Web-based DSS
Any type of DSS can be web-based. The term simply describes any decision support system that is operated through the
interface of a web browser, even if the data used for decision support remains confined to a legacy system such as a data
warehouse.
Scope of DSS
In addition to these basic types of Decision Support System there are also two separate categories used to define systems.
Enterprise-wide DSS
Enterprise-wide DS systems are systems that are linked into large data warehouses, and offer decision support to managers at
all levels of an enterprise. Enterprise-wide systems will typically be basic, general use systems that can perform a wide variety
of functions.
Desktop DSS
Desktop DS systems are much smaller applications designed to be run from a desktop PC. While these systems may well be
linked into a data warehouse or other large volume of data, they will typically be more limited in scope.
An example of a desktop DSS is Microsoft Excel, the desktop spreadsheet.

11.2.2 MIS (Management Information Systems)

Definition: Management Information Systems (MIS) is the term given to the discipline focused on the integration of computer
systems with the aims and objectives on an organization.
The development and management of information technology tools assists executives and the general workforce in performing
any tasks related to the processing of information. MIS and business systems are especially useful in the collation of business
data and the production of reports to be used as tools for decision making.
Applications of MIS
With computers being as ubiquitous as they are today, there's hardly any large business that does not rely extensively on their
IT systems.
However, there are several specific fields in which MIS has become invaluable.
Strategy Support
While computers cannot create business strategies by themselves they can assist management in understanding the effects of
their strategies, and help enable effective decision-making.
MIS systems can be used to transform data into information useful for decision making. Computers can provide financial
statements and performance reports to assist in the planning, monitoring and implementation of strategy.
MIS systems provide a valuable function in that they can collate into coherent reports unmanageable volumes of data that
would otherwise be broadly useless to decision makers. By studying these reports decision-makers can identify patterns and
trends that would have remained unseen if the raw data were consulted manually.
MIS systems can also use these raw data to run simulations – hypothetical scenarios that answer a range of ‗what if‘ questions
regarding alterations in strategy. For instance, MIS systems can provide predictions about the effect on sales that an alteration
in price would have on a product. These Decision Support Systems (DSS) enable more informed decision making within an
enterprise than would be possible without MIS systems.
Data Processing
Not only do MIS systems allow for the collation of vast amounts of business data, but they also provide a valuable time saving
benefit to the workforce. Where in the past business information had to be manually processed for filing and analysis it can now
be entered quickly and easily onto a computer by a data processor, allowing for faster decision making and quicker reflexes for
the enterprise as a whole.
Management by Objectives
While MIS systems are extremely useful in generating statistical reports and data analysis they can also be of use as a
Management by Objectives (MBO) tool.
MBO is a management process by which managers and subordinates agree upon a series of objectives for the subordinate to
attempt to achieve within a set time frame. Objectives are set using the SMART ratio: that is, objectives should be Specific,
Measurable, Agreed, Realistic and Time-Specific.
The aim of these objectives is to provide a set of key performance indicators by which an enterprise can judge the performance
of an employee or project. The success of any MBO objective depends upon the continuous tracking of progress.
In tracking this performance it can be extremely useful to make use of an MIS system. Since all SMART objectives are by
definition measurable they can be tracked through the generation of management reports to be analyzed by decision-makers.
Benefits of MIS
The field of MIS can deliver a great many benefits to enterprises in every industry. Expert organizations such as the Institute of
MIS along with peer reviewed journals such as MIS Quarterly continue to find and report new ways to use MIS to achieve
business objectives.
Core Competencies
Every market leading enterprise will have at least one core competency – that is, a function they perform better than their
competition. By building an exceptional management information system into the enterprise it is possible to push out ahead of
the competition. MIS systems provide the tools necessary to gain a better understanding of the market as well as a better
understanding of the enterprise itself.
Enhance Supply Chain Management
Improved reporting of business processes leads inevitably to a more streamlined production process. With better information on
the production process comes the ability to improve the management of the supply chain, including everything from the
sourcing of materials to the manufacturing and distribution of the finished product.
Quick Reflexes
As a corollary to improved supply chain management comes an improved ability to react to changes in the market. Better MIS
systems enable an enterprise to react more quickly to their environment, enabling them to push out ahead of the competition
and produce a better service and a larger piece of the pie.
Further information about MIS can be found at the Bentley College Journal of MIS and the US Treasury‘s MIS handbook, and an
example of an organizational MIS division can be found at the Department of Social Services for the state of Connecticut.

11.2.3 EXPERT SYSTEMS: APPLIED AI

Currently, there are few applications in business that a computer scientist would call AI. Instead, organizations take advantage
of an applied branch of artificial intelligence called expert systems (ESs)-advisory programs that attempt to imitate the
reasoning process of human experts (Turban, 1995).
Why build such systems? One purpose is to make the expertise of an individual available to others in the field. One company
built an expert system to help diagnose and solve the problem of oil exploration rig drills getting stuck. The knowledge of the
firm's best drilling expert became available on all rigs through the expert system.
Another motivation for creating an expert system is to capture knowledge from an expert who is likely to be unavailable in the
future, perhaps because of an impending retirement. An expert system also provides for some consistency in decision making.
Imagine a brokerage house in which the compliance department must see that brokers follow the firm's and the SEC's rules. If
the firm uses an expert system to help advice its analysts, each case of suspected rule violations will be evaluated consistently.
How is this kind of knowledge discovery different from the knowledge bases one can build with a groupware application such as
Lotus Notes? Both kinds of applications have the same goals. The groupware solution does simple searches on word matches.
Expert systems feature more sophisticated approaches to search; they can discover new patterns and relationships in the data,
something that a search on keywords is unable to do.
Components of Expert Systems
An expert system consists of the following components:
The user interface
The knowledge base
The inference engine
Interface is an extremely important component of an expert system. Possibly because users are not accustomed to systems
that provide advice, they are more demanding. Also, if the advisory system is used frequently, it becomes an important part of
the user's daily activities. A good interface makes the system much more pleasant to use and helps promote its acceptance.
What is a knowledge base? How does it differ from a database? One important way to represent an expert's knowledge is
through the use of rules. An example of a rule might be as follows:
IF the broker sold stock in an account on one day
AND bought the same stock for the same account the next day,
THEN investigate the transaction p 10
=

This hypothetical rule indicates that the probability of an investigation is to be increased if the broker sold stock one day and
bought it back the next. The broker might be trying to generate commissions when there was no valid investment reason for
the transactions.
A database stores numbers and symbols. It might show a simple relationship among the data because they are stored together
or defined as connected in some way. A rule in a knowledge base, however, contains some of the logic of an application.
The rule above implies something about when an investigation should be undertaken. An ordinary database makes it very
difficult to figure out the logic of the application. A knowledge base contains more information about logic than a conventional
database.
Knowledge Representation
The production rule above is an example of one type of knowledge representation. It is one of the most popular for building
expert systems in business. Another representation technique is known as a frame. The frame provides a way to gather a lot of
information about an object into one place. For an expert system to advise us on what personal computer to buy, a frame
might contain the characteristics of each PC, including its memory size, the type of chip, the speed of the chip, the type of
video board, the monitor, and so on.
 Finally, an expert system can use a semantic network. In a network, information is connected through a series of nodes. The
program traverses the nodes along the paths of the network when it is seeking information for its computations.
The Inference Engine
The inference engine is the reasoning part of the expert system. It is one of the major components of an expert system's shell,
a program that is designed to facilitate the development of an expert system. Many of these shells are designed for personal
computers, and typically they work through production rules. The inference engine examines the rules and tries to find rules
with true IF conditions. A true rule then "fires" and performs the action indicated in the THEN clause. The inference engine may
employ forward or backward chaining. An example will help illustrate how the inference engine might work (Luconi, alone, and
Morton, 1986). Figure 22-1 contains several production rules for personal financial planning. Suppose the client's tax bracket is
33 percent and her liquidity is more than $100000 and our client has a high tolerance for risk. Forward chaining involves going
through the rules one at a time to infer that exploratory oil and gas investments are the best recommendation.
If we are interested only in whether exploratory oil and gas investments are the best recommendations and we are not
interested in other possible investments, backward chaining is more efficient. In backward chaining, the system begins with a
goal. In this case, the goal is to show that the client needs exploratory oil and gas investments. At each stage, the inference
engine establishes sub goals that, if achieved, would indicate the client needs exploratory oil and gas investments.
Looking at Figure 22- 1, assume we know that the THEN condition of the third rule is our goal. To conclude that the exploratory
shelter is recommended, we need to know that risk tolerance is high (which is already known) and we need a rule to show that
a shelter is recommended. By checking other rules, the inference engine finds if rule I is true, it can achieve its sub goal of
having a shelter recommended. The IF conditions of rule I are true, so the sub goal is attained and rule 3 is true.
Systems Development
The development of an ES follows much the same process as recommended for a DSS in the previous chapter. Expert-system
development lends itself naturally to prototyping and learning through test cases. Sometimes the individual designing the
system is called a "knowledge engineer" to distinguish him or her from a traditional systems analyst. The development process
is different because advice is far more tentative than the numeric solution of a problem or the processing of transactions.
We should point out, however, how difficult it can be to conduct knowledge engineering.
In the AESOP example presented below, many hours were spent in meetings with the expert, and many meetings were
canceled because of his schedule.
It was not until the meetings moved to the floor of the American Stock Exchange just after the close of trading that we
managed to make progress on the system. The expert is extremely knowledgeable, and it was difficult for him to explain his
logic because he was not conscious of his decision-making steps.
In some instances, experts are reluctant to reveal their expertise to systems developers.
In many cases, systems are developed as an experiment and are never fully implemented. The kind of systems described in
this chapter may be some of the most difficult to implement successfully.

11.2.4 Knowledge Management System

Knowledge management systems provide a means to assemble and act on the knowledge accumulated throughout an
organization. Such knowledge may include the texts and images contained in patents,design methods, best practices, competitor
intelligence, and similar sources. Organizational knowledge is often tacit, rather than explicit, so these systems must also direct
users to members of the organization with special expertise. Access to an organization’s knowledge is often provided via an intranet
equipped with specialized search software. The next section, Management support, describes how information systems are used to
assemble reports and reach executive decisions.
Knowledge Management System (KM System) refers to a (generally IT based) system for managing knowledge in organizations
for supporting creation, capture, storage and dissemination of information. It can comprise a part (neither necessary nor sufficient)
of a Knowledge Management initiative.
The idea of a KM system is to enable employees to have ready access to the organization's documented base of facts, sources of
information, and solutions. For example a typical claim justifying the creation of a KM system might run something like this: an
engineer could know the metallurgical composition of an alloy that reduces sound in gear systems. Sharing this information
organization wide can lead to more effective engine design and it could also lead to ideas for new or improved equipment.
A KM system could be any of the following:
1. Document based i.e. any technology that permits creation/ management/ sharing of formatted documents such as Lotus Notes,
web, distributed databases etc.
2. Ontology/ Taxonomy based: these are similar to document technologies in the sense that a system of terminologies (i.e. ontology)
are used to summarize the document e.g. Author, Subject, Organization etc. as in DAML & other XML based ontology.
3. Based on AI technologies which use a customized representation scheme to represent the problem domain.
4. Provide network maps of the organization showing the flow of communication between entities and individuals.
5. Increasingly social computing tools are being deployed to provide a more organic approach to creation of a KM system.
KMS systems deal with information (although Knowledge Management as a discipline may extend beyond the information centric
aspect of any system) so they are a class of information system and may build on, or utilize other information sources.
Distinguishing features of a KMS can include:
1. Purpose: a KMS will have an explicit Knowledge Management objective of some type such as collaboration, sharing good practice
or the like.
2. Context: One perspective on KMS would see knowledge is information that is meaningfully organized, accumulated and embedded
in a context of creation and application.
3. Processes: KMS are developed to support and enhance knowledge-intensive processes, tasks or projects of e.g., creation,
construction, identification, capturing, acquisition, selection, valuation, organization, linking, structuring, formalization, visualization,
 transfer, distribution, retention, maintenance, refinement, revision, evolution, accessing, retrieval and last but not least the
application of knowledge, also called the knowledge life cycle.
4. Participants: Users can play the roles of active, involved participants in knowledge networks and communities fostered by KMS,
although this is not necessarily the case. KMS designs are held to reflect that knowledge is developed collectively and that the
“distribution” of knowledge leads to its continuous change, reconstruction and application in different contexts, by different
participants with differing backgrounds and experiences.
5. Instruments: KMS support KM instruments, e.g., the capture, creation and sharing of the codifiable aspects of experience, the
creation of corporate knowledge directories, taxonomies or ontologies, expertise locators, skill management systems, collaborative
filtering and handling of interests used to connect people, the creation and fostering of communities or knowledge networks.
A KMS offers integrated services to deploy KM instruments for networks of participants, i.e. active knowledge workers, in
knowledge-intensive business processes along the entire knowledge life cycle. KMS can be used for a wide range of cooperative,
collaborative, adhocracy and hierarchy communities, virtual organizations, societies and other virtual networks, to manage media
contents; activities, interactions and work-flows purposes; projects; works, networks, departments, privileges, roles, participants and
other active users in order to extract and generate new knowledge and to enhance, leverage and transfer in new outcomes of
knowledge providing new services using new formats and interfaces and different communication channels.
The term KMS can be associated to Open Source Software, and Open Standards, Open Protocols and Open Knowledge licenses,
initiatives and policies.
Benefits of KM Systems
Some of the advantages claimed for KM systems are:
1. Sharing of valuable organizational information throughout organizational hierarchy.
2. Can avoid re-inventing the wheel, reducing redundant work.
3. May reduce training time for new employees
4. Retention of Intellectual Property after the employee leaves if such knowledge can be codified.

11.2.5 Transaction Processing System (TPS)

Definition: A Transaction Processing System (TPS) is a type of information system that collects, stores, modifies and
retrieves the data transactions of an enterprise.
A transaction is any event that passes the ACID test in which data is generated or modified before storage in an
information system
Features of Transaction Processing Systems
The success of commercial enterprises depends on the reliable processing of transactions to ensure that customer
orders are met on time, and that partners and suppliers are paid and can make payment. The field of transaction
processing, therefore, has become a vital part of effective business management, led by such organizations as the
Association for Work Process Improvement and the Transaction Processing Performance Council.
Transaction processing systems offer enterprises the means to rapidly process transactions to ensure the smooth
flow of data and the progression of processes throughout the enterprise. Typically, a TPS will exhibit the following
characteristics:
Rapid Processing
The rapid processing of transactions is vital to the success of any enterprise – now more than ever, in the face of
advancing technology and customer demand for immediate action. TPS systems are designed to process
transactions virtually instantly to ensure that customer data is available to the processes that require it.
Reliability
Similarly, customers will not tolerate mistakes. TPS systems must be designed to ensure that not only do
transactions never slip past the net, but that the systems themselves remain operational permanently. TPS
systems are therefore designed to incorporate comprehensive safeguards and disaster recovery systems. These
measures keep the failure rate well within tolerance levels.
Standardization
Transactions must be processed in the same way each time to maximize efficiency. To ensure this, TPS interfaces
are designed to acquire identical data for each transaction, regardless of the customer.
Controlled Access
Since TPS systems can be such a powerful business tool, access must be restricted to only those employees who
require their use. Restricted access to the system ensures that employees who lack the skills and ability to control
it cannot influence the transaction process.
Transactions Processing Qualifiers
In order to qualify as a TPS, transactions made by the system must pass the ACID test. The ACID tests refers to
the following four prerequisites:
Atomicity
Atomicity means that a transaction is either completed in full or not at all. For example, if funds are transferred
from one account to another, this only counts as a bone fide transaction if both the withdrawal and deposit take
place. If one account is debited and the other is not credited, it does not qualify as a transaction. TPS systems
ensure that transactions take place in their entirety.
Consistency
TPS systems exist within a set of operating rules (or integrity constraints). If an integrity constraint states that all
transactions in a database must have a positive value, any transaction with a negative value would be refused.
Isolation
Transactions must appear to take place in isolation. For example, when a fund transfer is made between two
accounts the debiting of one and the crediting of another must appear to take place simultaneously. The funds
cannot be credited to an account before they are debited from another.
Durability
Once transactions are completed they cannot be undone. To ensure that this is the case even if the TPS suffers
failure, a log will be created to document all completed transactions.
These four conditions ensure that TPS systems carry out their transactions in a methodical, standardized and
reliable manner.
Types of Transactions
While the transaction process must be standardized to maximize efficiency, every enterprise requires a tailored
transaction process that aligns with its business strategies and processes. For this reason, there are two broad
types of transaction:
Batch Processing
Batch processing is a resource-saving transaction type that stores data for processing at pre-defined times. Batch
processing is useful for enterprises that need to process large amounts of data using limited resources.
Examples of batch processing include credit card transactions, for which the transactions are processed monthly
rather than in real time. Credit card transactions need only be processed once a month in order to produce a
statement for the customer, so batch processing saves IT resources from having to process each transaction
individually.
Real Time Processing
In many circumstances the primary factor is speed. For example, when a bank customer withdraws a sum of
money from his or her account it is vital that the transaction be processed and the account balance updated as
soon as possible, allowing both the bank and customer to keep track of funds.
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Information Systems and Managerial Functional Areas
Overview:
 Understanding various processes/decisions involved in Production and Operations management; and determining their
information needs, developing necessary information systems for Production and Operations management and their
integration with the overall enterprise information systems.
 Processes and decisions required for effective and efficient Sales and Marketing Management; need for necessary
information systems for them and their integration with other information systems in an organization.
 Appreciating the information requirement of a finance manager for various financial decisions in an organization and how
suitable information systems can be designed to meet their requirements, integration of financial information system with
that of the enterprise information system.
 Determining information requirements of a personnel manager and his/her need for necessary information systems for
better decisions. Integrating Personnel Management related information systems with overall information system in an
organization.
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Current Issues in Information Systems
Overview: Role of Intranet and Internet in the development of various information systems in an organization, E-Commerce,
Enterprise Resource Planning (ERP), Role of Information Systems in Supply Chain Management, Information Systems and
Customer Relation Management (CRM).

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