Contents

PART:A: Principles and Functions of Management

Unit - 1.
1. Management : An Introduction 3
2. Management As Science, Art and Profession 15
3. Levels and Functions of Management 22
4. Coordination: Nature and Importance 32
Unit - 2
5. Principles of Management: Nature and Significance 39
6. Scientific Management: Principles and Techniques 56
Unit - 3
7. Business Environment : Importance and Dimensions 68
Unit - 4
8. Planning and Types of Plans 89
Unit - 5
9. Organising: Importance and Process 105
10. Organisation Structure: Meaning and Types 117
11 Delegation of Authority and Decentralisation 125
Unit - 6
12. Staffing: Meaning and Importance 137
13. Recruitment: Meaning and Sources 146
14. Selection: Meaning and Process 156
15. Training and Development 162
Unit - 7
16. Directing: Importance and Principles 172
17. Supervision: Meaning and Importance 178
18. Motivation: Meaning and Importance 182
19. Leadership: Meaning and Importance 195
20. Communication: Importance and Barriers 202
Unit - 8
21. Controlling: Importance and Process 219
PART:B: Business Finance and Marketing
Unit - 9
1. Financial Management, Financial Decisions and Financial Planning 239
2. Capital Structure: Meaning and Determinants 25l
3. Fixed and Working Capital : Meaning and Determinants 262
Unit - l0
4. Concept of Financial Market 270
5. Stock Exchange: Meaning and Functions 281
Unit – 11
6. Marketing and Marketing Mix 295
7. Advertising : Role, Limitations and Objections 328
8. Personal Selling : Meaning and Importance 336
9. Sales Promotion and Publicity 342
Unit - 12
10. Consumer Protection: Importance and Ways 349
CBSE Sample Question Paper-2009 (Solved) 367
Model Test Papers 381
CBSE Question Papers
 Chapter 1
Management: An Introduction
“Anything Minus Management is Zero”
Learning Objectives
After studying this chapter, you will be acquainted with:
 Management: Concept
 Definitions of Management
 Characteristics of Management
 Objectives of Management
 importance of Management
Management: Concept
Detailed description about the Management concept has been given in the following Analysis
Box:
ANALYSIS BOX
The ensuing conversation between counterparts aka Mr. Answer and Mr Question will
facilitate us to comprehend the intricacies of the subject ‘MANAGEMENT’. It apparently
delineates the picture of management in our minds, In this dialogue Mr. Answer and Mr
Question portray the characters of a management expert and a student of management
respectively.
COMMENCE
Mr Question : Sir, may I know what management is?
Mr Answer : Oh yes, why not, very simple,’ Management is what a manager does’.
Mr Question : Sir, what does a manager do?
Mr Answer : A manager performs five functions in the given seriatim. These are : Planning,
Organising, Staffing, Directing and Controlling.
Mr Question: Fine, sir. Kindly elucidate what a manager aspires to do by performing these
functions.
Mr Answer: A manager wants to make optimum utilisation of resources( manpower, money,
material, machines, etc) in order to accomplish the work efficiently and effectively.
Mr Question : Sir, Is there any difference between efficiency and effectiveness? Are both not
having the same meaning?
Mr Answer: Oh, no, never commit this mistake. There is a lot of difference between these
two words. The very low denotation of both these words suggest on their underlying nuances.
Listen
Efficiency refers to the relationship between inputs and outputs. If we produce more from the
given inputs, our efficiency is increased. Or if we produce the same from less inputs, gain our
efficiency is increased. And if only possible when a manager avoids the wastage of scarce
resources.
On the other hand….
Mr Question: Sir, sorry for interruption May we refer it as ‘Doing Things Right’ ?
Mr Answer : Yes you are very right. Efficiency means
 ‘doing things right’ or
 ‘not wasting resources’ or
 ‘making use of resources in a cost effective manner’
Mr Question : Ok sir Please continue
Mr Answer: Effectiveness refers to the successful consummation of the activities so that
organisational goals are achieved. When a manager attains goals, we say he/she is effective.
It means effectiveness is adjudged merely on the basis of attainment of goals irrespective of
the fact how much cost is incurred in their fulfilment.
Mr Question: Sir can we call effectiveness as “ Doing the right things’ or taking right
decisions as far as the attainment of goals is concerned.
Mr Answer: Yes, you are very right. Efficiency is referred to as ‘doing things right’ and
effectiveness is referred to as ‘doing the right things’
Mr Question: sir, how are they related?
Mr Answer: A Good query:
Efficiency and effectiveness are related. It is easier to be effective if we ignore efficiency.
For example, Alfa Co. could produce more attractive and comfortable ‘Mobile Phone sets’
Of it ignores material, labour and other costs. It means the company gets the job done (
which is the goal of the company) but at a very high cost. It may be expressed like this- the
effort of the company is reasonable effective (as it produced a quality product) but extremely
inefficient (because of high cost).
Mr Question: Sir, it means the management is concerned not only with getting job completed
effectively but also with doing so as efficiently as possible!
Sir, regarding efficiency and effectiveness an example comes to my mind. May be I wrong.
But I am anxious to put forward the same in front of you.
Mr Answer Why not
Mr Question: Sir suppose Mr Solution is a Finance Manager in a company. He is supposed
to arrange Rs 50 Lakh immediately. He gets his job done well in time @ 10% p a. The market
rate is 8% p.a.. In my opinion Mr solution is an effective manager but not efficient. He is
effective as he gets his job done, but not efficient as the job is done at a very high cost.
Mr Answer: You are hundred percent right.
Mr Question: Sir, I am inquisitive to know at what position/designation does a manager
perform the five functions of management?
Mr Answer: At all managerial levels.
Mr Question: Sir, Kindly explicate further.
Mr Answer: Ok, listen all the employees of an organisation are divided into two categories :
i) Managerial Employees and ii) Non Managerial employees.
Further Managerial employees have three different categories
 Top Level Management
 Middle Level Management
 Lower Level Management
The managers of all the three levels perform all the five above mentioned functions.
Mr Question: Sir, Non Managerial employees means….?
Mr Answer: The organisational members who worked directly on a job and have no
subordinates.
Mr Question: Sir could please explain through an example.
Mr answer: The employees of this category are known as workers/operatives/non managerial
employees. And where they work is known as platform area.
Mr Question: Sir, let me know who is a manager?
Mr Answer: The person who manages others(because of this meaning of manager, worker are
not known as manager and are included in the non managerial category of employees)
Mr Question: Fine sir, Let me now know whether a manager performs his/her job
independently or does he call for some assistance.
Mr Answer: Assistance is imperative. Here ‘Principles of Management’ discharge the
responsibilities of a mentor to a manager. A manager is supposed to abide by the 14
principles of management coined by Henry Foyol along with some others for assured success.
Mr Question: Sir, Functions…….Levels….Principles…..Efficiency and effectiveness …Ok
sir . Last query please. May I have a very brief note on the five functions? What they mean?
Mr Answer: Why not. Listen carefully ….
 i) Planning: It refers to thinking before hand
ii) Organizing: It refers to harmonious adjustments of various elements to achieve
common objectives.
iii) Staffing: It refers to filling and keeping filled the posts with people.
iv) Directing: It refers to instructing, guiding , communicating and inspiring people in
the organisation
v) Controlling : It refers to bring the actual results closer to the desired results.
Mr Question: Sir, One more query please. Why do we study management? We can’t run
without it….
Mr Answer: Gentleman, try to understand the following equation:
Anything-Management =Zero
Are you following this?
Mr Question: SSS Sir, what’s is this…? We are discussing management not mathematics!
Please elaborate your view point.
Mr Answer: O.K Here by anything we mean all types of activates-business and non business.
If we deduct management out of these activities, the result will be zero/failure. In other
words. If we are not going to manage any type of activity, we can’t achieve desired results or
failure is inevitable.
Mr Question : Sir OK Thank You
Mr Answer: Gentleman now you tell me what have you understood by management?
Mr Question: Sir management is nothing but the sum total of five functions (planning,
organizing, stuffing, directing and controlling), three management levels( top level, middle
level, lower level) and fourteen principles (given by Henry Fayol). In other words managers
guided by principles of management, perform five other managerial functions at all the there
managerial levels to get the work done in an efficient and effective manner. This is
Management.
Mr Answer: Ok well expressed. We can also express it like this- management is a process of
conduction a set of functions ( planning, organizing, staffing, directing and controlling) to get
the work done in efficient and effective manner.
Mr Question: Sir, in your definition you have mentioned that management is a process. But
sir, how management is a process? We cant say it an activity?
Mr Answer: Oh, it’s a million dollar question my friend! To understand this, it is necessary to
know the meaning of activity and process. An activity is a single stroke action while process
is a combination of many actions (steps). And management is not a single stroke action but a
st of actions/steps/functions. We take five steps in management starting from planning to
controlling. This is why management is a process not an activity.
Mr Question: Sir Ok it means all the function of management individually are activities and
when we combine them then it becomes a process.
Mr Answer: Gentleman, one more thing you must remember is- take planning, planning is an
activity( as 1st step of management) while we consider it with reference to management but if
we study planning individually. It is also a process as it has its own steps to complete it. And
same is the situation of remaining four functions of management.
Mr Question: Sir it means all the functions are activities with reference to management but
individually the are process. Ok Sir.
Mr Answer: Gentleman, you must remember same is the case of management itself also.
Mr Question : How sir
Mr Answer: Listen….
If somebody puts up a query.. what are business activities? The reply is business activities
include the following
 Financial Activity
  Technical Activity
 Accounting Activity
 Managerial activity, etc
Now see, if we take the case of business activities management is one of them. Hence,
here management is an activity and not a process
Mr Question : Ok sir, It was a great learning experience. I really appreciate the way to
taught such an intricate subject by making it comprehensive and calling for my absolute
participation from beginning till end.
During the course of the session I learned umpteen number of novel concepts and many
of my misgivings were clarified. I really fall short of words to thank you from the bottom
of my heart for such an enlightening and educative experience. Thank U very much Sir.

Definitions of Management
Following are the main definitions of management.
(1) According to Harold Koontz, "Management is the art of getting things done through
others and with formally organised groups. "
(2) According to George R. Terry, "Management is a distinct process consisting of
planning, organising, actuating and controlling; utilising in each both science and art, and
followed in order to accomplish pre-determined objectives."
(3) According to F.W. Taylor, "Management isthe art of knowing what you want to do
and then seeing that they do it in the best and the cheapest way."
(4) According to Peterson and Plowman, "Management may be defined asthe process by
means of which the purpose and objectives of a particular human group are determined,
clarified and effectuated.

Characteristics of Management
On the analysis of various definitions, the following characteristics of management emerge:
(1) Management is Goal Oriented Process: No goal in the hand-no need of management. In
other words, we need management when we have some goals to be achieved. A manager on
the basis of his knowledge and experience tries to achieve the goals which are already
decided. Hence, nothing is wrong to say that management is a goal oriented process.
(2) Management is all Pervasive: Anything minus management is nothing or zero. Here by
anything we mean all types of activities-business and non-business. If we deduct
management out of these activities, the result will be failure or zero. It means management is
necessary to conduct any type of -- activities. Hence, it is pervasive or universal.
(3) Management is Multidimensional: The management is a three dimensional activity:
(i) Management of Work: Every organisation is established for doing some work, like a
school provides education, a hospital treats patients, a factory produces, etc. Of these no work
can be completed satisfactorily without management. (ii) Management of People: Each
organization is established for doing some work and the same is conducted by people. Hence,
it is necessary to manage the people so that the work can be accomplished in a better way.
(iii) Management of Operations: To achieve the goals of an organisation many operations
or activities are need to be conducted, such as, production, sale, purchase, finance,
accounting, R&D, etc. Again, management is needed to make sure that operations are
accomplished efficiently and effectively.
(4) Management is a Continuous Process: The various managerial activities cannot be
performed once for all, but it is a continuous process. A manager is busy sometimes in doing
one managerial activity and at other time some other activity.
(5) Management is a Group Activity: It means that it is not a single person who
consummates all the activities of an organization but it is always a group of persons
(Managers). Hence, management is a group effort.
(6) Management is a Dynamic Function: Management isa dynamic activity as it has to
adjust itself to the regularly changing environment. In this context, it can be rightly said that
nothing is eternal in management.
(7) Management is an Intangible Force: Management is that power which cannot be seen.
It can only be felt-If any organization is heading toward higher levels of achievement, it
signifies existence of good management and vice-versa.

Objectives of Management
Objectives of management can be broadly divided into the following three categories:
(1) Organisational Objectives
(2) Social Objectives
(3) Personal or Individual Objectives.
(1) Organisational Objectives: It refers to ascertain objectives for the whole organisation.
While fixing these objectives, management keeps into consideration benefit of all related
parties (like owner, employee, customer, government, etc.). This also fulfil organisational
economic objective which are survival, profit and growth.
(i) Survival: Every business wants to survive for long. So, management by taking positive
decisions with regard to different business activities should ensure that business survives for
long.
(ii) Profit: Profit plays an important role in facing business hazards and successful running of
business activities. So, it must be ensured that adequate profit is earned by the business.
(iii) Growth: Every business wants to grow. Management must ensure growth of business.
Growth can be measured by sales, number of employees, products, capital investment, etc. If
all these show increasing trend then it can be concluded that business is heading towards
growth.
(2) Social Objectives: Itrefers to the consideration of the interest of the society during
managerial activities. An organisation is established in a society. It runs through the resources
made available by the society, That is why it becomes the responsibility of every organisation
to account for social benefits. Thus, social objectives are defined as the fulfillment of
responsibility of an organisation towards society. Under this objective manager promises to
assure health, safety and price control.
Main social objectives of management are included in the following list:
(i) To make available employment opportunities.
(ii) To save environment from getting polluted.
(iii) To contribute in improving living standard.
For example: Asian Paints has provided funds under its community development programme,
which made possible the effective utilisation of local resources by the farmers. In the same
manner, Steel Authority of India regularly provides services related to agriculture, industry,
education, health, etc. to the people living nearby to its steel plant.
(3) Personal or Individual Objectives: It refers to ascertainment of the objectives in reference
to the employees. Employee class is an initiative and empathetic resource of a company.
Thus, special attention needs to be given towards its feelings. If the company is able to satisfy
its employees it will be able to progress in 'leaps and bounds.
Main objectives of management towards employees are as follows:
(i) To give deserving remuneration, (ii) To provide good working environment, (iii) To
provide a share in profit.
Importance of Management
Anything - Management = Zero / Failure / Nothing
The above mentioned mathematical equation highlights the importance of significance of
management very well. Here by anything we mean all types of activities whether business or
non-business. If we are not going to manage these activities the result will be Zero or Failure
or Nothing. In short, the importance of management is explained through the following facts:
(1) Management helps in achieving Group Goals: In is the most important characteristic of
management that it is goal-oriented activity. A manager achieves these goals by giving the
proper direction to the efforts of all individuals.
(2) Management Increases Efficiency: A manager increases efficiency through the
optimum utilization of all the resources, such as, Man, Machine, Material and Money.
(3) Management Creates a Dynamic Organisation: Every organisation works in an ever
changing environment. To face the changing environment, many changes need to be made in
the organisation as well. But people resist changes. Manager creates a favourable
environment through introducing employees to the benefits arising by adapting changes.
(4) Management helps in achieving Personal Objectives: Every employee wants to get
suitable remuneration, a share in profit, participation in management, promotion, etc. in the
form of his personal objectives. This objective can only be achieved, if they work while using
their full abilities. Managers make employees able through motivation, good leadership and
open communication. As a result, they attain their individual objectives.
(5) Management helps in the Development of Society: Management has some
responsibility towards society. Managers by fulfilling their social responsibilities helps in the
development of society. These responsibilities are to provide employment opportunities, to
prevent environment from getting pollution, to make available good quality products at a
reasonable price, etc.

CONCEPTS
1. Meaning of Management: Management is the process of conducting a set of functions,
such as, planning, organizing, staffing, directing and controlling to get the work done in an
efficient and effective manner.
2. Characteristics of Management: (i) Management is a goal oriented process,
(ii)Management is all pervasive, (iii) Management is multidimensional, (iv)Management is a
continuous process, (v) Management is a group activity, (vi)Management is a dynamic
function, (vii)Management is an Intangible force.
3. Objectives of Management: (i) Organisational Objectives: It refers to the ascertainment of
objectives for the whole organisation. (ii) Social Objectives: It refers to the consideration of
the interest of the society during managerial activities. (iii) Personal or Individual Objectives:
It refers to the ascertainment of the objectives in reference to the employees.
4. Importance of Management: (i) Management helps in achieving group goals, (ii)
Management increases efficiency, (iii) Management creates a dynamic organisation, (iv)
Management helps in achieving personal objectives, (v) Management helps in the
development of society.

Assignments
Management: Concept
6 Marks
1. What is meant by Management? Explain any four characteristics.
2. 'Management is Multidimensional.' Explain.
4/5 Marks
3. Clarify the meaning of 'Group Efforts' in management.
4. Explain any four characteristics of Management.(CBSE 2005)
5. Explain any five features of management. (CBSE 2006)
3 Marks
6. Define management.
7. Clarify the following equation: 'Anything - Management = Zero'.
8. Explain in brief, 'management' as an activity. (C.B.S.E. 2004, 06)
9. Explain, in brief, 'Management' as a process.
10. How Management is a 'Goal Oriented Process'?
11. Management is not visible, it can only be felt. Explain.
12. How is management a Continuous Process?
13. 'Explain, in brief, management as a 'Dynamic Function.'
14. Explain 'Management of people' as a dimension of management.
15. Explain in brief, 'management' as a group of people having managerial responsibility for
an enterprise. (C.B.S.E. 2004)
16. State any two characteristics of management. (C.B.S.E. 2004)
1 Mark
17. What is meant by the term Management?
Ans. Management is the process of conducting a set of functions (planning, organizing,
staffing, directing and controlling) to get the work done in an efficient and effective manner.
18. What does a manager aspire while doing work?
Ans. A manager wants to make optimum utilisation of resources (manpower, money,
material, machines, etc.) in order to accomplish the work efficiently and effectively.
19. Clarify the terms efficiency and effectiveness in management.
Ans. Efficiency refers to do the job in a cost effective manner. Effectiveness refers to
complete the job on time, no matter whatever is the cost.
20. What is meant by 'Doing things Right' in management?
Ans. 'Doing things Right' refers to do the job in a cost effective manner.
21. What is the meaning of 'Doing the Right Things' in management?
Ans. 'Doing the Right Things' refers to complete the job, no matter whatever is the cost.
22. Why is it said that management is all pervasive? (C.B.S.E. 2009)
Ans. Because it is needed in all spheres say - business and non-business organisations.
23 'Management is uniformly needed at all places.' Explain.
Ans. It is needed throughout the world whether it is India, America or Japan.
24 'Management is multi-dimensional.' Enumerate any tow dimensions of management.
Ans. (i) Management of work. (ii) Management of people.
25 'Nothing is permanent in management.' Give an example.
Ans. For example, principles of management are changing according to the changing
business environment.
26 Management cannot be seen.' Explain.
Ans. Management cannot be seen, it can only be felt
27' In an organisation employees are happy and satisfied. there is no chaos and the effect of
management is noticeable.' Which characteristic of management is highlighted by this
statement? (CBSE 2008)
Ans. Management is an intangible force
28 Name the process of working with and through others to effectively achieve organisational
objectives by efficiently using its limited resources in the changing environment. (CBSE
2008)
Ans. Management.
29 , 'In order to be successful an organization must change its goals according to the needs of
the environment.' Which characteristic of management is highlighted in the statement?
(CBSE Sample Paper)
Ans. Management is dynamic.
30 Give any two characteristics of management. (CB.SE. Sample Paper)
Ans. (i)Management is goal-oriented process. (ii)Management is all pervasive
31 The management principles can be applied to all types of activities.' Which characteristic
of management is highlighted by this statement? (C.B.S.E. 2008)
Ans. Management is all pervasive.
32. Name the process of designing and maintaining an environment in which individuals
working together in groups, efficiently accomplish selected aims. (C.B.S.£. 2008)
Ans. Management.
33. Why is it said that management is a goal-oriented process? (CB.S.E. 2009)
Ans. Management said to goal oriented process as it helps in getting goals by coordinating
the efforts of various individuals.
34. Why is "management called a group activity"? (C.B.S.E2009)
Ans. It means that it is not a single person (manager) who consummates the whole process of
management but it is conducted by a group of persons (managers).
35. "Management creates a dynamic organisation." How? (Foreign 2009)
Ans. Management creates such type of organisation which is able to face the regularly
changing environment easily.
Objectives of Management
6 Marks
36. Explain the objectives of management.
4/5 Marks
37. Explain in brief the objectives of management.
38. Discuss the social objectives of management. (CB.S.E. 2007)
39. What are the three categories of objectives of management?
40. List the three examples of Social Objectives of management.
1 Mark
41. What are the organisational objectives of management?
Ans. It includes survival, profit and growth.
42. "Management helps in development of society." How? (C.B.S.E. 2009)
Ans. Management enables the organisation to make available employment opportunities,
hence helping in the development of society.
43 What do you mean by personal objectives of management?
Ans. It refers to the consideration of the interest of employees during managerial activities.
44 To meet the objectives of the firm the management of Angora Ltd. offers employment to
physically challenged persons. Identify the organization's objective it is trying to achieve.
(CB.S.E. Sample Paper)
Ans. It is social objective.
45. Management of any organization strives to attain different objectives. Enumerate any two
such objectives? (C.B.SE Sample Paper)
Ans. (i) Organisational objectives, (ii) Social objectives.

Importance of Management
6 Marks
46. 'Anything minus management is zero.' Explain the importance of management in the light
of this statement.
47. Explain the significance of management in running of modem enterprise. (CB.S. E. 2001)
48. 'Management is the art of getting things done through others.' Explain the importance of
management in the light of this statement.
49. How is management essential for the successful running of an enterprise?
50. 'Lack of proper management results in wastage of time, money and efforts.' Do you agree
with this statement? Give reasons in support of your answer. (CBSE 2003)
51. Explain any five reasons why management is essential in any organisation? (C.B.SE
2006)
4/5 marks
52. Explain by giving any four points why management is important in any organisation?
(CB.S.E. 2005)
53. 'In the absence of management' the productive resources will remain resources and shall
never become production.' Explain the importance of management in the light of the above
statement. (CB.SE 2006)
54. "Success of an organization largely depends upon its management." Explain any five
reasons to justify the above statement. (C.B.S.E. Sample Paper)
55. How does management help in the development of society?
1 Marks
56. ;Anything minus management is nothing.' What does this statement tell?
Ans. It tells about the importance of management.
57. 'Anything minus management is nothing.' Here what is the meaning of 'anything'?
Ans. It refers to all types of activities, such as, business and non-business activities.
58. 'Anything minus management is nothing'. Here what is the meaning of 'nothing'?
Ans. It refers to failure or loss.
59 Name the two points of the importance of management.
Ans. (i) It helps in achieving group goals. (ii) It increases efficiency.
60 "Management increases efficiency." How? (C.B.SE 2009)
Ans. A manager increases efficiency through the optimum utilisation of all the resources,
such as, man, machine, material and money

CASE STUDY/ APPLICATION ORIENTED QUESTIONS

[1] Mr. Solution, who is an MBA, has been appointed at the post of General Manager in Sa-
re-ga-ma Ltd. Company. Just after his appointment, he took a decision to set up a chemical
plant near a residential colony. (The chosen location to set up the plant was favourable for
many reasons to the company). After some time, an another important decision to the amount
of charity been given annually to educational institutions and religious institutions was
withdrawn giving the justification that it was an unnecessary burden on the company. More
emphasis was given to the share of company in the market and in search of modern
procedures. Apart from this, a long time labour-dispute was resolved by taking a balanced
decision.
(i) Tell whether Mr. Solution is at fault? (ii) If yes, the fault is in which context? (i~ow can
the mistake be amended?
ADS. Yes, Mr. Solution is at fault. He is avoiding the social objective of management. There
is need of rethinking on two issues: (i) Establishing Chemical Plant and (ii) Giving Charity.

[2] Mr. PROBLEM is working at the post of Sales Manager in Surabhi Tel. Ltd. Last year,
the targeted sales increased to 20,000 units from earlier target of 18,000 units. This he
achieved very easily. To achieve this, he increased the expenditure on advertisement to
almost double.
(i)Did sales manager perform his duty efficiently and effectively?
(ii) If not, then how?
Ans. Mr. Problem is effective as he gets his job done but not efficient as the job is done at a
very high cost.
[3] Is there any difference in planning, organising, staffing, directing and controlling of
various organisations such as a school, a club, a restaurant and a steel plant. This case is
related to which characteristic of management?
ANS. No, there is no difference as far as the functions of management are performed by
various organisations. In other words, all the functions of management are performed in a
similar manner in all types of organisations, i.e., business or non-business. This case is
related with the characteristics of management, namely, 'management is all pervasive'.

QUERY Session

Mr. Question: Sir, a manager while performing his duty efficiently and effectively tries to
best utilise the resources. This is absolutely correct. However, while doing this what is his
focus of thinking?
Mr Answer. Right, a very nice question raised. The central focus of thinking of a manager is
'establishment of coordination'. In all ways, ne/she' wants to establish coordination.
Mr. Question; Sir, coordination among whom..:.?
Mr. Answer : * Coordination among objectives
* Coordination among activities
* Coordination among people
* Coordination among divisions
Mr. Question: O.K. sir, thus a manager can achieve his objectives by establishing
coordination.
Sir, Thank U.

CHAPTER 2
MANAGEMENT AS SCIENCE, ART AND PROFESSION

Different Management experts have described the nature of management differently in their
own time.
Learning Objectives
After Studying this Chapter, you will be Acquainted with:
• Management: As a Science
* Meaning of Science
* Testing of Management as a Science
• Management: As an Art
* Meaning of Art
* Testing of Management as an Art
• Management: As a Profession
* Meaning of Profession
* Testing of Management as Profession

Management: A Science or An Art

There is a conflict about the nature of management whether management is a science or an
art. Some management experts consider it as a science, while some place it in the category of
Art. It isa very old and misleading conflict. Before understanding the issue about the nature
of management, it is important to understand the meaning of science and art. The features and
meanings of science and art and its presence in management will become clear in the
following description.
Management as a Science
It is important to understand the meaning of science before accepting management as a
science.
• Meaning of Science
Science refers to that systematic body of knowledge which is acquired on the basis of
observation and experiments and verification of this knowledge is possible. For example, a
person completes his study of engineering. During the course of his study, he gets a complete
theoretical knowledge of the subject. His acquiring of knowledge in this manner is a science.
Science seems to have the following three characteristics:
(1) Systematised Body of Knowledge. (2) Principles Based on Experimentation and (3)
Universal Validity.
• Testing of Management as a Science
Itis important to apply these characteristics of science to management in order to find out
whether management is a science or not.
(1) Systematised Body of Knowledge: It is necessary for science to be a systematised body of
knowledge. Management is also a systematised body of knowledge because it has its own
theory and principles which are developed by the management experts after years of research.
(2) Principles Based on Experimentation: After applying this characteristic of science to
management, we find that development of management took years for the collection of facts,
their analysis and experiments. In other words, management came into existence because of
the continuous and encouraging labour of the theorists and various people concerned.
(3) Universal Validity: Scientific principles are based on truth and they can be applied at
every time and in every situation. Thus, its universal application is possible. In the field of
management too, managerial knowledge and principles of management are considered to be
based on truth and they, too, can be applied anywhere and in every situation But the
principles of management are not as exact as the principles of science as their application
may not yield the desired results always.
Conclusion: The management cannot be treated as a perfect science, but as its principles are
subject to change with time, situations and human nature, it is better to call it Applied Science
or Inexact Science. Ernest Dale has called management a soft science because its principles
are not very rigid.
Management as an Art
• Meaning of Art
Art refers to the practical application of knowledge. For example, when a person after
completing the course of engineering working as an engineer in a company, his this work is
known an art.
Following are the important characteristics of Art:
(i) Existence of Theoretical Knowledge.
(ii) Personalised Application.
(iii) Based on Practice and Creativity.
TOOL KIT -1
Science and Art
In simple words it can be said that to get information about a subject is science and putting
that information to practice is an art. For example, studying engineering is a science and after
study working as an engineer is an art.
Testing of Management as an Art
Whether management is an art or not will be known by the application of the characteristics
of art in management, description of which is as under:
(1) Existence of Theoretical Knowledge: Art is always based on certain theoretical
knowledge. On the basis of this knowledge one can understand how a particular work can be
accomplished. In this context management is an art as a lot of literature is available in various
areas of management
(2) Personalised Application: The use of available theoretical knowledge is found in varying
degree among different persons. For example, two teachers, two players, or two goldsmith
will always differ in performing their jobs. Management possesses this feature of art too.
There are various principles of management as developed by management experts. Managers
apply these principles differently depending on their level of knowledge. Sometimes they
may get exactly opposite results while applying the same principles. (3) Based on Practice
and Creativity: Just as art can be embellished with the help of practice, in the same way
managerial skill also improves with practice. Every manager has a desire to become a
complete expert in his field. They can fulfil his desire by continuous practice. A fully
developed manager not only moulds the organisation according to the changing
circumstances but also has the capacity to change the outer circumstances according to his
will. Thus, management possesses this feature of art too. The above analysis clearly
establishes that management possesses all the characteristics of art and on this very basis it
has been accepted as an art.
Conclusion
Therefore, we can say that management is both a science as well as an art. As a science,
management with the help of its principles provides the necessary guidance to the managers
to achieve practical efficiency. With reference to art, management, in the form of best work
technique, helps the managers to face every type of situation successfully. It is, therefore,
reasonable to treat management both as a science and an art.
Management: As a Profession or Professionalisation of Management
• Meaning of Profession
The nature of management gives rise to an important question - whether management is a
profession. One has to learn the meaning of profession and understand its characteristics
before answering this question.
Profession refers to that economic activity which is conducted by a person having some
special knowledge and skill which is used impartially to serve various sections of the society.
Following are the main characteristics of profession:
(1) Well Defined Body of Knowledge
(2) Restricted Entry
(3) Professional Association
(4) Ethical Code of Conduct
(5) Service Motive
TOOL KIT-2
Profession?
Profession refers to that economic activity which is conducted by a person having some
special knowledge and skill which is used impartially to serve various sections of the society.
Testing of Management as a Profession
After having understood the meanings of profession it now remains to be decided whether
management should be treated as a profession. In order to find an answer to this question it
shall have to be ascertained whether all the characteristics of a profession are found in
management. To find out an answer to this query, the following analysis is important:
(1) Well Defined Body of Knowledge: The foremost quality of a professional is the
possession of specialised knowledge. Management has its own principles based on
experiments and which requires special competence to bring them into use. On the basis
ofthis speciality, management can be accepted as a profession.
 (2) Restricted Entry: The entry to a profession is restricted through acquiring an educational
degree. For example, a degree in Law is essential for joining the Law profession. But as for
as the management is concerned there is no such condition for being a manager. Hence, on
this basis management cannot be accepted as a profession.
(3) Professional Association: The third characteristic of profession is that it must have a
representative professional association which performs the following important functions:
(i) To regulate entry, (ii) To grant certificate of practice, and (iii) To create a code of conduct
for guiding the activities of the profession.
In India, Representative Professional Associations with regard to other professions have
already been established. There are representative professional associations like the Bar
Council of India for Lawyers: Medical Council ot India for Doctors: Institute of Chartered
Accountants for Chartered Accountants. etc. For managers /\11India Management
Association (AlMA) has been established. But it is not essential to be a member of the AlMA
in order to be a manager. Therefore, 011 this basis management cannot be accepted as a
profession
TOOL KIT-3
Six Main Management Institutes of India
1. IIM Ahmedabad
2. IIM Bangalore
3. IIM Kolkata
4. IIM Indore
5. IIM Kozhikode
6. IIM Lucknow
(4) Ethical Code of Conduct: Members of a profession are bound to follow a code of conduct.
By Code of Conduct, we mean the rules and regulations framed to guide the behaviour of
professionals. The code of conduct of already recognised professions like l.aw. Medical and
Chartered Accountant, etc., have already been prescribed but no such code of conduct has
been laid down in connection with management. On this basis it can be asserted that
management is not at all a profession
(5) Service Motive: The main motive of a profession is to serve the society. For example, no
doubt a doctor follows his profession for his living but to ensure that his patients get justice
happens to be his chief motive. Though there is no code of conduct regarding management
but its social responsibilities are being stressed upon increasingly. From this point of view,
there should not be any hesitation to accept management as a profession
• Conclusion
On the basis of the above study it can be said that management does fulfil some of the
characteristics of the profession and some of the characteristics have yet to blossom or
develop. In this way, management as a profession in India is still in its infancy and its
development is moving at a slow speed.
Key Concepts
1. Management: A Science or An Art:
(I) Management as a Science: Management has all the characteristics of science. These are:
(i) Systematised Body of Knowledge. (ii) Principles Based on Experimentation, (iii)
Universal Validity. Therefore, management can be called a science but it cannot be classified
as a science like Physics and Chemistry. It will be more appropriate to describe it as an
applied science or inexact science or soft science.
(II) Management as an Art: Management has all the characteristics of art. These are: (i)
Existence of Theoretical Knowledge (ii) Persenalised Application (iii) Based on Practice and
Creativity.
2. Management as a Profession: Under profession a man after training and long experience
acquires proficiency with which he impartially serves different sections of society.
Is Management a Profession? Management satisfies some of the conditions for being a
profession (like Well-defined body of knowledge and Service Motive) but the other
characteristics (like Restricted entry, Professional association, Ethical code of conduct) have
still not developed adequately. In India, the development of management as a profession is
still at its infancy and is moving ahead gradually. Its recognition as a profession will increase
in accordance with the pace of its development.
STUDY Assignments
Management: As a Science
6 Marks
1. "Management is a science like physics or chemistry." Do you agree with this statement?
Give reasons in support of your answer.
2. Is management a 'Science'? Explain.
4/5 Marks
3. "Management is neither as precise nor as comprehensive as the natural and pure sciences."
Why? Explain. (C.B.SE 2004)
4. 'Management is a science.' Do you agree? Give any three reasons in support of your
answer.
3 Marks
5. State why management is not a Pure Science?
6. Explain through an example, how 'Universal Validity' one of the features of Science exist
in Management?
7. Explain 'Management as a Science'.
1 Mark
8. 'Management is a Soft Science'. How?
Ans. Management is a soft science as its principles are not very rigid.
9. State two features of science.
Ans. (a) Systematic body of knowledge. (b) Universal validity.
10. Name the type of science to which management is related. Applied science.
11. Why management is not called as perfect science?
Ans. Because it is related with human being.
12. "The Principle(s) of Management are different from those used in pure science." Write
any one difference. (C.B.SE Sample Paper )
Ans. The management principles are not as rigid as principles of pure science.
13. "The Principles of Management are different from those used in pure science." Write
anyone difference. (C.B.SE Sample Paper)
• Management: As an Art
6 Marks
14. Test the fact that 'management is an art'.
15. How is management a social science as well as an art? (CB.SE 2002)
16 Management is considered to be both an art and science. Explain.
(N.CER.T.)
4/5 Marks
17 Management is an art.' Do you agree? Give any three reasons in support of your answer.
(C.B.S.E. 2006)
18 What is the meaning of management as an Art? Briefly describe any three of its features.
3 Marks
19 Explain 'Management as an art'. (CB.S.E. 2007)
20 Clarify, how management possesses the feature of Art namely the 'Personalised
Application'?
21 "Management is both Science and Art." Explain this statement in brief.
1 Mark
22. What is meant by art?
Ans. It refers to achieve the desired result through application of skill.
23. Give any two points of the features of Art.
Ans. (a) Existence of Theoretical Knowledge, (b) Personalised Application.
24. Is management contains all the features of the art?
Ans. Yes, the management contains all the features of the art.
Management: As a Profession
6 Marks
25 "Management is a profession like medical or legal profession." Do you agree with this
statement? Give reasons in support of your answer.
26 Explain critically if management is a profession.
27 How is management not a full-fledged profession?
28 Do you think management has the characteristics of a full-fledged profession? (CB.S.E.
2002) (N.C.E.R.T.)
4/5 Marks
29 Discuss the basic features of management as a profession.
30 "Management is regarded as fully-developed profession." Do you agree? Give reasons.
(CB.S.E. 2005)
31 "Management is a profession." Do you agree? Give reasons in support of your answer.
(CB.S.E. 2006)
32 "Management is profession." Give one argument in favour and against of this statement.
33 Write short note on 'management as a profession' .
34 Is 'Management' a profession?
35 Is management a profession on the basis of 'Ethical code of conduct'?
1 Mark
36Name two features of profession which are not available in management.
Ans. (i) Restricted Entry. (ii) Ethical Code of conduct .
37 Name any two main management institutes of India.
Ans. (i) IIM Ahmedabad. (ii) IIM Bengaluru.
38 What function does a representative professional association perform?
Ans. It regulates the behaviour of its members.

CASE STUDY/APPLICATION ORIENTED QUESTIONS

1 Ms.Bharti passed her M.B.B.S. examination in the first division in 2006. Later on in
the year 2009 she passed her M.S. examination as an eye specialist. She was awarded
a gold medal in this examination. After completing her studies she joined a big
hospital as an eye surgeon. She is performing ten operations successfully every day.
Q. Now tell, what aspect of Ms. Bharti's above experience is a science and what
aspect is an art?
Ans. Studying for M.B.B.S. and M.S. is science and working as an eye-surgeon is an
art.
2 Mr. Amol Khan passed his B.Sc. (Non-medical) examination in the year 2006. After
this he successfully ran the business of his father. Suddenly, he thought of seeking
employment. He got the job of a finance manager in a company on the basis of his
knowledge, experience and proficiency. He is doing his job successfully.
Q.l: Now tell, is the appointment of Mr. Khan as a manager valid?
Q.2: Was not it necessary for him to do M.BA or some other course for this job?
Ans. (1) Yes, (2) No
QUERY Session
For this query session, questions from readers' side are invited

CHAPTER 3
LEVELS AND FUNCTIONS OF MANAGEMENT
All the functions of management are performed at all the levels of management but
there is only a difference of degree.
Learning Objectives
After studying this chapter, you will be acuainted with:
• Levels of Management
* Top Level Management
* Middle Level Management
* Lower Level or Supervisory Management
• Functions of Management
* Planning
* Organising
* Staffing
* Directing •
Supervision
• Communication
• Leadership
• Motivation
* Controlling

After clarifying meaning and nature of management, now the question arises what
different functions are performed by management? Apart from this, in order to
successfully accomplish predetermined targets of an organisation, how does an idea pass
through various managerial levels to become a reality? Answer to both these questions are
duly replied in this chapter.
Levels of Management
It will be beneficial to first understand the levels of organisation and then the levels of
management.
All the employees working in an organisation/institution can be divided into two
categories.
(1) Managerial Members (2) Non-Managerial Members
On the basis of this division of employees, an organisation can be divided into two broad
levels:
(a) Managerial Levels or Levels of Management and (b) Non-Managerial Levels.
(1) Managerial Members: In this category, Chief Executive Officer (CEO), Departmental
Managers, Supervisors, etc. are included. They are called managers because they manage
some or the other person. Manager is that person who manages somebody). Thus they all
have subordinates. The CEO, ranks highest in the hierarchy. Departmental manager is
subordinate to the CEO. Supervisors work under the departmental managers and so they
are subordinate to them. In the same manner, workers are subordinate to supervisors.
Except workers, all others are called managers irrespective of their designation. He is the
manager only who builds managerial levels. Their link among themselves is clarified in
the following diagram.
It is uite evident from the above diagram that all the employees working in an organisation
builds a chain of hierarchy. This is known as chain of authority. Chain of authority
explains the link between superior - subordinate. In this chain one manager is linked to the
other in a vertical form. In this manner, this chain from top to bottom builds many
managerial posts, which are termed as managerial levels. The term 'Level of Management'
refers to a line of demarcation between various management positions in an organisation.
Levels of management decides the authority of managers. As we move from top to
bottom, the degree of authorities goes on decreasing.
(2) Non-managerial Members: In this category, workers are included. They are those
employees who work directly on the job. The place at which such employees work is
known as platform area. As they are at the lowest level of chain in an organisation, they do
not have any subordinates, that is why they cannot be called managers. For this reason,
they are not counted among 'Level of Management'. They form the non-managerial level.
Number of Levels of Management
Levels of management do not have a definite number. Its number is fixed according to the
nature, size, etc. of the business. Brech has divided levels of management into the
following three categories:
(1) Top Level Management
(2) Middle Level Management
(3) Lower Level or Supervisory Management

Levels of Organisation
(1) Top Level Management: In top level management, Board of Directors, Chief
Executive Officer, etc. are included. Chief Executive Officer can be a single person or a
committee of officers. Chief Executive officer can be called by many names, like
Managing Director, General Manager, President, etc. Top Management has all the
management authorities, and because of these authorities officers of these levels are
accountable to owners or shareholders of the company
TOOL KIT-1
Levels in The Form of Pyramid-<s>
Levels of Management are in the form of Pyramid. By this we get the information that as
we move down from top to bottom level, the number of employees go on increasing.

Following functions are included in the list for Top Level Management:
(i) Determining Objectives: Top level management sets objectives for the organisation.
For example, an objective can be set that in the followingyear the sales ofthe company has
to cross Rs 1,000 crore.
(ii) Determining Policies: Only at this level policies related to the realisation of objectives
are formed. For example, it can be a sales policy of a company to just make cash sales.
(iii) Determining Activities: Different activities to be performed for the fulfilment of an
objective are fixed, such as sales, purchase, advertisement, production, research, etc.
(iv) Assembling Resources: Needed resources are assembled (arranged) for the realisation
of an objective, like capital, raw-material, fixed assets, etc.
(v) Controlling the Work Performance: The work in progress is closely monitored in a
company to get desired results.
(vi) Approving Budgets: Budgets prepared by different managers are given final shape,
i.e., approval is given to the budgets.
(2) Middle Level Management: Middle level management lies between top level and
lower level management. Under this, divisional heads, departmental heads, deputy
departmental heads, plant superintendents, and operations managers (Functional
Managers) are included.

Following are the main functions of Middle Level Managers:

(i) Interpreting Policies: At this level, policies framed by top level managers are
interpreted. Like the marketing manager introduces his salesman to the sales policy of the
company that at no cost credit sales will be made.
(ii) Preparing Organisational set-up: Every middle level manager prepares outline of his
respective department in accordance with the objectives of the organisation.
(iii) Appointing Employees: Every departmental manager appoints employees to fulfil the
activities of his department.
(iv) Issuing Instructions: Departmental managers direct their subordinates about what to
do and how they have to do. Needful resources are made available to subordinates so that
they can do the assigned jobs intermittently.
(v) Motivating Employees: Middle level managers motivate their employees by various
means so that they work most efficiently to achieve organisational objectives.
(vi) Creating Cooperation: Cooperation among different divisions is required to
successfully achieve company's objectives and this done by middle level managers.
(3) Lower Level or Operational Management: It is also known as Supervisory
Management. Under this, various formen and supervisors are included. They are called
First Line Managers.
Following are various functions of lower level managers:
(I) Submitting Workers' Grievances: Lower level managers are in direct contact with the
workmen employees. They themselves sort out the ordinary problems of workmen and
submit serious workers' grievances to middle level managers.
(ii) Ensuring Proper working Environment: Lower level managers ensure that proper
arrangement of water, electricity, ventilation, cleanliness, etc. is made at the work place.
This increases efficiency.
(iii) Ensuring Safety of Workers: Probability to accidents can be annuled by building
fences around machines.
(iv) Helping Middle Level Management: They help middle level managers in recruiting,
training and promoting employees.
(v) Inviting Suggestions: They invite suggestions from their subordinates, as to how the
uality of work can by improved.
(vi) Creating better Human Relations: They create better human relations so that
altercations can be avoided at the workplace.
Functions of Management
Management has been defined in the form of a process. Under the management process
(planning, organising, staffing, directing and controlling), many activities inter-related to
each other are included. These activities are known as functions or elements of
management.
Functions of management are pictorially presented in seriatim in the following diagrams:

(1) Planning: It refers to thinking before hand. In other words, planning is the
determination of a future course of action to achieve a desired result. Under planning it is
ascertained that what should be done, how it should be done and who should do it. If
before the commencement of a job all these points are not contemplated than the objective
of a business cannot be achieved.
Planning is a long process, for the consummation of which following steps are taken:
i) Setting objectives
(ii) Developing premises
(iii) Identifying alternative courses of action
(iv) Evaluating alternative courses
(v) Selecting an alternative
(vi) Implementing the plan
(vii) Follow up action
(2) Organising: It refers to harmonious adjustment ofvarious parts to achieve common
objectives, In order to make the first function of management (i.e., planning) functional, 'a
structure of roles' needs to be famed and sustained. The process of creating this structure
of roles is known as organising. Planning is just to put some idea in writing, but to convert
that idea into reality, a group of people is needed. Further to streamline the activities of
this group of people, organising is required. Under this, the whole project is divided into
various small jobs, to assign these jobs to designated posts (which will clarify that a
particular job will be performed at which post), to unite various jobs into one department,
to clarify the rights and duties of employees to be appointed at various posts, and to define
relationship among various posts (employees).
Following steps are taken to culminate the organising function of management:
(i) Identification and Division of Work
(ii) Departmentalization
(iii) Assignment of Duties
(iv) Establishing Reporting Relations
(3) Staffing: It refers to filling and keeping filled the post with people. In planning, ideas
are given a written shape, on the other hand organising, with the objective of converting
these ideas into reality, prepares a structure of various posts. After organising comes
staffing which deploys people on these posts so that jobs can be performed. In view of the
fact that the success of an organisation is commensurate to how adroitly every employee
performs his job, the importance of staffing function increases even more.

Following steps are taken to culminate the staffing function of management:

(i) Estimating the manpower requirements
(ii) Recruitment
(iii) Selection
(iv) Placement and Orientation
(v) Training and Development
(4) Directing: It refers to instructing. guiding. communicating and inspiring people in the
organisation Under directing following four activities are included:
(i) Supervision
(ii) Communication
(iii) Leadership
(iv) Motivation
Brief description of these four activities is as follows:
(i) Supervision: It refers to monitor the progress of routine work of one's subordinates and
guiding them properly Supervision is an important element of the directing function of
management. Supervision has an important feature that face to face contact between
supervisor and his subordinate is a must.
(ii) Communication: It refers to an art of transferring facts. ideas, feeling. etc. from one
person to another and making him understand them. A manager has to continuously tell
his subordinates about what to do, how to do, and when to do various things. Also, it is
very essential to know their reactions. To do all this it becomes essential to develop
effective telecommunication facilities. Communication by developing mutual
understanding inculcates a sense of cooperation which builds an environment of
coordination in the organisation.
(iii) Leadership: It refers to influence others in such a manner to do work what the leader
wants them to do. Leadership plays an important role in directing. Only through this
uality, a manager can inculcate trust and zeal among his subordinates.
(iv) Motivation: It refers to that process which excites people to work for attainment of
desired objective. Among the various factors of production, it is only the human factor
which is dynamic and provides mobility to other physical resources. If human resource
goes static then other resources automatically tum immobile. Thus, it becomes essential to
motivate human resource to keep them dynamic, aware and eager to perform their duty.
Both monetary and non-monetary incentives are given to employees for motivation.
(5) Controlling: It refers to bring the actual results closer to the desired results. Under this,
the manager monitors whether the jobs are being performed in accordance to the set plans
or not. S/he also checks whether the uality and uantity of job performed is in alignment to
the pre-determined standards/parameters or not. Deviations are then checked for by
matching actual performance with pre-determined standards. After this corrective action is
taken for negative deviations so that the difference between actual result and desired
results can be minimised. Thus, with the enforcement of controlling process allthe
bottlenecks coming in the way of work-progress are removed and efforts of all the people
start approaching in the desired direction. In the form of conclusion, controlling process
has five main steps:
(i) Setting performance standards
(ii) Measurement of actual performance
(iii) Comparison of actual performance with standards
(iv) Analysing deviations
(v) Taking corrective action

KEY Concepts
1. Levels of Management:
(i) Top Level Management: It includes board of directors and chief executive officer.
(ii) Middle Level Management: It includes departmental manager, deputy departmental
manager and operations or functional managers.
(iii) Lower Level Management: It includes Supervisors and foremen.
 2. Functions at different Levels:
(a) Top Level Management: (i) To fix objectives, (ii) To frame policies, (iii) To determine
activities, (iv) To arrange for resources, (v) Controlling the work performance, (vi)
Approving budgets.
(b) Middle Level Management: (i) Interpreting policies, (ii) Preparing organisational set-
up, (iii) Appointing employees, (iv) Issuing instructions, (v) Motivating employees, (vi)
Creating cooperation.
(c) Lower level Management: (i) Submitting workers' grievances, (ii) Ensuring proper
working environment, (iii) Ensuring safety of workers, (iv) Helping middle level
management, (v) Inviting suggestions, (vi) Creating better human relations.
3. Non-Managerial Level: In this level of management, workers are included. As workers
are not managers they are not the part of any managerial levels.
4. Functions of Management:
(i) Planning: It refers to thinking beforehand.
(ii) Organising: It refers to harmonious adjustment of various parts to achieve common
objectives.
(iii) Staffing: It refers to filling and keeping filled the posts with people.
(iv) Directing: Itrefers to instructing, guiding, communicating and inspiring people in the
organisation.
(v) Controlling: It refers to bringing the actual results closer to the desired results.

STUDY Assignments
Levels of Management
6 Marks
1. Describe, in brief, the functions of top level management in an organisation.
2. Describe, in brief, the functions of middle level management in an organisation.
3. Describe, in brief, the functions of lower level management in an organisation.
4. What are the functions of different levels of management?
4/5 Marks
5. What are the three levels of management? State any three functions of the middle level
management. (C.B.S.E. 2007)
6. Write the meaning of 'Level of Management'. What are the main functions of top level
management?
7. What are the three levels of management? State any three functions of top level
management. (C.B.S.E. 2007)
3 Marks
8. Enumerate any three functions of a General Manager.
9. Enumerate any three functions of a Departmental Manager.
10. State any three functions of lower level management.
11. Enumerate any three functions of middle level management. (CB.SE 2006)
12. Enumerate any three functions of top level management. (CB.SE 2006)
13. What do you mean by 'Levels of Management'?
14. Write names and two functions each of the levels or tenets of management engaged in:
(a) Overseeing the activities of the workers, (b) Taking key decisions.
15. Name any two designations and two functions given to the First Line Managers.
16. What does the pyramid form of levels of management indicate?
17. Name the Levels of management engaged in: (i) Determining Policies (ii) Assembling
Resources (iii) Interpreting Policies. 1 Mark
18. Name the two categories in which all the employees of an organisation can be divided.
Ans. (a) Managerial members. (b) Non-managerial members.
19. Which are the two main categories of levels of organisation.
Ans. (a) Managerial level. (b)Non-managerial level.
20. Workers are included at which level of management?
Ans. As they are the non-managerial members, so they can't be the part of any managerial
level.
21. Workers are included at which level of organisation?
Ans. At non-managerial level.
22. What is meant by levels of management?
Ans. It refers to a line of demarcation between various managerial positions in an
organisation.
23. To determine the policies is the function of which level of management?
Ans. Top Level Management.
24. Departmental managers are included at which level of management?
Ans. At middle level management.
Functions of Management
6 Marks
25. Discuss the functions of management in brief.
26. 'Management is a series of continuous interrelated functions.' Comment.
4/5 Marks
27. Explain Planning and Organising as functions of management.
3 Marks
28. Explain briefly any three functions of management.
29. What are the elements of direction?
30. Explain the meaning of staffing function of management.
31. Explain 'direction' as a function of management.
1 Mark
32. What is meant by planning? Ans. It refers to thinking before hand.
33. What is meant by organising as a function of management?
Ans. It refers to harmonious adjustment of various elements to achieve common
objectives.
34. What is meant by staffing? Ans. It refers to filling and keeping filled the posts with
people.
35. What is meant by directing?
Ans. It refers to instructing, guiding, communicating and inspiring people in the
organisation.
36. What is meant by supervision?
Ans. It refers to monitoring the progress of work of one's subordinates and guiding them
properly.
37. What is meant by communication?
Ans. It refers to the process of passing information from one person to another.
39. What is meant by leadership?
Ans. Leadership means that uality which influences people for the attainment of a goal.
39. What is meant by motivation?
Ans. Motivation means a process which excites people to work for the attainment of a
desired object.
40. What is meant by controlling?
Ans. It refers to bring the actual results closer to the desired results.

CASE STUDY/APPLICATION ORIENTED UESTIONS

[1] Your uncle is working as 'Marketing Manager' in a company. At what level of
management ishe working? What functions do you think he is performing? State any four.
Hint: My uncle is working at the middle level management. Explain any four functions of
middle level management.
[2] Your father has retired as the director of a manufacturing company. At what level of
management was he / working? What functions do you think he was performing at that
level? State any two.
Ans. He was working at the top level management. He was performing the following
functions: (i) Determining objectives. (ii) Determining policies.
[3] Your friend is working as a 'worker' in a company. At what level of organisation is he
working? What is the name of the place/area where he is working?
Ans. Non-managerial Level. Platform Area.
[4] Ritu is the manager of the northern division of a large corporate house. At what level
does she work in the organisation? What are her basic functions?
Ans. Ritu is working at the middle level of management in the organisation. Her basic
functions are: (i) Interpreting policies and (ii)Preparing organisational structure.
[5] You have three brothers. They are working in three different MNCs as General
Manager, Supervisor and Deputy Personnel Manager. What functions of management do
you think they are performing in their companies? Are they performing the same functions
of management? If yes, how?
Ans. All the three brothers of mine are working on three different levels of management,
such as, top level, lower level and middle level. They are performing the same functions of
management, such as, planning, organising, staffing, directing and controlling. It means all
the functions of management are performed at all the three these levels of management.
But there is only a difference of degree. For example, planning is considered the most
important function at the top while at the lower level directing is all important.
[6] Raman is working as 'Plant Superintendent' in Tifco Ltd. Name the managerial level at
which he is working? State any four functions he will perform as 'Plant Superintendent' in
this company . (C.B.S.E. 2008)
Hint: He is working at Middle Level Management. Refer to any four functions of Middle
Level Management.
[7]
Dheeraj is working as 'Operations Manager' in Tifco Ltd. Name the managerial level at
which he is working. State any four functions he will perform as 'Operations Manager' in
this company. (C.B.S.E. 2008)
Hint: He is working at Middle Level Management. Refer to any four functions of Middle
level Management.

QUERY Session
Mr. Question: Sir, at one place, you are calling organisation as the second function of
management but at another place you have used the word 'company organisation'? Sir,
does this mean organisation is a function of management and even a company can be
called an organisation? How is this possible?
Mr. Answer: A very good uestion. Listen carefully. The word organisation can be used
synonymously for two meanings:
(i) In the form of Function of Management: Organising means to decide about the
structure of roles. Thus to decide about how many posts are needed to culminate the
different activities .and what will be the authorities and responsibilities of these posts, etc.
(ii) In the form of Company/lnstitution/Enterprise: Organisation means 'Group of people.'
In this context, a company, a school and a club, etc., all are organisations. To conclude, we
can say that organising is a function of management and even a company or a 'group of
people' can be called an organisation as well.
Mr. Question: Ok, thank you sir.

CHAPTER 4
COORDINATION: NATURE AND IMPORTANCE
Coordination makes 2 + 2 = 5 possible
Learning Objectives
After studying this chapter, you will be acquainted with:
• Meaning of Coordination
• Definitions of Coordination
• Nature of Coordination
• Coordination is the Essence of Management
• Coordination is needed at all Levels of Management
• Importance of Coordination
Meaning of Coordination
The dictionary meaning of coordination is rapport. Thus, coordination isto synchronize the
various activities of an organisation. In the context of a business unit, the meaning of
coordination is to balance its various activities (purchase, sales, production, finance,
personnel, etc.) so that objectives of business can be easily achieved.
TOOL KIT-1
Coordination?
Coordination is a process through which harmony is established among different activities
of an organisation, so that organisational objectives can be successfully achieved.
Definitions of Coordination
Different management experts have defined coordination from different points of view. A
few of such definitions have been reproduced below in order to make clear the meaning of
coordination:
(1) According to Koontz and O'Donnell, "Coordination is the essence of management for
the achievement of harmony of individual efforts towards the accomplishment of group
goals. "
(2) According to Mcfarland, "Coordination is the process whereby an executive develops
an orderly pattern of group efforts among his subordinates and secures unitv of action in
pursuit of common purposes
In conclusion, coordination can be appropriately defined as the process which establishes
harmony among the various activities being performed in an organisation in order to
achieve the objectives of the organisation in an effective manner.
Nature of Coordination
Coordination is a process to establish harmony among the different activities of an
organisation, so that the desired objectives can be achieved. Definitions of coordination
present the following facts about its nature:
(1) Coordination Integrates Group Effort: The need for coordination is felt when group
effort is needed for the accomplishment of an objective. In short, it can be said that
coordination is related to group effort and not individual effort. The question of
coordination does not arise, if the job is done by one person only.
(2) Coordination Ensures Unity of Action: The nature of coordination is of creating unity
in action. It means during coordinating process an effort is made to create unity among the
various activities of an organisation. For example, the purchase and sale departments have
to coordinate their effort so that supply of goods takes place according to purchase orders.
(3) Coordination is a Continuous Process: It is not a job which can be performed once and
for all, but its need is felt at every step. Many activities are performed ina business.
Sometimes or the other, if anyone of the activity goes on fluctuating either for more or less
than required, the whole organisational balance is disrupted. Thus, a close watch has to be
kept on all the activities to maintain the balance.
(4) Coordination is an All-Pervasive Function: Pervasiveness refers to that truth which is
applicable to all spheres (business and non-business organisations) and places uniformly.
The nature of coordination is pervasive. Like making of time-table in an educational
institution is an apt example of establishing coordination. In the game of cricket, the
placement of players at pre-determined positions is nothing but coordination. In the same
manner, to synchronize the activities of different departments, like purchase, sales,
production, finance, etc. in a business organisation is coordination.
(5) Coordination is the Responsibility of All Managers: Coordination is needed at all the
three, i.e., top, middle and lower managerial levels. Different activities performed at all the
levels are equally important. Thus it is the responsibility of all the managers that they
make efforts to establish coordination. That is why, it could not be said that coordination is
of more importance to anyone particular managerial level or a manager.
(6) Coordination is a Deliberate Function: Coordination is never established by itself but it
is a deliberate effort. Only cooperation is not suffice but coordination is also needed. For
example, a teacher aspires to teach effectively (this is cooperation) but the time-table is not
prepared in the school (this is lack of coordination). In this situation, classes cannot be
arranged for. Here, the effort made by the teacher is meaningless, in the absence of
coordination. On the other hand, in the absence of cooperation, coordination dissatisfies
the employees. Thus, both are required at a given point of time.
TOOL KIT-2
Cooperation?
Cooperation means the desire to work collectively. It originates effortlessly.
Coordination is the Essence of Management
An important question that arises in relation to coordination is whether or not it is to be
recognised as the sixth function in the chain of management functions (e.g. planning,
organising, staffing, directing and controlling). Some management experts (e.g. Fayol,
L.A. Allen, Ordway Tead) consider coordination to be a separate function of management.
However, modern management experts are of the view that coordination is not a separate
function of management, rather it forms a major part of all the other functions of
management. In other words, management cannot be accomplished without proper
coordination and hence management has to concentrate its efforts on the establishment of
coordination. Modern management experts Koontz and O 'Donnell are also the supporters
of this line of thinking, and it is only in this relation that they have stated, .'Coordination is
the essence of management" . It means when a manager diligently performs all the
management functions, he or she remains busy in establishing coordination. This fact is
highlighted through the following discussion.
TOOL KIT-2
Coordination and Functions of Management
There is no function of management which can be accomplished in the absence of
coordination or which does not make effort to establish coordination.
(1) Coordination and Planning: While performing the function of planning, coordination
forms the centre or focus of the thinking of a manager. Planning is undertaken keeping in
mind the various activities being performed by the different departments in an
organisation. For example, when a sales manager is making a plan to increase his sales
target, he also consults the production manager, the purchase manager, the finance
manager, etc. in order to avoid any problem that may arise in the future. This clearly
shows that coordination is very essential while performing the function of planning.
(2) Coordination and Organising: While performing the function of organising, the main
work of the organisation is divided into various sub-functions, and the relationships
between the various people performing those sub-functions are defined, with the aim of
accomplishing all the activities of the business in a systematic manner. While performing
the function of organising, the manager has to make efforts to establish coordination
among the various departments as well as the various people working in the same
department. For example, work is divided among the people working in the production
department in such a manner that where the work of one person ends, the work of the next
person begins. Since any deficiency in the work of one person also affects the work of
others, everybody makes efforts to complete his work on time, and the workers do not
create hurdle in each other's work.
(3) Coordination and Staffing: Organising results in the establishment of various
positions in the organisation while staffing breathes life into such positions, i.e., the
various positions established during organising are filled with people. Even while
performing the function of staffing, the manager is also concerned about coordination. It is
his effort to fill all the positions with capable and experienced people so that the various
activities of the business may proceed without any hindrance.
(4) Coordination and Directing: While performing the function of directing, a manager
gives due priority to coordination. While issuing orders and instructions to a subordinate,
he has to keep in mind the effect they will have on other people, and he should make all
efforts to avoid any such adverse effect. Such a line of thinking is nothing else but an
effort to establish coordination. For example, two people performing the same work are
treated equally in order to avoid any animosity among them.
(5) Coordination and Controlling: Controlling is the constant evaluation of progress of
work, so that adverse results can be avoided and corrective action can be taken in time. In
the context of coordination, controlling results in the harmonisation of the objectives of
the organisation, the resources available to achieve those objectives and the human efforts
required.
From the above discussion, it can be seen that coordination is concerned with all the
functions of management. Therefore, it can be stated without any doubt that coordination
is not a separate function of management, rather it is the essence of management.
Coordination is Needed at all Levels of Management
There are three different levels of management - Top Level, Middle Level and
Supervisory or Low Level. If the various levels of management are evaluated from the
point of view of coordination, it can be seen that it is not concerned with a particular
management level, rather its need and importance is the same at all managerial levels. If
any work is being done solely by one person, then the problem of coordination does not
arise at all since everything is being done by that one person only. Therefore, it can be said
that coordination is mainly concerned with group efforts. The work at every level of
management is performed by a group of people and hence, coordination is required in
order to complete the work successfully. Therefore, it can be said that coordination is
required at all levels of management.
Not only this, if all the levels of management are looked at together, they become a group
in themselves ,and as in the case of every group, they also require coordination among
themselves. Thus, coordination is required at each level of management individually and
also by all of them collectively as a group.
Importance of Coordination
The following reasons bring out the need and importance of coordination:
(1) Size of the Organisation: These days, the scale of doing business is increasing day by
day. Any increase in the scale of the business also results in an increase in the number of
people employed in the organisation, with each person having different interests, way of
working, mutual understanding, objective of working, tolerance, etc. However, all these
people have to work together as a group despite these differences, which is not a very easy
task. Therefore, it is very necessary that through coordination a proper environment is
created so that everybody gives in his full contribution towards the attainment of
organisational goals.
(2) Functional Differentiation: There may be a clash of interests among the various
departments in an organisation. Such a situation becomes a very big hindrance in the
achievement of organisational goals. There is only one way to avoid clashes, and that is by
establishing proper coordination between the departments.
(3) Specialisation: In every organisation, in order to avail the benefits of specialisation,
one main activity is divided into various sub activities, and each of these are alloted to
different persons who are experts in their particular sub-activity. Every person wants to do
his work in his own way, without having any regard for the 'total work' to be performed. In
such a situation, in order to complete the activities being performed by various people
successfully, it is very necessary to establish coordination among them. It is only upon the
establishment of coordination that everyone completes his or her own work on time
keeping in view the 'total work' to be performed.
(4) Inter-dependence of Different Processes: The next major point which delineates the
importance of coordination is that the various units in an organisation are inter-dependent.
The higher the inter-dependence among the units, the greater is the need for coordination.

KEY CONCEPTS
1. Meaning of Coordination: It refers to establish harmony among various parts of a
system.
2. Nature of Coordination: (i) Coordination integrates group effort, (ii) Coordination
ensures unity of action, (iii)Coordination is a continuous process, (iv)Coordination is an
all-pervasive function, (v) Coordination is the responsibility of All managers, (vi)
Coordination is a deliberate function.
3. Coordination is the Essence of Management: Asper modern management experts,
coordination is not a separate function of management, but it is the essence of
management.
4. Coordination is needed at all Levels of Management: The work at every level of
management is performed by a group of people, that is why, coordination is required at
every level to complete the work successfully.
5. Importance of Coordination: (i) Size of the organisation, (ii) Functional Differentiation,
(iii)Specialisation, (iv)Inter-dependence of different processes

STUDY Assignments
Meaning and Nature of Coordination
6 Marks
l. Discuss the meaning and nature of coordination.
4/5 Marks
2. "Coordination is the orderly arrangement of group efforts to provide unity of action in
the pursuit of a common purpose." In the light of this statement, explain the nature of
coordination. (C.B.S.E.2009)
3 Marks
3. Define Coordination.
4. How is coordination a 'Continuous Process'?
5. Clarify that coordination does not get established spontaneously.
6. Coordination is more than cooperation. How? Give an example.
1 Mark
7. To make the time-table in an educational institution is the example of coordination.
Comment.
Ans. Through it harmony is established among various classes.
8. The coordination is required at which level of management?
Ans. At all the three levels.

Coordination is the Essence of Management and Importance of Coordination

6 Marks
9. "Coordination is the essence of management." Do you agree? Give reasons.
10. "Coordination is the essence of management." Explain this statement with the help of
examples.
4/5 Marks
11. "Coordination is not a separate function of management. It is the essence of
management." Explain with the help of a suitable example. (C.B.S.E.2009)
12. "Coordination is needed at all levels of management and it is the function of all
managers." Explain. (C.B.S.E. 2009) 13. Write a note on the importance of coordination.
14. Explain the term 'Coordination' and its importance in management. (C.B.S.E. Sample
Paper)
3 Marks
15. 'Coordination is the essence of management.' Clarify this point of view of modern
management experts.
1 Mark
16. Why coordination is known as the essence of management?
Ans. Because it is not a separate function of management, rather it forms a major part of
all the other functions of management.
17. 'Inter-dependence of different processes' is one point of the importance of
coordination. Clarify.
Ans. The higher the inter-dependence among the activities, the greater is the need for
coordination.

Query Session
Mr. Question: Sir, there is still confusion between the meaning of words, coordination and
cooperation. Please clarify it with the help of an example from daily routine.
Mr. Answer: OK, Listen carefully . The difference has already been clarified in the given
chapter, but for more clarification, let us take up an example. Suppose Mr. X gets a trouser
stitched. On trying it, he finds it is 4 inches longer in length. Next morning, while all the
four members of the family are sitting on the breakfast table Mr. X says, get this trouser 4
inches short by the time I return from the office. Everybody carefully listens to the
instruction. After this Mr. X leaves for office, son for school and the daughter for college,
respectively. After some time, when Mrs.X remembered about the work, she took the
trouser to the tailor and got it short by 4 inches and kept it in the almirah. When the son
returned from his school, he recalled the job assigned by his father. Without
communicating with any other member of the family, he took the trouser to the tailor, got
it short by 4 inches and kept it at its previous place (assuming that everybody had different
tailors). Then daughter came. As soon as she returned, she also recalled of the work,
assigned by her father. She repeated the same action, as had already been performed by
her mother and brother. In the evening, when Mr.X returned from the office and tried the
trouser, he found that it was now half the length. Just contemplate, why did this happened?
A11- Mr.X's wife, son and daughter -loves him dearly, have full attachment with him and
also want to keep him happy. That is why all three tried to fulfil the task assigned. Their
this feeling is called cooperation. Thus, they want to cooperate with Mr. X. This feeling
does not arises because of any pressure but comes on its own. On the other hand, this
error, shows the lack of coordination among all. If at the time of breakfast, decision had
been taken as to who will perform this job, then this error could have been avoided. Thus,
coordination does not originate by itself but for this effort has to be made.
Mr. Question: Sir, quite right, thank you.

CHAPTER 5
PRINCIPLES OFMANAGEMENT: NATURE AND SIGNIFICANCE
"Principles of management are of universal nature and apply to every type of
organisation." - Henry Fayol

Learning Objectives
After studying this chapter, you will be acquainted with:
• Principles of Management: Meaning and Definitions
• How are Principles of Management derived?
• Nature of Principles of Management
• Importance of Principles of Management
• Fundamental Principles of Management

Principles of Management
These days business has assumed wider dimensions as a result of which numerous
problems arise in day to day activities and the manager of the enterprise has to solve these
problems. A manager needs guidelines to grapple with the problems and run the
organisation efficiently. The principles of management guide the manager. Before entering
into a detailed discussion about the principles of management, it is necessary to know the
meaning of 'Principle'. Different scholars have defined 'principle' in the following manner:
(1) According to G.R. Terry, 'Principle is a fundamental statement or truth providing a
guide to the thought or action".
(2) According to Edwin B. Flippo, "A principle is a fundamental truth and it is generally
stated in the form of cause and effect relationship." (3) According to Koontz and
O'Donnell, "management principles are fundamental truth of general validity which have
value in predicting the result of management action" .
The definitions of these scholars show that principles are in the form of that basic truth
which explains the relationship between cause and effect and experts play an important
role in their preparation.
TOOL KIT-1
Principles and Techniques of Management
The principles of management are different from the techniques of management The
principles of management guide the decisions while the techniques are the methods
employed for the attainment. For example 'Unity of Command' is a principle while
production with the help of modem machines is a technique. While making use of a
technique the help of a principle is taken.
How are Principles of Management Derived?
Like all other social sciences management too, has its certain definite principles. These
principles have been developed by the management experts. These principles are the
outcome of the various problems faced by the managers. First the problems were born,
then efforts were made to solve them and these efforts resulted in a lot of research and
finally, the solutions were found out. We know these solutions in the form of principles of
management.
The principles of management are derived in the following two ways:
(1) On the basis of Observation: Under this method, a manager observes and analyses a
particular event which he faces in actual practice. For example, the principle of 'division of
work tells us that as far as possible the whole work should be divided into different parts
and each individual should be assigned work according to his ability and taste. If we do so,
it will lead to increase the efficiency. This principle was stated when it was observed by
some managers that dividing the work in a proper manner leads to better performance.
(2) On the basis of Experimental Studies: Under this method, an experimental study is
conducted by a researcher(s) to derive a principle of management. For example, the
performance of two groups of people, in which one is headed by a single boss whereas the
second is headed by two bosses may be compared. When it is found that the performance
of the first group is higher, principle of 'Unity of Command' was derived.
After having understood the meanings of 'Principle' and 'Principles of management', it is
necessary to learn about the nature and need for the principles of management.
TOOL KIT-2
Principles of Management and Values
The principles of management are in the form of basic truth while values are the general
rules of an individual’s common conduct. For example, 'division of labour' is a principle ot
management which provides advantages of specialisation. On the other hand, not making
the secrets of the company pub/ids a matter of value which reflects the character of the
manager.

Nature of Principles of Management

The following points bring out the nature of principles of management:
(1) Universal Applicability: Universality refers to that truth which is equally applicable
in all spheres (both business and non-business). The principles of management are also
universal in nature. All business (industrial units, etc.) and non-business organisations
(education institutions, government offices, playgrounds, agricultural farms, army, clubs
and other social organisations), in order to achieve their objectives has to apply more or
less the same principles.
(2) General Guidelines: The principles of management are 'not definite like the principles
of physics and chemistry. The principles of physics and chemistry are very clear and
definite, and their outcomes can be predicted. The principles of management, on the other
hand, are of the nature of general guidelines, and they cannot be applied strictly.
(3) Formed by Practice and Experimentation: Principles of management are the results
of various problems faced by the professional people. First of all problems appeared and
then through careful research work solutions were found. Thus, we recognise the
solutions, found with the help of practice and experience as principles, of management.
Similarly, researchers undertake experimental study to find out the principles of
management. For example, the principle of 'Unity of Command' must have emerged when
two groups of people must have been compared wherein the first group of people had one
boss while the second group of people had two bosses. Undoubtedly the first group of
people must have performed better.
(4) Flexibility: The principles of management as they exist today are not in the form of
final truths. As and when political, economic and social changes take place, new kinds of
problems arise. Old principles are altered and new principles are propounded Therefore,
the principles of management are dynamic in nature and cannot be called stagnant or
fixed.
(5) Mainly Behavioural. The principles of management are directly concerned with
human behaviour. The management activity is mainly concerned with management of
man, who is a social animal having his own nature, desires and expectations which cannot
be repressed or eliminated. This is the main reason why the principles of management are
affected by human behaviour and often human behaviour is the main hindrance in the
successful application of management principles. For example, the principle of division of
work is usually adopted for increasing efficiency ,but after doing the same work
repeatedly a person gets bored (this is human behaviour), thereby resulting in a decrease in
efficiency.
(6) Relationship between Clause and Effect: The principles of management establish a
relationship between cause and effect. They specify what the ultimate outcome will be if
in a particular situation, work is done in a particular manner. For example, if according to
the principle of division of work, the work is divided into different parts, each part being
assigned to a particular person according to his interests and capability, then it will result
in an increase in overall efficiency. In this case, the division of work is the cause and the
increase in efficiency is the effect. In the same manner, the other principles of
management also establish relationship between cause and effect.
(7) Contingent: The principles of management are not fixed or permanent. They are
affected by situations or circumstances. Therefore, the decision to implement them or not
is taken according to the situations or circumstances. For example, according to the
principle of division of labour a worker should be assigned a definite part of a job time and
again so that his efficiency is increased. But on the contrary, if a worker is fed up with
doing a job repeatedly, the application of this principle will not be beneficial. Therefore, it
will have to be changed .
Significance of Principles of Management
The principles of management are in the form of pre-determined solutions for repeatedly
accuring problems. They guide the manager. It is very important for every manager to
know them thoroughly. The importance of the principles of management becomes
abundantly clear from the following facts:
(1) Provides Useful Insight to Managers: The principles of management were developed
on the basis of the experience of various professional people. The principles inform the
manager about the manner in which he should act in various situations so that he does not
repeat the mistakes of the previous managers. In this way, timely guidance reduces the
wastage of resources and the objectives can be achieved in a less expensive manner.
For example, according to one principle of management, i.e., division of work, a job is
divided into many small units. Every unit or part is assigned to different individuals. Each
individual does the same work repeatedly that has been assigned. He gets used to it which
helps him to perform his job efficiently and quickly. Consequently, the entire job is
completed in an economical manner.
(2) Optimum Utilisation of Resources and Effective Administration: In every
organisation physical (material, machines, money, etc.) and human (man-power)
resources are used. The function of management is nothing but to put them to optimum
use or avoid wastage of resources. And it is possible only when a manager makes use
of the principles of management. According to the principle of 'unity of command'
there should only be one boss for an employee at a time. In case there is more than one
boss, the employee will not be in a position to work properly. Consequently, human
resource will be wasted. Therefore, if we desire to use the human resource favourably,
this principle has to be adopted. Similarly, many other principles ensure favourable
utilisation of various other resources.
The primary need of every organisation is that its administrative system should be
effective. Only that administrative system is called effective where the managers can
take balanced and quick decisions. In order to take such decisions, sufficient
information and authority should be available. This is made possible with the help of
the principles of management. For example, the principle of 'authority and
responsibility' advocates granting of sufficient authority, while the principle of scalar
chain advocates making adequate provision for providing information.
(3) Scientific Decisions: A scientific decision means a balanced decision. The
principles of management provide the necessary training to the managers so that they
can take scientific balanced decisions. In the absence of these principles the managers
have to adopt the method of trial and error. According to this principle, one is expected
to do a job in a particular manner and if there is some error, some other method has to
be adopted. In this way, the work is done in different ways till the error is eliminated.
This method is not proper. Therefore, the managers are trained with the help of the
principles of management which makes them capable of taking scientific decisions.
For example, the principle of 'authority and responsibility' tells us that if a subordinate
is entrusted with some responsibility, he should be allowed sufficient authority to
accomplish it. Only in such a situation a subordinate will be able to take a scientific
decision whenever needed.
(4) Meeting Changing Environmental Requirement: In modern times only such a
business unit can remain alive and develop which can keep pace with the rapidly
changing environment. In every field of business activity (production, marketing, etc.)
new techniques are emerging every day. A manager who can understand the changing
situation well in time can alone face competition successfully. The principles of
management enable the managers to face this challenge.
For example, the principle of 'unity of direction' tells us that all the activities connected
with the attainment of the same objective should be completed under the direction of
the same manager. In doing so a manager would be able to have the detailed
information connected with the limited activities being done under his direction. In
case the activities connected with different objectives are being done under the
direction of one manager, he will not be able to understand the changes being affected
inany activity.
(5) Fulfilling Social Responsibility: The principles of management increase the
efficiency of the managers and enable them to fulfil their social responsibility. More
efficient managers can make good quality products at reasonable prices available. all
the times.
For example, the principle of 'Fair Remuneration' advocates appropriate remuneration
to the employees and helps in fulfilling responsibility towards them.
(6) Management Training, Education and Research: The advantages of the principles
of management encourage the researchers to bring in more improvement in them. The
attitude of the managers has moulded itself in such a fashion that they are doing,
consciously or unconsciously, something new. It means that the managers have come
to acquire an attitude titled towards research and development. This has helped the
managerial knowledge to be more solid and scientific. The principles of management
are actually providing education and training to the managers by enriching their
theoretical and practical knowledge.
For example, in order to take advantage of the change of attitude among the managers,
various big companies have established Research and Development Departments-
 HRD. Consequently, many new techniques have come to light in the field of
marketing, production, finance, etc.
Fundamental Principles of Management
Different management experts have explained different principles on the basis of their
research. Henry Fayol, a famous industrialist of France, has described fourteen
principles of management in his book "General and Industrial Management”
Explaining the difference between 'principles' and 'elements' he makes it clear that the
principles of management are fundamentally true and establish a relationship between
cause and effect, while the 'elements' of management point towards its functions.
While' presenting the principles of management Fayol has kept two things in mmd.
Firstly, the list of the principles of management should not be long but should be
suggestive and only those principles should be explained which become applicable in
most of the situations. Secondly. the principles of management should be flexible and
not rigid so that changes can be made in them in case of need. The fourteen principles
given by Fayol are as under:

Henry Fayol (1841-1925)

(1) Division of Work: This principle of Fayol tells us that as far as possible the whole
work should be divided into different parts and each individual should be assigned
only one part of the work according to his ability and taste rather than giving the whole
work to one person. When a particular individual performs the same job repeatedly, he
will become an expert in doing that particular part of the whole job. Consequently, the
benefits of specialisation will become available.
For example, a furniture manufacturer gets an order for manufacturing 100 lecture
stands. He has five workers who will do the job. There are two ways to complete this
order. First, every worker should be asked to complete 20 lecture stands. The second
method can be distributing different parts of the lecture stand-legs, top board, centre
support, assembling and polishing -to all the five workers in a manner that only one
worker does the same job for all the 100 lecture stands. Here, Fayol's indication into
the second way to do this job and not the former one. The principle of division of
labour applies not only to the workers but also equally to the managers. For example,
if a manager is attained to work on the same kind of activities for a long period of
time, he will certainly be an expert in his particular job. Consequently, more and
beneficial decisions can be taken in a comparatively less time by him.
Positive Effect * Advantages of specialisation are obtained, such as, increase in the
quality of work, increase in the speed of production, decrease in the wastage of
resources. * Increase in the work efficiency of the workers.
Violating Effect * The above mentioned positive effects of specialisation willnot be
available. * The work efficiency of the workers will be reduced.
(2) Authority and Responsibility: According to this principle, authority and responsibility
should go hand in hand. It means that when a particular individual is given a
particular work and he is made responsible for the results, this can be possible only
when he is given sufficient authority to discharge his responsibility. It is not proper to
make a person responsible for any work in the absence of authority. In the words of
 Fayol, "The result of authority is responsibility. It is the natural result of authority and
essentially another aspect of authority and whenever authority is used. responsibility
is automatically born. "
For example, the CEO of a Co. has doubled the sales target of the Sales Manager for
the coming year. To achieve this target, authority for appointing necessary sales
representatives, advertising according to the need, etc. shall have to be allowed. In case
these things are not allowed the sales manager cannot be held responsible for not
achieving the target. (Note: Giving less authority or more authority than is needed -
both are undesirable.)
Positive Effect * Helpful in achieving the target. * Increase in the confidence of the
employees.
Violating Effect * Wrong use of authority in case more authority is given than is
needed. * Difficulty in achieving the target in case less authority is given than is
needed. * Cannot fix accountability of the subordinates in case the desired results are
not obtained. * Decline in the confidence of the employees
(3) Discipline: Discipline is essential for any successful work performance. Fayol
considers discipline to mean obedience, respect for authority, and observance of
established rules. Discipline can be established by providing good supervision at all
levels, clearly explaining the rules, and implementing a system of reward ·and
punishment. A manager can present a good example to his subordinates by disciplining
himself.
For example, if the employees break their promise of working upto their full capacity,
it will amount to the violation of obedience. Similarly a sales manager has the
authority to do business on credit. But in case he allows this facility not to the general
customers but only to his relatives and friends, then it will amount to ignoring his
respect to his authority. (Note: Both these examples give a message of indiscipline
which is an undesirable situation).
Positive Effect * A disciplined organisation has a better reputation among the people.
* Increase in the efficiency of the employees. * Better labour management relations.
Violating Effect * Decline in the reputation of the organisation and efficiency of the
employees. * Height of disorder. * An atmosphere of doubt and suspicion. * Decline in
the confidence of the employees.
(4) Unity of Command: According to the principle of unity of command, an individual
employee should receive orders from only one superior at a time and that employee should be
answerable only to that superior. If there are many superiors giving orders to the same
employee, he will not be able to decide as to which order is to be given priority. He thus finds
himself in a confused situation. Such a situation adversely affects the efficiency of the
subordinates. On the other hand, when there are many superiors, every superior would like
his orders to be given priority. This ego problem creates a possibility of clash. Consequently,
their own efficiency is likely to be affected.
The principle of unity of command has been shown in the following diagram:

In the first diagram, SI' S2 and S3 all the three subordinates have one manager M1, S1 get
orders only from M, and the same is the case with S2 and S3' Here the principle of unity of
command is being followed. Therefore, it is the right approach.
In the second diagram, all the three subordinates S1, S2and S3 get their orders from two
managers M1 and M2.S1 gets orders from both M1 and M2 simultaneously. (Same is the
position of S2 and S3 also.) He is unable to understand as to which order is to be given
priority. Both the managers would like their orders to be given priority. There is likely to be
heart burning between the two. Here the principle of unity of command is being violated.
Therefore, this is a wrong approach.
Positive Effect * There is no confused situation for the subordinates. * The efficiency of the
subordinates increases. * The efficiency of the superiors increases. * It is easy to fix
responsibility. * An atmosphere of coordiality prevails.
Violating Effect * It creates a confused situation for the subordinates. * It reduces the
efficiency of the subordinates. * It reduces the efficiency of the superiors. * Conflicts due to
the injured ego of the superiors. * It is difficult to fix accountability. * Height of disorder.
(5) Unity of Direction: Unity of Direction means that there should be one head for one plan
for a group of activities having the same objective. In other words, there should be one plan
of action for a group of activities having the same objective and there should be one manager
to control them. For example, suppose an automobile company is manufacturing two
products, namely, scooters and cars, hence having two divisions. As each product has its own
markets and problems therefore each division must have its own targets. Now each division
must plan its target as per its environmental conditions to get better results.
It is necessary to distinguish between the meaning of the unity of command and the unity of
direction. Unity of command means that there should be only one manager at a time to give
command to an employee, while the unity of direction means that there should be only one
manager exercising control over all the activities having the same objective.

TOOL KIT-3
Unity of Command & Unity of Direction
In this connection Fayol feels that for the efficient running of an organisation the unity of
direction is important, while the unity of command is important to enhance the efficiency of
the employees.
Positive Effect *Advantage of specialisation is obtained due to a manager’s association With
the same kind of activity. * Increase in the efficiency of the organisation. * Easy to achieve
objectives. * It helps in coordination due to the unity in activities.
Violating Effect * Advantage of specialisation is not obtained. * Decrease in the efficiency of
the organisation. * Difficulty in achieving the objectives. ,* Difficulty in achieving
coordination in the absence of unity of activities.
Difference between Unity of Command and Unity of Direction
Basis of difference Unity of Command Unity of Direction
1. Meaning According to this principle, According to this principle,
every employee should get all activities having similar
orders only from one objective should be
manager at a time and he completed under the
should be responsible for that supervision of one person
manager alone. and there should be one plan
of action for such type of
activities.
2.Aim It prevents dual It prevents overlapping of
subordination various activities
3. Implications It affects an individual It affects the entire
employee. organisation
(6) Subordination of Individual Interest to General Interest: This principle can be named
'Priority to General Interest over Individual Interest.' according to this principle, the general
interest or the interest of the organisation is above everything}If one is asked to place
individual interest and the general interest in order of priority, definitely the general interest
will be placed at the first place. For example, if a manager takes some decision which harms
him personally but results in a great profit to the company, he should certainly give priority to
the interest of the company and take the decision accordingly. On the contrary, if some
decision helps the manager personally but results in a great loss to the company, then such a
decision should never be taken.
For example, a purchase manager of a company has to purchase 100 tonnes of raw material.
His son happens to be a supplier along with other suppliers in the market. The manager
purchases the raw material from the firm of his son at a rate higher than the market rate. This
will profit the manager personally, but the company will incur heavy loss. This situation is
undesirable.
Positive Effect * Observing humanity. * Everybody profits in the profit of the company. *
Organisational objectives are obtained. * Coordination between the individual and
organisational objectives.
Violating Effect * Humanity violated. * Increase in jealousy. * Hindrance in achieving
organisational objectives. * Lack of coordination between the individual and organisational
objectives.
(7) Remuneration to Employees: Fayol is of the opinion that the employees should get a fair
remuneration so that the employees and the owners find equal amount of satisfaction. It is the
duty of the manager to ensure that everybody is being paid remuneration according to their
work. If however, they are not paid properly for their work, they will not do their work with
perfect dedication, honesty and capacity. As a result of this the organisation shall have to face
failure. Proper remuneration depends on some factors like the cost of living, demand of
labour and their ability' Fayol feels that in order to motivate the employees, apart from
general remuneration, they should be given some monetary and non-monetary incentives.
For example, suppose that the things are getting dearer and dearer and the company is getting
good profits. In such a situation, the remuneration of the employees should be increased even
without their asking. If this is not done, the employees will leave the company at the first
opportunity. Expenses shall have to be incurred on new recruitment which shall bring loss to
the company.
Positive Effect * Increase in the encouragement and satisfaction of the employees. *
Development of the spirit of dedication among the employees. * Decline in the labour
turnover rate.
Violating Effect * Decline in the encouragement and satisfaction of the employees. *
Encouragement to dishonesty. * Increase in the labour turnover rate.
(8) Centralisation and Decentralisation: According to this principle, the superiors should
adopt effective centralisation instead of complete centralisation and complete
decentralisation. By effective centralisation, Fayol does not mean that authority should be
completely centralised. He feels that the superiors should keep the authority of taking
important decisions in their own hands, while the authority to take daily decisions and
decisions of less importance should be delegated to the subordinates. The ratio of
centralisation and decentralisation can differ in different situations. For example, it is
advantageous to have more centralisation in a small business unit and more decentralisation
in a big business unit.
For example, the decisions in respect of determining the objectives and policies, expansion of
business, etc. should remain in the hands of the superiors. On the other hand, authority for the
purchase of raw material, granting leave to the employees, etc. should be delegated to the
subordinates.
Positive Effect * Decrease in the work-load of superiors. * Better and quick decisions. *
Increase in the encouragement to the subordinates.
Violating Effect * Unnecessary increase in the work-load of the superiors in case of
centralisation and of the subordinates in case of decentralisation. * Impatient and wrong
decisions by the superiors in case of complete centralisation and weak decisions by the
subordinates in case of complete decentralisation. * Decline in the encouragement to
subordinates in case of complete centralisation.

(9) Scalar Chain:

(i) Meaning of Scalar Chain: It refers to a formal line of authority which moves from highest
to the lowest ranks in a straight line.
(ii) Fayol's Opinion: This chain must be followed in a strict manner. It means each
communication must move from top to bottom and vice-versa in a straight line. The
important condition here is that no step (post) should be overlooked during communication.
(iii) Fayol's Ladder: Fayol has explained this principle with the help of a ladder or double
chain as shown in the diagram. For example, in a company the employee 'F' wants to have
contact with the employee 'P'. According to the principle of scalar chain 'F' shall have to
reach 'A' through the medium of E,D,C,B and then having contact with L,M,N,O shall reach
'P'. Thus 'F' shall have to take the help of all the nine steps (posts) to have business contact
with 'P'.
(iv) Utility: Due to more clear system of authority and communication, problems can be
solved faster.
(v) Gang Plank: It is the exception of the principle of scalar chain. This concept was
developed to establish a direct contact with the employee of equal rank in case of emergency
to avoid delay in communication. For example, as shown in the diagram employee 'F' can
have direct contact with employee 'P'. But for doing so employees 'F' and 'P' shall have to
seek the prior permission of their immediate bosses 'E' and '0'. The details of their talk also
shall have to be given to them.

TOOL KIT -4
Gang Plank: A Special Note
Gang Plank can only be established with the employees of the equal or same level. For
example, in the present example no gang plank can be established between F and O.

Positive Effect * Flow of orderly information. * Better relations because of absolute respect
for authority. * Quick solution of problems.
Violating Effect * Disorderly flow of information. * Bitterness in relations because of
ignoring the close superiors. * Increase in problems because of non-availability of
information in time.

(10) Order: According to the principle of order, a right person should be placed at the right
job and a right thing should be placed at the right place. Accordingly to Fayol every
enterprise should have two different orders- Material Order for Physical Resources and Social
Order for Human Resources. Keeping the physical resources in order means that 'a proper
place for everything and everything in its right place'. Similarly, keeping the human resources
in order means 'a place for everyone and everyone in his appointed places'. Maintaining these
two orders properly will ensure that everybody knows his workplace, what he is to do and
from where he would get his required material. Consequently, all the available resources in
the organisation will be utilised properly.
For example, an employee working in a factory should know the place or source from where
he can get his tools in case of need. Similarly, he should know the place where his supervisor
will be available in case of any need. It is, however, important to note that it is not sufficient
to have an quoted place for a tool-box and for the supervisor but the availability of both at
their decided place is absolutely important. If this is not the case, it can lead to a heavy loss as
a result of damage to the machines.
Positive Effect * Complete utilisation of material and human resources. * No loss of time in
tracing the resources in need of time. * Better discipline.
Violating Effect * Misuse of resources. * Increase in the possibility of accidents. * Height of
disorder.
(11) Equity: This principle tells that the managers should treat their subordinates in a just and
kind manner so that they develop a feeling of dedication and attachment for their work. All
the employees should be treated equally and impartially. Fayol tells us in connection with this
principle that there should not be any equality of treatment between a person whose work is
really good and a person who isa shirker by nature. Rather the latter should be treated sternly.
Doing so would be equitable. It is because of this point of view that Taylor has presented his
differential remuneration method. For example, a labourer completes 10 units of goods in a
day. Another labourer who happens to be a relative of the supervisor completes 8 units but
both get equal remuneration. This violates the principles of equality. The second labourer
should get less remuneration than the first one.
Positive Effect * The employees remain satisfied. * Increases the sense of devotion to the
organisation. * Skilled employees try to improve upon their skill. * Unskilled employees try
to achieve some skill.
Violating Effect * Creates dissatisfaction for the skilled workers. * Skilled workers lose
confidence in the organisation. * Decline in the efficiency of the skilled workers. * Increase
in the carelessness of the unskilled workers.
(12) Stability of Personnel: From the point of view of management it is absolutely harmful to
change the employees frequently as it is a reflection of inefficient management. Therefore,
according to this principle there should be stability of tenure of the employees so that the
work continues efficiently. Fayol thinks that instability in the tenure of employees is a cause
of poor management and results. High rate of labour turnover will result in increased
expenses because of selecting them time and again, and giving hem training afresh. It also
lowers the prestige of the organisation and creates a feeling of insecurity among the
employees which keeps them busy in finding out new avenues of work. Consequently, the
sense of dedication cannot be created among them.
For example, it is true that if the workers in a company are not treated well and the
atmosphere in the company is also unhealthy, the employees will not stay for a long time. In
other words, they will leave the company at the first opportunity available. This situation is
absolutely harmful.
Positive Effect * Increase in the confidence of the employees. * Increase in the reputation of
the company. * Skilled workers are inclined towards the company. * Less expenses on
training.
Violating Effect * An atmosphere of disbelief for the employee* Decline in the reputation of
the company * Company is left by good employees * Heavy recruitment and training
expenses.
(13) Initiative: Initiative means the capacity to work while expressing one's thoughts.
According to Fayol it is the duty of the manager to encourage the feeling of initiative among
his employees for doing some work or taking some decision but within the limits of authority
and discipline. It will be possible only when the manager will welcome the thoughts of
his/her subordinates. By doing so the subordinates will present new and useful ideas time and
again and gradually they will become an integral part of the organisation. In order to make
this process a success a manager will have to abandon his false sense of prestige.
For example, a salesman suggests to his sales manager to implement a new advertisement
technique. The sales manager sends him away by telling him that it is not possible and
ignores the suggestion altogether. In such a situation the salesman, who has been admonished
and belittled, will never venture to offer any suggestion in future because his desire of taking
initiative has been suppressed. On the contrary, if his suggestion had been listened to
carefully (even though not to be implemented) he could have taken the courage to offer some
suggestion in future. Such an action would simply have encouraged his initiative.
Positive Effect * Increase in the thinking power of the employees. * Cooperation of the
employees in implementing decisions. * Increase in the sense of attachment to the
organisation.
Violating Effect * Decline in the thinking power of the employees. * An atmosphere of non-
cooperation. * Decline in the employees' attachment to the company.
(14) Esprit De Corps: As per this principle, a manager should continuously make efforts to
develop a team spirit among the subordinates. To do this, he/she should use the word 'We'
instead of 'I' during the conversation with subordinates.
For example, a manager should always say that 'we will do this work' instead of 'I will do it'.
This behaviour of a manager will keep alive the spirit of cooperation among the subordinates.
Positive Effect * Motivation to work with team-spirit. * Easy to achieve objective. * Sweet
relationship
Violating Effect
* Kills team spirit. * Difficulty in achieving objective. *Bitterness in relationship
Conclusion
Clarifying his principles of management, Fayol has pointed out that since management is
related to human beings nothing can be said with a sense of finality. What principles are to be
applied at what time, in what situation and to what degree (or extent) - it all depends on the
experience, efficiency and decision-making power of the manager. Thus, the principles
advocated by Fayol have an element of flexibility.
Key Concepts
1. Meaning of Principle of Management: Management principles are those basic truths which
have the ability to predict the results of managerial activities.
2. How are Principles of Management Derived? (i) On the basis of Observation, and (ii) On
the basis of Experimental Studies.
3. Nature of Principles of Management: (i) Universal Applicability, (ii) General Guidelines,
(iii) Formed by Practice and Experimentation, (iv) Flexibility, (v) Mainly Behavioural, (vi)
Relationship between Cause and Effect, (vii) Contingent.
4. Significance of Principles of Management: (i) Provides Useful Insight to Managers, (ii)
Optimum Utilisation of Resources and Effective Administration, (iii) Scientific Decisions,
(iv) Meeting Changing Environmental Requirement, (v) Fulfilling Social Responsibility, (vi)
Management Training, Education and Research.
5. Fundamental Principles of Management: Principles advocated by Henry Fayol: (i) Division
of work, (ii) Authority and responsibility, (iii) Discipline, (iv) Unity of command, (v) Unity
of direction, (vi) Subordination of Individual to General Interest, (vii) Remuneration to
employees, (viii) Centralisation and Decentralisation, (ix) Scalar Chain, (x) Order, (xi)
Equity, (xii) Stability of personnel, (xiii) Initiative, and (xiv) Esprit de corps .
STUDY Assignments
Principles of Management: Meaning and Nature
6 Marks
1. Explain the meaning and nature of management principles.
4/5 Marks
2. How are principles of management derived? Clarify in detail.
3. Briefly discuss any four points of the nature of the principles of management.
3 Marks
4. What is meant by 'Principle of Management'.
5. What do you understand by the universality of principle of management? (C.B.S.E. 2003)
6. Explain in brief, the meaning of 'Universal Applicability of Management Principles'.
7. What do you understand by the 'Flexibility' of principle of management?
8. 'Principles of management are general guidelines.' Explain.
9. 'Principles of management are contingent.' Explain
10. State and explain any three points which highlightthe nature ofprinciples ofmanagement.
(CBSE. 2004)
11. Explain the meaning of management principles and state how they are derived? (CBSE.
2004)
12. Principles of management are derived 'on the basis of Experimental studies'. Explain.
1 Mark
13. What is meant by 'Principles of Management'? (CB.S.E 2008)
Ans. Management principles are thhose basic truth which have the ability to predict the
results of managerial activities.
14. Why are the principles of management called contingent? (Foreign 2009)
Ans. Because principles of management are affected by situations.
15. Give any two points of the nature of principles of management.
Ans. (a) Universal Applicability. (b) General Guidelines.
16. State how the management principles are flexible? (CBS.E. 2008, 2009)
Ans. They are not in the form of final truth and can be changed any time.
17. How have the management principles been derived? (CB.S.E2008)
Ans. On the basis of observation and experimental studies.
18. "The principles of management are different from those of pure sciences." State anyone
difference. (CB.S.E. 2008)
Ans. The principles of management are not definite like the principles of pure science.
19. Why is it said that management principles are universal?
(CB.S.E. Sample Paper, 2008, 2009)
Ans. Because these are applicable in both business and non-business spheres in a similar
manner.

Significance of Principles of Management

6 Marks
20. Explain briefly the importance of management principles.
21. State any five reasons as to why proper understanding of management principles is
necessary.
4/5 Marks
22. Explain any four points regarding significance of principles of management. (N.C.E.R.
T.)
23. Explain any two reasons why proper understanding of management principles is
necessary. (CB.SE 2009)
3 Marks
24. State any three reasons as to why proper understanding of management principles is
necessary. (CBS.E. 2004)
25. 'Principles of management provide useful insight to managers.' Clarify with the help of an
example.
26. How do principles of management make possible 'effective administration'?
1 Mark
27. How principles of management are helpful for managers in fulfilling their social
responsibility?
Ans. The principles of management increase the efficiency of the managers and enable them
to fulfill their social responsibility.
28. How principles of management are helpful in developing 'management research'?
Ans. The various advantages of the principles of management encourage the researchers to
bring in more improvement in them.

Fundamental Principles of Management

6 Marks
29. Explain the principles of management given by Fayol with example: (i) Unity of
Direction (ii) Equity (iii)Esprit De Corps (iv) Order (v) Centralisation and Decentralisation
(vi) Initiative (N.C.£.R. T.)
30. What is the principle of 'scalar chain'? Explain briefly the utility of 'gang plank' with the
help of a diagram.
31. Explain the principles of 'Discipline' and 'Esprit De Corps'. (CB.S.E. 2001)
32. Explain the principles of 'Remuneration' and 'Initiative'. (CB.S.E 2001
33. Explain the principles of 'Stability of tenure of personnel' and 'Equity.'(CB.S.E 2001)
4/5 Marks
34. "Fayol's principles of Equity and Order can be applied in actual work situation." Do you
agree? Explain your viewpoint by giving examples. (CB.S.E 2003)
35. Explain the principle of 'Scalar Chain'. Explain your viewpoint by giving example.
(CB.S.E 2003)
36. Which principle of management envisages that each group of activities having the same
objectives must have one head and one plan? Explain the principle with a suitable example.
(CB.S.E 2004)
37. Explain the principles of 'Unity of Direction' and 'Esprit De Corps'. (CB.S.E 2006)
38. Explain briefly the principle of 'unity of command'. How does it differ from the principle
of 'unity of direction'?
39. What is 'Gang Plank'? Show it through a diagram. (CB.S.E 2002)
40. Which principle of management suggests that employees should be treated with 'justice
and kindness'? Why is this principle essential in management?
41. Which principle of management suggests that employees should not leave the
organisation frequently? Give two adverse effects if this principle is violated.
42. Explain the following principles in management: (i)Discipline (ii) Harmony, not
discord(CB.S.E 2008)
43. Explain the following principles of management: (a)Scalar chain; (b)Science not Rule of
Thumb. (CB.S.E 2008)
44. Name and explain that principle of Fayol which suggests that communication from top to
bottom should follow the official lines of command. (CB.S.E Sample Paper)
3 Marks
45. Explain the principle of 'Equity'. (CB.S.E 2001)
46. Give the meaning of the principle 'Unity of Direction' with the help of a suitable example.
(CB.S.E 2001)
47. Give the meaning of the principle of 'Unity of Command' with the help of a suitable
example. (CB.S.E 2002)
48. Fayol points out the danger and costs of unnecessary labour turnover in one of his
principles. Name and explain the principle. (CB.S.E 2004)
49. An organisation follows the principles of management. What are the positive effects of
each of the following principles of management on the organisation? (i)Scalar chain,
(ii)Equity, and (iii) Division of Work. (CB.S.E 2005)
50. An organisation follows the principles of management. What are the adverse effects of
each of the following principles of management on the organisation? (i) Unity of command,
(ii)Order, and (iii)Stability of tenure of personnel. (CB.S.E. 2005)
51. How is principle of 'Unity of Command' useful for management? Explain briefly.
(N.CER.T.)
52. If an organisation does not provide the right place for physical and human resources,
which principle is violated? What are the consequences of it? (N.C.ER.T.)
1 Mark
53. State one violating effect of the principle of management - namely the 'Division of Work'.
Ans. Benefits of specialisation will not be available.
54. State one positive effect of the principle of management - namely the 'Authority and
Responsibility' .
Ans. Helpful in achieving the target.
55. State one violating effect of the principle of management - namely the 'Discipline'.
Ans. Height of disorder.
56. State one positive effect of the principle of management - namely the 'Unity of
Command'.
Ans. The efficiency of the subordinates increases.
57. State one violating effect of the principle of management -namely the 'Unity of Direction'.
Ans, Decrease in the efficiency of the organisation.
58. State one positive effect of the principle of management - namely the 'Remuneration to
employees'.
Ans. Decline in the labour turnover rate.
59. Why did Fayol introduce the concept of 'Gang Plank' in the principle of 'ScalarChain'?
(C.B.S.£. 2009)
Ans. This concept was developed to contact with the employees of equal rank in case of
emergency to avoid delay in communication.
60. State one positive effect of the principle of management - namely the 'Esprit De Corps'.
Ans. Motivation to work with team-spirit.
61. What does the principle of 'Initiative' indicate? (CB.S.E. 2009)
Ans. According to this principle, it is the duty of a manager to encourage the feeling of
initiative among his employees for doing some work or taking some decision.
62. State the principle of 'Order'. (Foreign 2009)
Ans. The meaning of this principle is to provide the right place for physical and human
resources in an organisation.

CASE STUDY/APPLICATION ORIENTED QUESTIONS

[1] The production manager of ABC Ltd. instructs a salesman to go slow in selling the
product, whereas the marketing manager is insisting on fast selling to reach the target. Which
principle of management is being violated in this case? State any two consequences of the
violation of this principle. (C.B.S.E 2004)
Ans. The principle of 'Unity of Command' is violated in this case. The following are the
violating effects of it:
(i) It creates a confused situation for the subordinates.
(ii) It reduces the efficiency of the subordinates.
[2] Hina and Harish are typists in a company having the same educational qualification. Hina
is getting Rs. 3,000 per month and Harish Rs. 4,000 per month as salary for the same working
hours. Which principle of management is violated in this case? Name and explain the
principle. IC.B.S.E. 2006)
Hint: The principle of 'Equity' is violating. Hence, explain this principle.
[3] The Production Manager of Bharat Ltd. Instructs a salesman to go slow in selling the
product, whereas the Marketing Manager is insisting on fast selling to achieve the target.
Which principle of management is being violated in the case? State anyone of the
consequences of violation of this principle. (C.B.S.E.2006)
Ans. The principle of 'Unity of Command' is violating. As per this principle, an individual
employee should receive orders from only one superior at a time and that employee should be
answerable only to that superior. The violation of this principle reduces the efficiency of the
subordinates.
[4] Mohan, a manager, does not distribute the work amongst his subordinates, either
according to capability or proportionately. Which principle of management is being
overlooked and why? Give one violating effect. Ans. The principle of 'Equity' is violated as
the manager is not impartial as far as the distribution of work among the employees is
concerned. It creates dissatisfaction for the skilled workers.
[5] Mohan, the manager of a business undertaking is very lax with his fellow employees and
subordinates. He does not give them parameters or rules for reporting to work and completion
of assignments. Which principle of management is being overlooked and why? Give one
violating effect. Ans. The principle of 'Discipline' is violated as the manager's behaviour is
not disciplined at all. It creates an atmosphere of doubt and suspicion.
[6) Mohan, a manager, very often speaks people at all levels, passing on instructions
regarding his department and also the other departments. Which principle of management is
being overlooked and why? Give one violating effect. Ans. The principle of 'Scalar Chain' is
violated as during communication the various steps of Scalar Chain are overlooked. It creates
disorderly flow of information.
[7] Mohan, a manager expects his subordinates to work for the happiness and pleasure of
being in the organisation. Which principle of management is being overlooked and why?
Give one violating effect. Ans. The principle of 'Remuneration to Employees' is violated as
the manager's expectation has no use without providing fair remuneration to the employees. It
increases the labour turnover rate.
[8) Mohan, a manager expects his subordinates to adapt the new environs and working
conditions without giving them time to settle down. Which principle of management is being
overlooked and why? Give one violating effect. Ans. The principle being overlooked is
'Stability of Personnel' as the manager is not providing so-much opportunity to the employees
so that they get settled. It increases the recruitment and training expenses.
[9] The subordinates in a company receive orders regarding their work from different
operative heads for the same task. Which principle of management is being overlooked and
why? Give one violating effect.
Ans. The principle being overlooked is 'Unity of Command' as at the same time there are
many superiors giving orders to the same employee. It reduces the efficiency of the
subordinates.
[10] Ina particular company, no importance had been attached to the suggestions given by the
subordinates. In 2007 the company appointed Mr. Lotus as its Chief Executive Officer. He
was an M.B.A. degree-holder from I.I.M. Ahmedabad with an experience of a decade. On
assuming the charge of his office, he started a sort of campaign asking for suggestions from
every big or small employee of the company. In a very short time, there were about 10,000
suggestions. After studying them intensively about 1500 suggestions were implemented in
different fields. This campaign fetched the company an additional profit of 50 crore rupees.
(i)What principle of management will have been working behind Mr. Lotus's thinking?
(ii)What will be the effect of implementing these suggestions on the employees?
Ans. (i) Principle of initiative.
(ii) Their attachment with the company will increase and they will offer new and useful ideas.

Query Session
For this query session, questions from readers' side are invited.

CHIPTER6
SCIENTIFIC MANAGEMENT: PRINCIPLES AND TECHNIQUES
Scientific management attempts to eliminate wastes to ensure maximum
production at minimum cost.
Learning Objectives
After studying this chapter, you will be acquainted with:
• Meaning of Scientific Management
• Definitions of Scientific Management
• Features of Scientific Management
• Principles of Scientific Management
• Techniques of Scientific Management
• Difference between Method Study and Motion Study
• Difference between Time Study and Motion Study
• Comparative Study of Contribution of Taylor and Fayol

Scientific management is a new thinking on management propounded by Fredrick Winslow

Taylor. Taylor was a person who within a very short duration (1878 -1884) rose from the
ranks of an ordinary labourer to the position of Chief Engineer In 1878, he joined the
Midvale Steel Company in USA as a labourer and, due to his hard work and dedication, he
was able to reach the position of Chief Engineer in the same company within a short span of
six years. During this period, Taylor conducted a number of experiments and came to the
conclusion that the amount of work a labourer was doing was far less as compared to what he
was supposed to be doing. He gave a number of suggestions to solve this problem and, in
doing so, he gave a scientific outlook to management. Taylor worked in Bethlehem Steel
Works upto 1901 and thereafter started providing services as a management consultant. In
1903, he published a research paper titled 'Shop Management' and in 1911 his book
'Principles of Scientific Management' created ripples in the field of management. Taylor died
in 1915, but his contribution to management will always remain immortal.

Fredrick Winslow Taylor (1856-1915)

Meaning of Scientific Management

The literary meaning of scientific management is performing the work of management in a
scientific manner. In other words, discarding the traditional approaches to management and
adopting newer and more scientific approaches in their place is called scientific management.
Taylor has said that before commencing any work, a manager should first analyse it
thoroughly, and only then take any decision.
• Definitions of Scientific Management
Various experts have given many different definitions of scientific management. A few of the
important definitions are: (1) According to F.W. Taylor. "Management is the act of knowing
exactly what you want men to do and then seeing to it that they do it in the best and the
cheapest way
(2) According to Peter F. Drucker •. The core of scientific management is the organised study
of work. the analysis of work into the simplest elements and the systematic improvement of
the workers' performance of each element.
Based on the above discussion, it can be said that scientific management involves studying
each activity in detail and in doing so ensure that all the activities of the organisation are
accomplished in an economic and effective manner.
• Features of Scientific Management
Based upon the definitions, the following are the main characteristics of scientific
management:
(1) Systematic Approach: Scientific management isa systematic approach to management and
its use ensures that all activities are completed in a systematic and scientific manner.
(2) Brings Complete Mental Change: Scientific management brings about a complete mental
change both in the owners as well as the employees of the organisation. Both the parties start
aiming for more and better production targets rather than merely chasing higher profits. They
are able to comprehend that increased and better production will automatically result in
higher profits which will benefit both the parties.
(3) Discards Traditional Management: The approach of scientific management completely
discards traditional management. It calls for the discarding of old techniques and adoption of
new and modern techniques, with the aim of improving the efficiency of employees.
(4) Requires Strict Observance of Rules: Scientific management requires very strict
observance of rules, because the rules are formed only after due analysis and there is very
little chance of error among them.
(5) Improves the Efficiency of Workers: The main aim of scientific management is to
increase the efficiency of workers. This is done through conducting various kinds of studies
such as time study, motion study and fatigue study.
(6) Gives due Weightage to Specialisation: Scientific management involves dividing each
work into various small parts, each part being allotted to the person who is an expert in it.
This results in better and more work being performed in much less time. Hence, it can be
seen that scientific management gives due weightage to specialisation.
(7) Useful for Large Organisations: Since the scientific management system is quite
expensive to implement, it is useful only for larger organisations.
(8) Attempts to Minimise Wastes: Scientific management aims at minimising the waste of
time, materials, machine, etc.
• Principles of Scientific Management
The scientific management approach propounded by F.W. Taylor is based upon the following
four principles:
(1) Science, not Rule of Thumb: This principle says that we should not get stuck in a set and
continue with the old techniques of doing work, rather we should be constantly
experimenting to develop new techniques which make the work much simpler.
(2) Harmony, not Discord: As per this principle, such an atmosphere should be created in the
organisation that labour (the major factor of production) and management consider each other
indispensable. Taylor has referred to such a situation as a Mental Revolution, Taylor firmly
believed that the occurrence of a mental revolution would end all conflicts between the two
parties and would be beneficial to both of them.
(3) Cooperation, not Individualism: According to this principle, all the activities done by
different people must be carried on with a spirit of mutual cooperation. Taylor has suggested
that the manager and the workers should jointly determine standards. This increases
involvement and thus, in turn, increases responsibility.
(4) Development of each and every person to his/her greatest efficiency and prosperity:
According to this principle, the efficiency of each and every person should be taken care of
right from his selection. A proper arrangement of everybody's training should be made. It
should also be taken care that each individual should be alloted work according to his ability
and interest.
• Techniques of Scientific Management
The principles of scientific management only bring out the basic philosophy behind the
theory. The question which now arises is how to implement these principles practically?
Taylor has devised the following techniques for actually implementing the principles of
scientific management:
• 1. Functional Foremanship
F.W. Taylor has propounded the functional organisation. This form of organisation is totally
based on the principle of specialisation and makes full utilisation of expertise of various
experts. In a functional organisation, work is divided into many small parts and each part is
assigned to an expert. In this manner, all the benefits of specialisation are availed of.
Taylor has defined functional organisation as follows: ."Functional organisation consists of
so dividing the management that each man from the assistant superintendent shall have as
few functions as possible to perform. If practicable, the work of each man in the management
should be continued to the performance of a single leading function.
Taylor has suggested the division of the work of factory manager into two sub-departments:
(i) planning department, and (ii) production department. Four experts are appointed in each
department. The experts in the planning department do planning and the experts in the
production department help in production. Functional organisation has been clarified in the
following diagram:

(i) Specialists of Planning Department and their Functions

(a) Route Clerk: This clerk ensures the sequence of completing a particular work, meaning
thereby the stages it shall have to pass before being finalised. He also decides the job to be
done for the day and where it is to be done.
(b) Instruction Card Clerk: This clerk prepares the instruction cards for the workers and hands
them over to the gang boss. These cards contain information about the nature of the work,
procedure of doing it, material to be used and the details about machinery.
(c) Time and Cost Clerk: This clerk decides as to when a particular work is to be started and
finished, meaning thereby as to what time the whole work will take place. It is also decided at
the same time at what cost the product will be produced.
(d) Discipline Officer: The discipline officer ensures that every work is being performed in a
disciplined manner.
(ii) Specialists of Production Department and their Functions
(a) Gang Boss: The workers are divided into various groups from the point of view of
control. A group leader is selected who is known as the gang boss. He is expected to ensure
that both the workers and the machines are fit enough for production and that the material
required for their use has been made available to them.
(b) Speed Boss: The main function of the speed boss is to ensure that all the workers are
performing their job at the required or expected speed. If it is not so, the speed boss tries to
find out the cause of slow speed and hence a solution for it.
(c) Repair Boss: The main function of the repair boss is to keep the machines and tools in
working condition.
(d) Inspector: He inspects the things produced and compares their quality with the standard
prescribed for them and tries to find out the difference. In case of unfavourable result he
initiates corrective action
2. Standardisation of Work
Standardisation means setting standards for different factors, after due deliberations For
example, the amount of work to be done by a worker in a day may be standardised. In other
words, the worker is expected to do the standard amount of work everyday. In the same
manner standards may also be set for raw materials, machines and tools, techniques,
conditions of work, etc The following is a brief description of such standards:
(i) Standardised Material: By standardisation of material we mean that the raw material
provided should be according to the quality of finished goods required. For example, if for
producing 'A' quality of finished goods 'X' quality of raw materials are required (and the same
has been determined after due deliberation), then we can say that for 'A' quality of finished
goods 'X' quality of raw materials have been standardised. In the future whenever it is
required to produce 'A' quality of finished goods, 'X' quality of raw materials willbe used
without any hesitation. By doing so good quality of finished goods can be produced in the
least possible time.
(ii) Standardised Machines and Tools: Standardisation of machines and tools ensure that they
are of the required quantity and type to produce the desired finished goods. For example, if
for producing 'A' quality of finished goods 'X' machine and M, N and O tools are required.
Once this is determined, whenever finished goods of 'A' quality are to be produced, it can be
done with the use of 'X' machine and M, N, O tools. Standardisation of machines and tools
will reduce errors on the part of workers as to which machine or tools are to be used, and
hence work can proceed at a much faster pace.
(iii) Standardised Methods: By standardising the optimum techniques of doing work, the
latter can proceed at a faster pace and with much greater ease. The technique determined for
doing a particular work is used uniformly whenever such work is performed.
(iv) Standardised Working Conditions: Working conditions have a very deep impact on the
efficiency of workers. In standardising working conditions, it is noted that how much
temperature, ventilation, lighting, cleanliness and safety is necessary at the work place. After
due studies, the working conditions are standardised and efforts are made to maintain them at
the work place.
3. Simplification
Simplification means putting an end to the unnecessary types, qualities, sizes/weights, etc.
For, it is all right for a shoe manufacturing company to manufacture shoes of 0, 1, 2, 3,4,5
...,... size but starts manufacturing shoes of 0, 0.5, 1, 1.25, 1.5, 1.75, 2, 2.25, 2.5, 2.75,3 ..... It
will be simply wrong. There is no justification in the difference of such sizes. In such a
situation different types of machines shall have to be installed, more stock shall have to be
maintained and increased labour costs shall have to be borne. Therefore, it is advisable to
manufacture shoes only of the proper size.. In other words, simplification of the product is the
answer.
Objectives of simplification:
(i) Effecting economy in the use of machines.
(ii) Bringing down the labour cost with the help of specialization. (The benefits of
specialization can be obtained by restricting specialization only to a few products.)
(iii) Affecting economy in the staff.
According to another example, a paper manufacturing company in the U.S.A. started the
work of simplification of the types of papers it was manufacturing and succeeded in reducing
their types from 2000 to 200 only.

4. Scientific Study of Work

It means to conduct the deep analysis of all the activities being performed in the organisation
with the aim of producing maximum possible quality output at minimum costs. Taylor has
conducted the following studies:
(i) Method Study, (ii)Motion Study, (iii)Time Study, and (iv) Fatigue Study.
(i) 'Method Study: It refers to identify the most suitable way to do a particular activity. To
conduct this study, process chart and operation research techniques are used. The main
objective of this study is to minimise the cost of production and maximise the quality and
level of consumer satisfaction.
(ii) Motion Study: It refers to conduct the study of motions being performed by workers and
machines while doing the job. The movie camera issued to conduct this study. The main
objective of this study is to eliminate the unnecessary motions.
For example, during an experiment it was found that while laying a brick, a mason was
conducting 18 different activities, but after eliminating the unnecessary activities the number
of activities could be reduced to 5, and in certain cases even down to 2 activities.·
(iii)Time Study It refers to determine the standard time required to complete a particular
activity The standard time is determined on the basis of average time taken by the several
experiences of the same work. This study is conducted with the help of a stop watch The
main objectives of the study are (i)to get the estimated figure of labour costs, (ii) to determine
the number of required workers and (iii)to decide about the suitable incentive plan. .
iv) Fatigue Study: It refers to determine the duration and frequency of rest intervals to
complete a particular job. The rest refreshes the workers. They work again with their full
capacity. The main objective of this study is to maintain the efficiency level of workers.
There may be so many causes of fatigue, such as, long working hours, poor working
conditions...unsuitable work,. unhappy relations with the boss, etc. .
• 5. Differential Wage System
Taylor has advised the adoption of differential wage systems in order to motivate the
employees. According to this system wages are paid on the basis of work done and not on the
basis of time spent in doing the work. In this system two different wage rates are used: one is
the high wage rate and the other is the low wage rate. Those workers who are able to produce
the standard number of units within a fixed duration are paid as per the high wage rate, and
those workers who are not able to produce the standard number of units within the same time
are paid as per the lower wage rate
For example, let the standard output per day be 20 units and the two wage rates be Rs.5 per
unit and Rs. 4 per unit respectively. Worker 'A' produces 20 units in a day and in doing so he
earns Rs. 100 (20 units x Rs. 5 per unit). Another worker 'B' produces only 18 units in a day
and hence he will earn only Rs. 72 (18 units x Rs. 4 per unit). ln this way, even though 'B' has
produced only 2 units less than 'A' the difference in their wages will be Rs. 28 (Rs. 100 - Rs.
72). As a result, less efficient workers will be motivated to work more and efficient workers
will be motivated to maintain their efficiency.
• 6. Mental Revolution
Mental revolution calls for a change in the mind- set of both employers and workers. As per
Taylor, a revolution in mind-set of both the employers and the workers is required because it
will promote feelings of cooperation, and will be beneficial to both the parties. Normally, it is
seen that conflict between employers and workers results in division of profits, with both the
parties demanding a larger share of profits. This is the main reason why a mental revolution
is required. According to Taylor, instead of fighting over division of profits. both the parties
should make efforts for increasing the profits, Such a situation will result in an increase in
production, and as such a high increase in profits that will make any talk of division of profits
meaningless .
• Comparative Study of the Contribution of Taylor and Fayol
Both Taylor and Fayol have been outstanding management experts. Their contribution in the
field of management has indeed been invaluable. Taylor was such a personality who started
his career as a labourer. That is why he has seen the workers very closely, understood their
problems and recognised the level of their efficiency. Taylor conducted many experiments
regarding the efficiency of the workers and finally reached the conclusion that a worker
works much less than what he should actually do. He gave a number of suggestions in order
to increase the work efficiency of the workers. The focus of Taylor's study was the work
efficiency of the workers. That is why he is called efficiency specialist.
On the contrary, Fayol started his career as a high ranking manager. This is why he has
observed and understood the problems of the high ranking managers. Fayol brought into
existence many invaluable principles in order to solve the problems of high ranking
managers. His focus of study has been the problems of the high ranking managers and for this
simple reason he has come to be known as administrative specialist There are some
similarities and dissimilarities in the contribution of both these specialists in the field of
management. They are as follows:
• Similarities
We find the following similarities in the thought process of Taylor and Fayol:
(1) Solution to Managerial Problems: Both the management experts have presented solutions
to the managerial problems based on their experience and experiments. The solutions
presented by both these experts are present in the shape of principles.
(2) Stress on Practical Aspect: Taylor and Fayol have both been directly connected with the
reality of work. That is why they both have laid stress upon the practical aspect of work. In
other words, they gave their suggestions about improvement where such improvements were
possible. They did not lay down any principle which cannot be brought into the parameters of
practicality.
(3) Stress on Good Industrial Relations: Both the experts are of the opinion that if good
relations between the owner and the workers are established, the organisational aims can be
easily achieved.
• Dissimilarities
Following are the dissimilarities in the ideas of Taylor and Fayol:
Difference between Taylor and Fayol
Basis of Difference Taylor Fayol
l , Perspective Related to production Related to higher level of
activities/related to factory management
area.
2. Unity of Command Unity of Command is The Principle is applied
violated. A worker works strictly.
 under the supervision of
eight specialists
simultaneously
3. Applicability It is applied in special It is applied universally
situations
4. Basis of Formation Established principles of Presented personal
scientific management by experiences in form of
observations and universal truth.
experimentation.
5. Focus Increasing productivity with Reforming the entire
the help of simplification, the
administration by following
study of time and speed etc. different principle
6 Personality Scientific Professional
7. Expression Scientific management General thinking about
administration
In conclusion, it can be said that these days many changes have crept into the world of
management. It is because of these changes that the principles of Taylor appear to be a little
old ones. On the other hand, principles advocated by Fayol get credence in the modern
context. Even then Taylor's contribution cannot be considered in significant as his principles
certainly guide the managers in some way or the other.

KEY Concepts
1. Meaning of Scientific Management: To discard the traditional approaches to management
and adopt newer and more scientific approaches in their place is called scientific
management.
2. Features of Scientific Management: (i) Systematic approach, (ii) Brings complete mental
change, (iii)Discards the traditional management, (iv)Requires strict observance of rules, (v)
Improves the efficiency of workers, (vi) Gives due weightage to specialisation, (vii)Useful
for large organisations, (viii)Attempts to minimise wastes.
3. Principle of Scientific Management: (i)Science, not rule of thumb, (ii)Harmony, not
discord, (iii) Cooperation, not individualism, (iv) Development of each and every person to
his/her greatest efficiency and prosperity.
4. Techniques of Scientific Management: (i) Functional Foremanship: (a) Experts of
Planning Department: Route Clerk, Instruction Card Clerk, Time and Cost Clerk, Discipline
Officer;(b) Experts of Production Department Gang Boss, Speed Boss, Repair Boss,
Inspector. (ii] Standardisation of work: (a) Standardised material, (b) Standardised machines
and tools, (c) Standardised methods, (d) Standardised working conditions. (iii) Simplification
(iv)Scientific study ofwork: (a) Method study, (b) Motion Study, (c)Timestudy, (d) Fatigue
study. (v) Differential wage system. (vi) Mental Revolution.
5. Comparative study of the Contribution of Taylor and Fayol: (A) Similarities: (i) Solution
of Managerial Problems, (ii) Stress on practical aspect (iii) Stress on good industrial relations.
(8) Dissimilarities: (i) Perspective, (ii) Unity of Command, (iii)Applicability, (iv) Basis of
Formation, (v) Focus, (vi) Personality, (vii) Expression.

STUDY Assignments
Meaning and Features of Scientific Management
4/5 Marks
1. Write any four features of Scientific Management.
3 Marks
2. What does scientific management mean? 3. Write three features of 'Scientific
Management'.
1 Mark
4. Name the person who has propounded 'Scientific Management'. Ans. Fredrick Winslow
Taylor.
5. State any two features of scientific management.
Ans. (a) It is a systematic approach. (b) It brings complete mental change.
6. Scientific management is useful for which type of organisations?
Ans. It is useful for larger organisations.

• Principles of Scientific Management

6 Marks
7. Explain the principles of Scientific Management given by Taylor. (N.C.E.R.T.)
4/5 Marks
3 Marks
8. Explain any two principles of Scientific Management. (Foreign 2009)
9. Explain the principles of scientific management. (CB.S.E2009)
10. Describe Taylor's principle of 'Harmony, not discord' in about 50 words.
1 Mark
11. State any two principles of 'Scientific Management'.
Ans. (i)Science, not rule of thumb. (ii)Harmony, not discord.
12. What is the meaning of the principle of scientific management namely the 'Cooperation
not Individualism '?
Ans. According to this principle, all activities done by different people must be carried on
with a spirit of mutual cooperation.
13. List any two principles of 'Scientific Management' formulated by Taylor for managing an
organisation scientifically. (C.B.S.E. Sample Paper)
Ans. (i) Science, not rule of thumb. (ii) Harmony, not discord.

Techniques of Scientific Management

6 Marks
14 Explain in brief the techniques of scientific management.
15. Explain the technique of 'Functional Foremanship' and the concept of 'Mental Revolution'
as enunciated by Taylor. (N.C.E.R. T.)
16. Discuss the following techniques of scientific work study: (a) Time Study (b) Motion
Study (c) Fatigue Study (d) Method Study(N.C.E.R. T.)
4/5 Marks
17. Explain 'Differential Piece Rate' and 'Functional Foremanship' as techniques of scientific
management. (CB.S.E. 2009)
18. Explain any five techniques of scientific management. (CB.S.E. 2009)
19. Develop an imaginary plan of differential piece rates to be introduced for the workers,
engaged in sewing shirts. (C.B.S.E. 2002)
20. What contradiction do you find in the principle of 'Unity of Command' and the technique
of 'Functional Foremanship' and why? (CB.S.E. 2002)
2l. Explain 'Time-Study' and 'Fatigue Study' as techniques of scientific management.
(CB.S.E. 2004)
22. Explain 'Method Study' and 'Motion Study' as techniques of scientific management.
(CB.S.E. 2004)
3 Marks
23. How does the technique of 'Motion Study' help to improve the efficiency of workers.
Give any two points in support of your answer.
24. How does the technique of 'Time Study' help to improve the efficiency of workers? Give
any two points in support of your answer.
25. Which technique of Taylor suggests that each worker should be supervised by
specialists? Give the designation of any two types of specialists suggested by Taylor.
(C.B.S.E.2005)
26. Name and explain the technique of Taylor which is the strongest motivator for a worker
to reach standard performances. (CB.S.E. 2006)
27. What do you mean by 'Differential Wage System'?
28. What does mental revolution imply in scientific management?
29. How does scientific management bring complete mental change?
30. What are the aims of 'time' and 'motion' study?
3l. What do you mean by 'Simplification'? 32. Write a note on 'functional foremanship'.
1 Mark
33. What is the job of 'Speed Boss' under functional foremanship?
Ans. He ensures that all the workers are performing their job at the required speed.
34 As a technique of scientific management what is the meaning of 'Standardisation of
Work'?
Ans. It refers to set the standards for different factors, after due deliberation.
35 As a technique of scientific management what is the meaning of 'Simplification'?
Ans. It means putting an end to unnecessary types, qualities, size/weight etc.
36 What is meant by 'Method Study'?
Ans. It refers to identify the most suitable way to do a particular activity.
37 What is the main objective of 'Motion Study'?
Ans. The main objective of this study is to eliminate the unnecessary motions.
38 What is meant by 'Time Study'?
Ans. It refers to determine the standard time required to complete a particular activity.
39 What is meant by 'Fatigue Study'?
Ans. It refers to determine the duration and frequency of rest intervals to complete a
particular job.
40 What is meant by 'Mental Revolution'? (C.B.SE. 2008)
Ans. It calls for a change in the mind-set of both the employers and the workers.
41 What is main objective of 'Method-Study'? (C.B.S.E. 2008)
Ans. Its main objective is to minimise the cost of production and maximise the quality and
level of consumer satisfaction.
42 What is main objective of 'Time-Study'? (C.B.S.E. 2008)
Ans. The main objective of time-study is to get the estimated figure of labour costs, to
determine the number of required workers and to decide about the suitable incentive plan.
43 Different techniques were developed by Taylor to facilitate principles of scientific
management. One of them is 'Fatigue Study'. What is the objective of this study? (C.B.S.E
Sample Paper)
Ans. The main objective of this study is to maintain the efficiency level of workers.
44. What is the main objective of fatigue study? (C.B.S.E 2008)
Ans. * Refer to Q 43.
45. What is the main objective of simplification in scientific management? (C.B.S.E. 2008)
Ans. Effecting economy in the use of machines.
• Comparative Study of Contribution of Taylor and Fayol
6 Marks
46. 'Taylor's principles of scientific management and Fayol's principle of management are
mutually complementary.' Do you agree with this view? Give any four reasons in support of
your answer. (C.B.S.E. 2003)
47. Discuss the difference between the contribution of Taylor and Fayol. (N. C.E.R. T.)
3 Marks
48. Write the similarities found in the views of Taylor and Fayol.
1 Mark
49. Distinguish between Taylor and Fayol on the basis of 'Unity of Command'.
Ans.
Basis of Difference Taylor Favol
Unity of Command Unity of Command is The Principle is applied
violated A worker works strictly.
under the supervision of
eight specialists
simultaneously.
50 Distinguish between Taylor and Fayol on the basis of 'Personality'.
Ans
Basis of Difference Taylor Fayol
Personality Scientific Professional

CASE STUDY/APPLICATION ORIENTED QUESTIONS

[1] Ms. Libra is working as CEO in the Bagan Tea company. Her company manufactures tea
with ten brand names (e.g. Hari Patti, Lal Patti, Swad, Mehak, Khushboo, Morning Tea, etc.).
Every brand has five flavours. Tea of every taste is packed in the packing of 10 grams, 20
grams, 30 grams, 40 grams, 50 grams, 60 grams, 70 grams, 80 grams, 90 grams, 100 grams,
150 grams, 200 grams, 250 grams, 300 grams, 350 grams, 400 grams, 450 grams, 500 grams,
600 grams, 700 grams, 800 grams, 900 grams, 1 Kg,2 Kg,3 Kg,4 Kg and 5 Kg. In this way
the company sells tea of one brand in 135 (1x5x27) packets and all the brands put together
are sold in 135 x 10 = 1350 packets.
Q. 1. What in your opinion is the mistake being committed by Ms Libra?
Q. 2. With what technique of scientific management can she improve upon her mistake?
Q. 3. What benefit shall she get with the help of the technique suggested by you?
Hint: Intensive study points out that there is no justification in selling tea in so many brands,
so many tastes and huge number of packings. This variety of production can be decreased,
e.g. let there be only four brands with each brand having only one taste and each taste should
be packed in 10 grams, 50 grams, 100 grams, 200 grams, 500 grams, 1 Kg, 2 Kg, 5 Kg
packets. Thus the number of packets can be reduced to 32 (4x 1x8) packets. By doing so all
the advantages of simplification can be obtained, e.g., less number of machines, economy in
stock, decrease in the cost of labour, etc.
Query Session
For this query session, questions from readers' side are invited.
CHAPTER 7
BUSINESS ENVIRONMENT: IMPORTANCE AND DIMENSIONS
The study of the business environment is compulsory for the survival and growth of the
business.
Learning Objectives
After studying this chapter, you will be acquainted with:
• Meaning of Business Environment
• Characteristics of Business Environment
• Importance of Business Environment
• Components of Business Environment
• Internal Environment
• External Environment
• Dimensions of Business Environment
• Economic Environment in India
• Economic Reforms since 1991 or New Economic Policy or Changing Scenario of Indian
Economic Environment
• Impact of changes in Government Policy on Business and Industry
ANALYSIS BOX
-; COMMENCE ;
Mr. Answer Gentlemen, let us talk about business environment today.
Mr. Question: Sir, we have heard about environment. but what is this business environment?
Mr. Answer Well, first of all you tell us, what do you think about environment?
Mr. Question: Sir, in my opinion the forces present around us (e.g. air, sunlight. noise,
weather, etc.) form environment.
Mr. Answer: Absolutely correct. Well, now tell us what is their importance?
Mr Question: Sir. all these forces (environment) affect us. They provide us both joy and
distress.
Mr Answer You are telling it right .. Since we are influenced by these forces, studying them
regularly is important. For example, the moment we get information about the winter season,
we should arrange for the winter clothing’s otherwise physical distress is certain.
Now to listen........
Just as we do not live in a vacuum and remain surrounded by various forces, in the same way
business cannot be run in a vacuum, but .
Mr. Question :Sir, does it mean that Air, Sunlight. Weather. etc are the business environment.
Mr. Answer No. have patience and listen carefully ........
In broad terms. The sum total of all the factors influencing business is called business
environment.
A business is run not in a vacuum but in a society. While doing business it has to come in
contact with various social factors. These factors are - customers, suppliers, competitors,
government policies, political structure, constitutional laws, etc. All these factors are outside
the business and business has no control over them. They are called external factors
influencing business.
Mr. Question Sir. how do the customers influence business?
Mr. Answer: e.g. if the customers in large numbers stop buying the products of a particular
company, the sales will come down and its profits will decline. The example of COKE and
PEPSI is there for you to see.
Mr. Question OK. Sir,
Sir. you have told us that customers. suppliers, etc. are the external factors influencing
business Do you think. there are some internal factors also?
Mr. Answer: Yes, objective, policies, organisation structure, management information
system, production methods, production capacity, etc. are the factors which exist within the
business and influence the decisions of the business. They are called internal factors
influencing business. These are generally within the control of business.
Mr. Question: Sir, it means that the sum total of both the external and internal factors
constitute the business environment.
Mr. Answer: You are right . Now, listen ahead . This is the broad meaning of business
environment. There is a limited meaning of business environment and, in reality, that is in
prevalence.
Mr. Question: Sir, kindly tell in detail
Mr. Answer: Listen ..........
The external factors influencing business are called external environment and the internal
factor influencing business are called internal environment.
Mr. Question: Sorry for the Interruption. Sir The factors of the internal environment are
within the control of the business and the factors of external environment are beyond control
Am I right Sir?
Mr Answer: Absolutely correct... .. Well done Now listen further . The external environment
can further be divided into two parts:
(i) Micro environment: Microenvironment means the sum total of those factors which affect
or influence the firms of a industry separately, e.g., customers, suppliers, competing firms,
etc. These factors are closely related to the business and they can be taken under control by
making efforts.
(ii) Macro Environment: This is the sum total of all these factors which influence almost all
the firms of the industry equally e.g. government policies, political structure, constitutional
laws, etc. The business has a distant relationship with these factors and control over them is
almost impossible.
Mr. Question Sir, Sir …
Mr. Answer No, not yet, listen ahead ….
We can draw the following conclusion from the foregoing analysis:
(i) Internal environment: Complete Control.
(ii)Micro environment: Control is possible.
(iii) Macro environment: Control almost impossible.
Limited and generally accepted meaning of business environment: 'Business environment
means the sum total of those factors which influence the business and over which the
business has no control.'
Mr. Question: Sir it means that only macro environment is business environment because
control over it is impossible
Mr. Answer: 101% correct
Mr. Question: I have understood the meaning of business environment, but. sir. what is the
need of studying it
Mr. Answer: A very good question ..... At the beginning of this discussion you had observed
that we get joy and distress from environment. The same thing applies here. In the business
environment opportunities and threats are always present. An organisation can benefit itself
by continuous scanning the opportunities and can forestall the possible threats.
Mr. Question Sir. it means that in order to live and develop in today's competitive age the
businessman should continue studying business environment Sir. any example regarding
this..
Mr. Answer: Yes, listen . The motorcycle industry in the UK declined due to not keeping a
watch over business environment. It did not attack any importance to produce international-
level product to match the Japanese motorcycle industry. Therefore, they suffered. If the UK
motorcycle industry had adopted the right policy in time, it would not have suffered like this.
Mr. Question: OX Sir, Thank U,
Meaning of Business Environment
Business environment means the sum total of those factors which influence the business and
over which the business has no control.
•Characteristics of Business Environment
Following are the chief characteristics of the business environment:
(1) Totalality of External Forces: Business environment is the sum total of all those
factors/forces which are available outside the business and over which the business has no
control. It is the group of many such forces, that is why, its nature is of totality.
(2) Specific and General Forces: The forces present outside the business can be divided into
two parts - specific and general.
(i) Specific: They are the forces which affect the firms of an industry separately, e.g.,
customers, suppliers, competitive firms, investors, etc.
(ii) General: They are the forces which affect all the firms of an industry equally, e.g.. social,
political, legal and technical situations.
(3) Inter-relatedness: The different factors of business environment are co-related. For
example, let us suppose that there is a change in the import-export policy with the coming of
a new government. In this case the coming of new government to power and change in the
import-export policy are political and economic changes respectively. Thus, a change in one
factor affects the other factor.
(4) Dynamic Nature: As is clear that environment is a mixture of many factors and changes in
some or the other factors continue to take place, therefore, it is said that business environment
is dynamic.
(5) Uncertainty: Nothing can be said with any amount of certainty about the factors of the
business environment because they continue to change quickly. The professional people who
determine the business strategy take into consideration the likely changes before hand. But
this is a risky job. For example, technical changes are very rapid. Nobody can anticipate the
possibility of these swift technical changes. Anything can happen, anytime. The same is the
situation of fashion.
(6) Complexity: Environment comprises of many factors. All these factors are related to each
other. Therefore, their individual affect on the business cannot be recognised. This is perhaps
the reason which makes it difficult for the business to face them.
(7) Relativity: Business environment is related to the local conditions and this is the reason
for business environment happens to be different in different countries and different even in
the same country at different places.
• Importance of Business Environment
It is not sufficient to know only the meaning of business environment. The more important
aspect is to know as to why we want to study it. In other words, what is its importance. The
importance of business environment is highlighted by the following facts:
(1) First Mover Advantage: The study of business environment enables us to know about the
opportunities available. A company which is more conscious about the changes taking place
in the business environment is the first mover. It takes advantage of it by becoming the first
supplier. In other words, a company which has the capacity to know the possibilities of the
opportunities available can be the greatest beneficiary. For example, the ASIAN PAINTS a
leading company of the paint industry, at one stage lagged behind because of technology.
This was smartly understood by another company, GOODLASS NEROLAC (GN). In order
to exploit this situation, the latter company entered with a contract with a foreign company
named KANSAIPAINTS (KP) with the purpose of acquiring latest technology. The KP made
available to the GN the Cathodic Electro Deposition (CEO) technology. On this very basis,
the GN was able to obtain the contract for the entire paint requirements of the MARUTI
UDYOG. In this way, the GN earned huge profits by entering the market with the latest
technology. It was a first mover advantage of the company.
(2) Warning Signal: Along with the availability of opportunities provided by the study of
business environment, we also come to know about the threats accompanying them. If the
knowledge about the threats is available in time, effort scan easily be made to face or
surmount them. This is possible only by regularly studying the changes taking place in the
business environment. For example, there was a time when the customers got dissatisfied at
the slow supply of cars in the market. The Maruti Udyog Ltd. was sharp enough to recognise
the threat of new companies entering the market in time. Before the other companies could do
anything, the Maruti Udyog Ltd. was able to increase the supply of itscars manifold and was
thus able to nullify the effect of the possible threat. In this way, the Maruti forestalled the
possible danger by the study of business environment.
(3) Taping Useful Resources: An organisation needs a member of resources to carry on its
business (e.g. material machine, man, money etc.). With the help of these resources goods
and services are produced. A business gets resources from the environment and provides
goods and services to the same environment. A study of business environment tells a business
the requirements of the environment and what can it make available to get its needs fulfilled.
Therefore, it is possible to get useful resources from the business environment.
(4) Coping with Rapid Changes: These days business is being run in a rapidly changing
environment. Various factors connected with business, e.g. competition, fashion, number of
customers, technology, etc. are changing quickly. Changes do not affect business as much as
the rapidity of the changes. It means that if the speed of the change is a little less it can be
faced with comparative ease but to face the rapidity of change is a very difficult task. This
can be possible only by constant vigil over the business environment and studying it
simultaneously.
(5) Assisting in Planning and Policy: The knowledge of the business environment presents
the basis for planning and policy. For example, the ITC Hotels decided to establish many new
hotels abroad and in India only after a careful study of the business environment. They
feltthat tourism industry was the biggest industry in the world. Its future was particularly
bright in India. The Government also has a special interest in the development of this industry
because of many reasons (for example, the receipt of foreign exchange, increase of
employment, etc.). The ITC Hotels formulated their future strategy on the basis of this
information. In this way, anyone can defeat their competitors by formulating their plans.
(6) Improvement in Performance: In every organisation the study of business environment
has an important role as far as its performance is concerned. Those organisation which keep a
constant eye on it and analyse it correctly definitely win the race and remain alive fora long
time. On the other hand, those organisations which do not care about it cannot remain
steadfast in the market, are likely to close down Therefore, it can safely be asserted that an
organisation can improve its present as well as future with the help of the study of business
environment.
Components of Business Environment
The different components of the business environment are shown in the following diagram:

A. Internal Environment
Internal environment includes all those factors which influence business and which are
present within the business itself. These factors are usually under the control of business. The
study of internal factors is really important for the study of internal environment. These
factors are: (i) Objectives of Business, (ii)Policies of Business, (iii) Production Capacity, (iv)
Production Methods, (v) Management Information System, (vi) Participation in Management,
(vii) Composition of Board of Directors, (viii)Managerial Attitude, (ix) Organisational
Structure, (x) Features of Human Resource, etc.
Note: All the above factors do influence the decisions of business, but since all these factors
are usually under the control of business, they cannot be wholly included in the business
environment.
• B. External Environment
External environment includes all those factors which influence business and exist outside the
business. Business has no control over these factors. The information about these factors is
important for the study of the external environment. Some of these factors are those with
which a particular company has very close relationship. However, there are some other
factors which influence the entire business community. On this very basis, the external
environment can be divided into two parts:
(1) Micro Environment or Operating Environment: Micro environment means that
environment which includes those factors with which business is closely related. These
factors influence every industrial unit differently. These factors are as under: (i) Customers
(ii)Suppliers (iii)Competitors (iv) Public (v) Marketing Intermediaries.
(i) Customers: Customers of an industrial unit can be of different types. They include
household, government, industry, commercial enterprises, etc. The number of different types
of customers highly influence a firm. For example, suppose a firm supplies goods only to the
government. It means that firm has only one customer. If because of some reason their
relations get soured, the supply of goods will stop and in that case the closure of that firm is
certain. This clearly indicates that the customers do influence business. Therefore, a firm
should make efforts to have different kinds of customers. (
ii) Suppliers: Like the customers, the suppliers also influence business. Ifa business has only
one supplier and he gets annoyed because of some reason, the supply of goods can be stopped
and the very existence of the business can be threatened or endangered. Hence, efforts should
be made to have various suppliers.
(iii) Competitors: The competing firms can influence business in a number of ways. They can
do so by bringing new and cheap products in the market, by launching some sale promotion
scheme or other similar methods.
(iv) Public: Public has different constituents like the local public, press or media, etc. The
attitude or behaviour of these constituents can affect business units. For example, the local
population can oppose some established firm whose business is excessively noisy. Similarly,
if the media gives some favourable report about a particular company the price of its share
can register an increase on this count.
(v) Marketing Intermediaries: The marketing intermediaries play a significant role in
developing any business unit. They are those persons who reduce the distance between the
producers and agents. For example, a company sell sits goods with the help of agents and if
because of some reason all the agents get annoyed with the company and refuse to sell its
goods, there can be a crisis for the company.
(2) Macro Environment or General Environment: Macro environment means that
environment which includes those factors which have a distant relation with business. A
prominent feature of these factors is that they influence all the business units almost in the
same way.
NOTE: We have already seen that the internal environment is under the control of business,
and therefore, it cannot be wholly included in the business environment. Similarly, the micro
environment has a very close relationship with business and, therefore, if not immediately at
least it can be controlled to a large extent within a short span of time. On the contrary, there is
remote relationship of macro environment with business. In other words, business has no
control over it. In fact, macro environment is in reality the business environment. Its factors
are called Dimensions of Business Environment. We shall now study these dimensions.

Dimensions of Business Environment

Dimensions of business environment (or macro environment or general environment) have
the following important factors:
[Note: General environment can be classified into two major categories: (i) Economic
Environment, (ii) Non-economic Environment (Political Environment, Social Environment,
Legal Regulatory Environment and Technological Environment) 1 (1) Economic
Environment (2) Political Environment
(3) Social Environment. (4) Legal Regulatory Environment
(5) Technological Environment
(1) Economic Environment
Among the various factors of macro environment, the economic environment has a special
significance. Economic environment can be divided into three parts. We shall now study their
effect on business. They are as under:
(i) Economic system. (ii)Economic policies. (iii)Economic conditions. (i) Economic System:
It is necessary to know about the economic system prevailing in a country in order to
understand the economic environment. Economic system influences the freedom or openness
of business. Economic system is mainly of three kinds:
(a)Socialistic Economic System, (b)Capitalistic Economic System, (c)Mixed Economic
System.
(a) Socialistic Economic System: Under this system, business is directed and controlled by
the government. In other words, individuals have no freedom to run business. The
government owns all the means of productions. No individual has the right to have private
property. All persons enjoy the benefits of centrally planned economy. All have equal rights.
This system of economy is mainly adopted by Russia, China, Hungary and Poland.
(b) Capitalistic Economic System: Under this system, private ownership of business is given
importance. Hence, business gets extended. It is also known as free market economy. Under
this, all means of production (such as labour, land, capital, etc.) are owned by private people.
What to produce, how to produce and by whom it will be produced- all such considerations
are determined by the market forces. Hence, it can be said that there is a complete freedom of
consumption, production, savings, investment, etc. Such type of economic system is
prevailing in U.S.A. and Canada.
(c) Mixed Economic System: Under this system, business is owned both by the government
and individuals. Under this, several basic industries are run under the control and ownership
of the government. As far as the private sector is concerned, it is run by the private persons,
but to save the interest of the country government regulates its activities. India isa good
example of countries following this concepts of economy.
(ii) Economic Policies: Economic policies deeply influence the business of a country. The
economic policies are laid down to direct the economic activities. Economic activities include
import-export, employment, tax structure, industry, public expenditure, public debt, foreign
investment, etc. In order to direct all these economic activities, the following economic
policies are laid down:
(a) Export Import Policy, (b) Employment Policy, (c) Taxation Policy, (d) Industrial Policy,
(e) Public Expenditure Policy, (f)Public Debt Policy. (g)Agriculture Policy, (h) Foreign
Investment Policy.
All these policies influence business. For example, under the import-export policy,
restrictions on imports will benefit the indigenous industry.
(iii) Economic Conditions: Economic conditions are those conditions which are related with
the possibilities of economic development of a country. On the basis of the economic
conditions the government starts various programmes for the welfare of the people. These
programmes influence business. Businessmen are influenced by these programmes and they
start their own programmes like the advertisement policy, discovery of new market, bringing
new products in the market, new methods of production, etc. Some of the examples of
economic conditions are as under:
(a) Foreign Capital, (b) Supply of Natural Resources, (c) Level of Economic Development,
(d) Rate of Interest, (e) National Income, (f) Industrial Development. (g) Foreign Trade, (h)
General Price Level.
Impact of Economic Environment on Business
The following are the chief examples of the impact of economic environment on business:
(i) After reforms were introduced in the banking sector, the bank loans were allowed on
easy terms. It also led to better services. It helped really fast development of business.
(ii) The change in the economic environment resulted in the establishment of Leasing
Companies. Mutual Funds and Venture Capital Business.
• (2) Political Environment Political environment is the outcome of a combination of various
ideologies advocated by different political parties. Factors connected with the activities of the
government are included in it, e.g., the type of government (single party government or
multiparty government), the attitude of the government towards different industries, progress
in passing different laws, the platforms of the political parties, the tendency of the applicants
for different posts, efforts by various groups to get effective support for themselves, etc.
Every political party has a different attitude towards business community. A living example
of this can be seen during elections in the shape of fluctuations in the share market. It is quite
possible that the mere possibility of a particular political party coming into power can make
the prices of share rise sky high. Itis true conversely when the possibility of some other
political party coming into power may bring the price of shares really nose-diving. It clearly
shows that the attitude of the first political party towards business is positive which gets
reflected in the positive effect on the share market. On the other hand, the negative attitude of
the second political party towards business is reflected in the nose-diving of prices of shares
in the share market merely on the possibility of its coming to power.
Impact of Political Environment on Business
The following are some of the examples of the impact of the political environment on
business:
(i) In the year 1977, the Janata Government adopted a stringent attitude towards the
multinational companies. Asa result of this attitude the multinational companies like the IBM
and the Coca-Cola had to ignore India.
(ii) The new government encouraged the multinational companies for investment in India.
This led to the opening of the doors of the Indian market for the multinational companies.
Consequently, the Coca-Cola entered the Indian market once again.
(iii) It was only because of the political interest that Hyderabad came to be known as
Cyberabad. In other words, it came to be recognised as the centre of Information Technology
(IT).As a result of it many LT. Companies came to be established there.
• (3) Social Environment
Business is born and develops in society. Therefore, the effect of various social factors on
business is but natural. Social factors include customs, fashions, traditions, wishes, hopes,
level of education, population, standard of living of the people, religious values, distribution
of income, corruption, family set-up, consumers' consciousness, etc.
Impact of Social Environment on Business
All social factors influence business in some way or the other. For example, the production of
things should be according to the fashion. Similarly religious values also influence business.
For example, some years ago the manufacturers of Vanaspati Ghee used to import animal fat
for manufacturing ghee. On the basis of the strong public protests the government cancelled
the import licence of these manufacturers. Similarly, with the news that some popular cold
drinks contain pesticide elements, people protested against it and minimised the consumption
of these cold drinks.
• (4) Legal Regulatory Environment
 Many acts are passed from time to time in order to control and regulate business activities.
The sum-total of all these Acts creates legal regulatory environment. Acts are mostly passed
to regulate such business activities as sale-purchase, industrial disputes, labour, regulating
partnership business, regulating company business, foreign exchange, etc.
In India, the following Acts have been passed in connection with the above business
activities:
(i) Sale of Goods Act, (ii) Industrial Disputes Act.
(iii) Minimum Wages Act, (iv) Indian Partnership Act,
(v) Companies Act, (vii) Trade Mark Act,
(viii) Essential Commodities Act, (ix) Consumer Protection Act.
(x) Standards of Weights and Measures Act.
All these Acts influence business decisions.
Impact of Legal Regulatory Environment on Business
The following are the examples of the impact of the legal regulatory environment on
business:
(i) By removing control on the capital market, a huge amount of capital was collected by
issuing various new issues in the primary market.
(ii) With introduction of relaxation in Foreign Direct Investment (FOI) and Foreign
Exchange, many multinational companies entered the Indian market. Consequently, there has
been a tremendous increase in the foreign exchange reserves in the country.
• (5) Technological Environment
Technology includes new methods of production of goods, services and discovery of new
implements. Technological changes make available better methods of production and that
makes the optimum use of the raw material possible. The technological changes offer both
the possibilities and threats for business. In case a company understands these things well in
time it can achieve its objective, otherwise the very existence of the company is threatened.
For example, it becomes a technological change for the automobile industry to produce
vehicles which consume less petrol in view of the ever increasing prices of petrol. Only that
company will be able to survive which can move with the changes taking place in the
environment. Therefore, the companies should constantly watch the technological changes so
that they are able to exploit the business opportunities.
Impact of Technological Environment on Business
The following are the examples of impact of technological environment on business:
(i) With the advent of television in the market, the cinema and the radio industry were
adversely affected.
(ii) With the arrival of the photostat machines in the market, the carbon paper industry
suffered a setback.
(iii) With the entry of synthetic thread in the market, the cotton cloth industry was badly
affected.
(iv) The digital watches have almost eliminated the market of the traditional watches.
• Economic Environment in India
Economic environment is an important constituent of business environment. There are three
main constituents of this environment as indicated in the following diagram:
We have already studied economic system, economic policies and economic conditions under
the dimensions of business environment. Now we shall study it in the Indian context.
• (1) Economic System of India
Economic system is one of the major parts of economic environment. Economic system is of
three types:
- Socialistic Economic System.
- Capitalistic Economic System.
- Mixed Economic System.
India has adopted the mixed economic system.
Features of Mixed Economic System: The chief characteristics of the mixed economic
system are as under:
(i) Different sectors of business - public, private and mixed.
(ii) More attention to public interest.
(iii) Encouragement to private sector.
(iv) Central planning.
(v) Freedom in the choice of employment.
• (2) Economic Policies of India
In order to direct the economic activities in India, the following major economic policies
have been framed.
(i) Import-export policy to control import-export in the country.
ii)Employment policy to make employment available to the people of the country.
iii)Tax policy to form a structure of direct and the indirect taxes.
(iv) Industrial policy to encourage industrial development in the country.
(v) Public expenditure policy in order to control public expenditure.
(vi) Public debt policy in order to control public debt.
(vii) Agriculture policy in order to develop agriculture in the country.
(viii) Foreign investment policy to invite foreign capital in the country.
(ix) Monetary policy in order to establish a balance between the demand and supply for
money
• (3) Economic Conditions in India
The major economic conditions and their explanation is as under:
(i) Foreign Capital: Foreign capital means investment made by foreigners in India. The
foreign capital in India is increasing at the rate of 4 billion dollars every year. It is a good sign
for the economic environment in India.
(ii) Supply of Natural Resources: In India, the supply of natural resources (like the coal
mines, iron mines, forests, etc.) is abundant and they are fully being exploited.
(iii) Level of Economic Development: The economic development in India is also balanced.
This rate is about 5.5 per cent per year.
(iv) Rate of Interest: Sometime back the rate of interest in the system of banking was
determined by the Reserve Bank. Now all the banks in the country have been given the
freedom to determine their own rates of interest. That is why the rates of interest in respect of
various banks happen to be different.
(v) National Income: In India, national income is increasing at a slow speed.
(vi) Industrial Development: There is instability in the industrial development of India. For
the last one decade it has been observed that sometimes there is some progress and while
sometimes there is no progress at all.
(vii) Foreign Trade: There is continuous progress in the foreign trade of India.
(viii) General Price Level: In India, the general price level is under complete control. This is a
good indicator for the economic condition of the country.
• Economic Reforms since 1991 or New Economic Policy or Changing Scenario of
Indian Economic Environment
The process of economic reforms was started by the government of India in 1991 for taking
the country out of economic difficulty and speeding up the development of the country. The
centre of economic reforms has been liberalisation, privatisation and globalisation. These
three terms mean:
(A) Liberalisation: Liberalisation means to unshackle the economy from bureaucratic
cobweb to make it more competitive. Following are its chief features:
(i) To do away with the necessity of having a license for most of the industries.
(ii) Freedom in determining the scale of business activities.
(iii) Removing restrictions for the movement of goods and services from one place to
another.
(iv) Freedom to fix the prices of goods and services.
(v) Reduction in the rate of taxes.
(vi) Freedom from unnecessary control over economy.
(vii) Simplifying import-export procedure.
(viii) Simplifying the process of attracting foreign capital and technology.
(B) Privatisation: In brief, privatisation means such an economic process through which
some public sector undertaking is brought either partially or completely under private
ownership. Broadly speaking, establishing a new enterprise in private sector instead of a
public sector is also privatisation. Not only this, depriving public sector of the job of
production which was earlier reserved for it or transferring its production, without depriving
it,to the private sector also amounts to privatisation. Its chief features are given below:
(i) Reducing the role of public sector and increasing the role of private sector.
(ii) Reducing fiscalburden of the government.
(iii) Reducing the size of the government machinery.
(iv) Speeding up economic development.
(v) Improving management of enterprises.
(vi) Increase in government treasury.
(vii) Increasing competition by opening industries reserved for the public sector to the private
sector.
(C) Globalisation: Globalisation means integrating the economy with the rest of the world.
Following are its chief features:
(i) Free flow of goods and services in all the countries.
(ii) Free flow of capital in all the countries.
(iii) Free flow of information and technology in all the countries.
(iv) Free movement of people in all the countries.
(v) The same conflict solving technique in all the countries.
• Objectives of Economic Reforms
Following are the objectives of economic reforms:
(i) Modernisation of the industrial system of the country.
(ii) Encouraging private investment.
(iii) Attracting foreign investment.
(iv) Eliminating unproductive controls.
(v) Connecting Indian economy with the world economy.
(vi) Controlling fiscal deficits. (Fiscal deficit comes into play when the total expenditures of
the country exceeds its total incomes).
(vii) Increasing foreign exchange reserves.
(viii) Controlling unprofitable industrial units in the public sector.
• Major Steps of Economic Reforms
For the attainment of the above-mentioned objectives, the government of India has taken the
following major steps:
(1) New Industrial Policy, (2) New Trade Policy (3) Fiscal Reforms, (4) Monetary Reforms
(5) Capital Market Reforms, (6) Phasing out Subsidies (7) Dismantling Price Controls
We shall now study these aspects of the economic reforms in detail.
(1) New Industrial Policy
Under Industrial Policy, keeping in view the priorities of the country and its economic
development, the roles of the public and private sectors are clearly decided.
Under the New Industrial Policy, the industries have been freed to a large extent from the
licences and other controls. In order to encourage modernisation, stress has been laid upon
the use of latest technology. A great reduction has been affected in the role of the public
sector. Efforts have been made to encourage foreign investment. Investment decision by
companies has been facilitated by ending restrictions imposed by the M.R.T.P. Act.
Similarly, Foreign Exchange Regulation Act (FERA) has been replaced by Foreign Exchange
Management Act (FEMA).
Some important points of the New Industrial Policy have been highlighted in the following
details:
(i) Abolition of Licensing: Before the advent of the New Industrial Policy, the Indian
industries were operating under strict licensing system. Now, mostly the industries have been
freed from licensing and other restrictions.
(ii) Freedom to Import Technology: The use of latest technology has been given prominence
in the New Industrial Policy. Therefore, foreign technology collaboration has been allowed.
(iii) Contraction of Public Sector: Apolicy of not expanding unprofitable industrial units in
the public sector has been adopted. Apart from this. the government isfollowing the course of
disinvestment in such public sector undertaking. (Selling some shares of public sector
enterprises to private sector entrepreneurs is called disinvestment. This is a medium of
privatisation).
(iv) Free Entry of Foreign Investment: Many steps have been taken to attract foreign
investment, such as:
(a) In the year 1991, 51% of foreign investment in 34 high priority industries was allowed
without seeking government permission.
(b) Non-Resident Indians (NRIs) were allowed to invest 100% in the export houses,
hospitals, hotels, etc.
(c) Foreign Investment Promotion Board (FIPB) was established with a view to speedily clear
foreign investment proposals.
(d) Restrictions which were previously in operation to regulate dividends repatriation by the
foreign investors have been removed. They can now take dividends to their native countries.
(v) MRTP Restrictions Removed: Monopolies and Restrictive Trade Practices Act has
been done away with. Now the companies do not need to seek government permission to
issue shares, extend their area of operation, and establish a new unit.
(vi) FERA Restrictions Removed: Foreign Exchange Regulation Act (FERA) has been
replaced by Foreign Exchange Management Act (FEMA) .It regulates the foreign
transactions. These transactions have now become simpler.
(vii) Increase in the Importance of Small Industries: Efforts have been made to give
importance to the small industries in the economic development of the country.
(2) New Trade Policy
Trade policy means the policy through which the foreign trade is controlled and regulated. As
a result of Liberalisation, trade policy has undergone tremendous changes. Especially the
foreign trade has been freed from the unnecessary controls. The age-old restrictions have
been eliminated at one go. Some of the chief characteristics of the New Trade Policy are as
follows:
(i) Reduction in Restrictions of Export-Import: Restrictions on the exports-imports have
almost disappeared leaving only a few items.
(ii) Reduction in Export-Import Tax: Export-import tax on some items has been completely
abolished and on some other items it has been reduced to the minimum level.
(iii) Easy Procedure of Export-Import: Import-export procedure has been Simplified.
(iv) Establishment of Foreign Capital Market: Foreign capital market has been established for
sale and purchase of foreign exchange in the open market.
(iv) Full Convertibility on Current Account: In the year 1994-95, full convertibility
became applicable on current account.
Here itis important to clarify the meaning of current account and full convertibility.
Therefore, this has been done as follows:
Current Account: Transactions with the foreign countries are placed in two categories:
(i) transaction with current account, for example, import-export. (ii)Capital account
transactions, like investment.
Full Convertibility: In short, full convertibility means unrestricted sale and purchase of
foreign exchange in the foreign exchange market for the purpose of payments and
receipts on the items connected with current account. It means that there is no
government restriction on the sale and purchase of foreign exchange connected with
current account. On the other hand, sale and purchase of foreign exchange connected with
capital account can be carried on under the rates determined by the Reserve Bank of India
(RBI).
(vi) Providing Incentive for Export: Many incentives have been allowed to Export
Oriented Units (EOU) and Export Processing Zones (EPZ) for increasing export trade.
(3) Fiscal Reforms
The policy of the government connected with the income and expenditure is called fiscal
policy. The greatest problem confronting the Indian government is excessive fiscal deficit. In
the year 1990-91, the fiscal deficit was 8% of the GOP. (It is important to understand the
meaning of fiscal deficit and GOP.)
(i) Fiscal Deficit: A fiscal deficit means that the country is spending more than its income.
(ii) Gross Domestic Product (GOP): The GOP is the sum total of the financial value of all the
produced goods and services during a year in a country.
Generally, the financial deficit is calculated in the form of GOP's percentage. Presently, the
government of India is making efforts to take it to 3%.
• Solutions of Fiscal Deficit In order to handle the problem of fiscal deficit, basic changes
were made in the tax system. The following are the major steps taken in this direction:
(i) The rate of the individual and corporate tax have been reduced in order to bring more
people in the tax net.
(ii) Tax procedure has been simplified.
(iii) Heavy reduction in the import duties has been implemented.
(4) Monetary Reforms
Monetary policy is a sort of control policy through which the Central Bank controls the
supply of money with a view to achieving the objectives of the general economic policy.
Reforms in this policy are called monetary reforms. The major points with regard to the
monetary reforms are given below:
(i) Statutory Liquidity Ratio (SLR) has been lowered. (A commercial bank has to maintain a
definite percentage of liquid funds in relation to its net demand and time liabilities. This is
called SLR. In liquid funds, cash investment in permitted securities and balance in current
account with nationalised banks are included.)
(ii) The banks have been allowed freedom to decide the rate of interest on the amount
deposited.
(iii) New standards have been laid down for the income recognition for the banks. (By
recognition of income, we mean what is to be considered as the income of the bank? For
example, should the interest on the bad debt be considered as the income of the bank?
Directions have been issued in this context.)
(iv) Permission to collect money by issuing shares in the capital market has been granted to
nationalised banks.
(v) Permission to open banks in the private sector has also been granted.
(5) Capital Market Reforms
The market in which securities are sold and bought is known as the capital market. The
reforms connected with it are known as capital market reforms. This market is the pivot of
the economy of a country. The government has taken the following steps for the development
of this market:
(i) Under the Portfolio Investment Scheme, the limit for investment by the NRIs and foreign
companies in the shares and debentures of the Indian companies has been raised. (Portfolio
Investment Scheme means investing in securities.)
(ii) In order to control the capital market, the Securities and Exchange Board of India (SEB!)
has been established.
(iii) The restriction in respect of interest on debentures has been lifted. Now, it is decided on
the basis of demand and supply.
(iv) The office of the Controller of Capital Issue which used to determine the price ofshares
to be issued has been dispensed with. Now, the companies are free to determine the price of
the shares.
(v) Private sector has been permitted to establish Mutual Fund.
(vi) The registration of the sub-broker has been made mandatory.
(6) Phasing out Subsidies
Cash Compensatory Support (CCS) which was earlier given as export subsidy has been
stopped. (CCS can be understood with the help of an example. If an exporter wants to import
some raw material which is available abroad for Rs. 100, but the same material is available in
India for Rs. 120 and the governments wants the raw material to be purchased by the exporter
from India itself for the protection of indigenous industries, the government is ready to pay
the difference of Rs. 20 to the exporter in the form of subsidy. The payment of Rs. 20 will be
considered as CCS). In addition to this, the CCS has been reduced in case of fertilizers and
petro products.
(7) Dismantling Price Control
The government has taken steps to remove price control in case of many products. (Price
Control means that the companies will sell goods at the prices determined by the
government). The efforts to remove price control were mostly in respect of fertilizers, steel
and iron and petro products. Restrictions on the import of these products have also been
removed.
• Impact of Changes in Government Policy on Business and Industry
During the last few years, many efforts have been made by the government of India to
introduce some economic reforms. The chief among them happen to be the New Industrial
Policy, the New Trade Policy, fiscal reforms, monetary reforms, capital market reforms,
dismantling price control and phasing out subsidies. We have now to find out the effect of
this policy of revitalising the economy on the business and industry. Some important points
in this respect are the following:
i) Increasing Competition: Today, business is facing all round competition. The competition
for Indian companies has increased especially in service industries like: Telecommunication,
Airlines, Banking, insurance, etc. Competition has crossed the national boundaries and
assumed a global shape. The following are the chief competitors:
(i) New and old Indian companies, (ii)Multinational Companies, (iii) Import.
Increasing competition has adversely affected many companies. For example, once a popular
Western Coloured Television has lost much ground in the TV market and its contribution to
the market is almost negligible.
(2) More Demanding Customers: As a result of the economic reforms, the customers have
complete information about the goods available in the market. Earlier, they used to purchase
goods and services without much inquiry because of the lack of information. But these days
because of the availability of enough information the area of customers' demand has
increased considerably. Now, they have started buying good quality goods and services.
(3) Rapidly Changing Technological Environment: Rapid changes are taking place in the
technological environment as compared to other factors in respect of business environment.
The reason is increase in competition. These days only that particular company can remain
steadfast in the market which markets. products of better convenience. This is possible only
by using latest technology. Latest technology makes modem machinery and production
process available. Big firms are grappling with this environment but for the smaller firms it is
an alarm bell.
(4) Necessity for Change: Before the implementation of economic reforms (before 1991) the
businesses were more stable. Policies once laid down used to continue for a long time.
However, these days because of the free economic environment the various factors of
business environment are undergoing rapid changes. Consequently, the businesses have
become unstable and the policies have to be changed quickly.
(5) Need for Developing Human Resource: It is a big challenge to achieve success in
business these days. It is not easy for the ordinary employees to face this challenge. It needs a
thoroughly accomplished human resource equipped with the latest information. There has
been a shortage of trained human resource in India. That is the reason that their demand is
now rapidly increasing.
(6) Market Orientation: There are two points of view with regard to the marketing activities
Production Oriented and Market Oriented. According to the production oriented view point
first the goods are manufactured and then the market is visited for marketing the
manufactured goods. On the other hand, according to the market oriented viewpoint, first of
all the market is surveyed and then production is undertaken. In other words, previously it
was thought that whatever was the quality of the product, the customers would accept it. But
now this thinking has changed and it is now accepted that the production should cater to the
demand or taste of the customers. These days the latter thought is in vogue.
(7) Loss of Budgetary Support to the Public Sector: As a result of economic reforms, the
importance of public sector has declined. This is evident in the reduction of budgetary
support by the government to the public sector enterprises. These days the public sector
enterprises have clearly understood that in order to make their development possible and to
remain alive fora long time, they shall have to create their own resources.
Conclusion:
In conclusion, it can be observed that economic reforms have influenced the Indian business
and industry in a positive way. The challenges emerging out of these reforms have been
faced. The Indian market has become customer oriented and customer friendly techniques are
being used to have better relations with the customers.
Key Concepts
1. Meaning of Business Environment: It refers to the sum total of those factors which
influence the business and over which the business has no control.
2. Characteristics of Business Environment: (i)Totality of external forces, (ii) Specific and
general forces, (iii) Inter-relatedness, (iv) Dynamism, (v) Uncertainty, (vi) Complexity, (vii)
Relativity.
3. Importance of Business Environment: (i) First Mover Advantage, (ii) Warning signal,
(iii)Taping useful resources, (iv)Coping with rapid changes; (v)Assisting in planning and
policy, (vi)Improvement in performance.
4. Components of Business Environment:
A. Internal Environment: Internal environment includes all those factors which influence
business and which are present within the business itself. These factors are usually under the
control of the business.
B. External Environment: External environment includes all those factors which influence
business and exist outside the business. Business has no control over these factors. The
external environment can be divided into two parts:
(i) Micro Environment: Micro environment means that environment which includes those
factors with which business is closely related.
(ii) Macro Environment: Macro environment means that environment which includes those
factors which have a distant relation with business.
5. Dimensions of Business Environment: (i) Economic environment, (ii) Political
environment, (iii)Social environment, (iv)Legal regulatory environment, (v)Technological
environment.
6. Components of Economic Environment: (i) Economic system, [ii) Economic policies,
(iii)Economic conditions.
7. Economic Environment in India: (i) Economic System of India: India has adopted the
mixed economic system. (ii) Economic Policies of India: In order to direct the economic
activities in India many economic policies have been framed. Such as Import-Export Policy,
Employment Policy, Tax Policy etc. (iii) Economic Conditions in India: In major economic
conditions of India are included the foreign capital, supply of natural resources etc.
8. New Economic Policy: The centre of the economic reforms has been Uberalisation,
Privatisation and Globalisation.
(i) Liberalisation: It refers to unshackle the economy from bureaucratic cobweb to make it
more competitive.
(ii) Privatisation: It refers to such an economic process through which some public sector
undertakings are brought either partially or completely under private ownership.
(iii) Globalisation: It refers to integrating the economy with the rest of the world.
9. Impact of Changes in Government Policy on Business and Industry: (i) Increasing
competition. (ii) More demanding customers. (iii) Rapidly changing technological
environment. (iv) Necessity for change, (v) Need for developing human resource. (vi) Market
orientation, (vii)Loss of budgetary support to the public sector.
STUDY Assignments
Meaning, Characteristics and Importance of Business Environment
4/5 Marks
1. What do you mean by Business Environment? Explain any four characteristics of it.
2. Discuss any five points of the importance of Business Environment.
3 Marks
3. Clarify 'Warning Signal' as an importance of Business Environment.
4. How business environment is helpful in the 'improvement of performance'?
5. How 'first mover advantage' is made available by the business environment? Give an
example.
1 Mark
6. What is business environment?
Ans. It refers to the sum total of those factors which influence the business and over which
the business has no control.
7. Give one example of 'specific force' present outside the business.
Ans. Customers.
8. Why business environment is known as 'totality of external forces'?
Ans. As it is the group of many outside forces, that is why, its nature is of totality.
9. 'Nothing can be said with any amount of certainty about the factors of the business
environment.' Why?
Ans. Because they continue to change quickly.
10 Is the effect of various factors of business environment on business can be recognised
separately?
Ans. No, as all the factors of business environment are related to each other.
11. Explain 'Relativity' as one of the characteristics of business environment.
Ans. It means that business environment is related to the local conditions.
12. Govt. of India seriously thinking to allow oil marketing public sector undertakings to fix
their own price for Petrol and diesel. Which economic reform is the reason of this change in
government policy.
Ans. The reason for the change in the government's policy is 'Liberalisation'.
13. State any two impacts of change of government policy on business and industry.
Ans. (i) Increasing competition. (ii)More demanding customers environment.
Components of BUSINESS Environment
4/5 Marks
14. Explain any five components of macro environment.
15. What is micro environment? Explain any four components of it.
3 Marks
16. What are the components of internal environment? Write any six.
17. What do you mean by external environment?
18. What is economic system?
19. Write six Indian economic policies.
20. Give two examples of the impact on business organisations of changes in social
environment. (CB.S.E. 2004)
21. Give any two examples of the impact on business organisations due to change in
economic environment. (C.B.S.E. 2004)
22. Write two impact of legal-regulatory environment on business.
23. What is meant by 'political environment' of business? (CB.S.E. 2005)
24. Write three impact of political environment on business.
25. Write three impact of technological environment on business.
(1 Mark Questions)
26. What is internal environment?
Ans. It refers to all those factors which influence the business and present within the business
itself and are under the control of the business.
27. What is external environment?
Ans. It refers to all those factors which influence business, exist outside the business and
business has no control over these factors.
28. What is micro environment?
Ans. It refers to all those external factors which are closely related with business and
influence each industrial unit differently.
29. What is macro environment?
Ans. It refers to all those external factors which have a distant relation with business and
influence all business units almost in the same way.
30. Give two examples of marketing intermediaries.
Ans. These are traders and agents.
31. Why economic policies are framed?
Ans. The economic policies are laid down to direct the economic activities.
32. Write anyone effect of economic environment on business.
Ans. After reforms were introduced in the banking sector, the bank loans were allowed on
easy terms.
33. Write anyone effect of legal-regulatory environment on business.
Ans. By removing control on the capital market, a huge amount of capital was collected by
issuing various new issues in the primary market.
34. Just after declaration of Lok Sabha Elections 2009 results, the Bombay stock exchange's
price index (Sensex) rose by 2100 points in a day. Identify the environmental factor which
led to this rise. (C.B.S.E. Sample Paper)
Ans. Environment of politics
• Economic Environment in India
4/5 Marks
35. Explain the economic environment of India.
3 Marks
36. Explain any three economic conditions of India..
1 Mark
37. Which economic system is followed in India?
Ans. It is mixed economic system.
38. What is mixed economic system?
Ans. It refers to that system in which business is owned both by the government and
individuals.
39. Name the policy to be framed to encourage industrial development in India.
Ans. It is industrial policy.
• Changing Scenario of Indian Economic Environment and its Effect
4/5 Marks
40. Explain, in brief, any five economic changes that have been initiated by the Government
of India since 1991. (C.B.S.E 2004)
4l. Explain briefly any five major changes initiated by the Government of India since 1991 to
modernise India's Industrial System. (CB.S.E. 2005)
42. Discuss in brief, the various aspects of 'New Industrial Policy.'
43. What changes were made in the industrial policy in the recent past?
44. Explain the impact of changes of government policy on business and industry.
3 Marks
45. What is new trade policy?
46. What are the salient features of New Industrial Policy?
47. Write a brief note on 'Capital Market Reforms'.
48. What is Monetary Reforms? Write its two main points.
1 Mark
49. What is meant by Liberalisation?
Ans. It refers to unshackle the economy from bureaucratic cobweb to make it more
competitive.
50. What is meant by Globalisation?
Ans. It refers to integrate the economy with the rest of the world.
5l. What is meany by Privatisation?
Ans. It refer to such an economic process through which some public sector undertaking is
brought either partially or completely under private ownership.
52. What is Trade Policy?
Ans. It refers to the policy through which the foreign trade is regulated.
53. What is Fiscal Policy?
Ans. It refers to the policy of the government connected with the income and expenditure of
the country.
54. What is Fiscal Deficit?
Ans. It means that the country is spending more than its income.
55. What is Gross Domestic Product?
Ans. It refers to the sum total of the financial value of all the produced goods and services
during a year in a country.
56. What is Price Control?
Ans. It means that companies will sell goods at the prices determined by the government.
57. What is Market Orientation Concept?
Ans. Under this concept, first of all market is surveyed and then production is undertaken.
Query Session
For this query session, questions from readers' side are invited.
CHAPTER 8
PLANNING AND TYPES OF PLANS
"The manager who acts without planning must learn to live without
profit." "If you fail to plan, you plan to fail."
Learning Objectives
After studying this chapter, you will be acquainted with:
• Meaning and Definitions of Planning
• Features of Planning
• Importance of Planning
• Limitations of Planning
• Planning Process
• Types of Plans
Planning is the basic function of management and with it start the other functions of
management. So long, planning does not determine the objectives and the methods of
achieving those objectives, the other functions like organising, staffing, directing and
controlling are meaningless.
• Meaning of Planning
Planning forms that part of management which lays down the objectives and various
activities to be done for the attainment of those objectives. Under this it is decided - what is
to be done, how it is to be done, when it is to be done and by whom it is to be done. Deciding
about all these aspects is called planning. A problem about taking decisions on these matters
arises when there are more than one possible answers. Therefore, it can be said to be a
process of choosing.
TOOL KIT-1
Planning?
It refers to thinking before hand
Definitions of Planning
Some of the important definitions of planning are as under:
(1) According to Koontz and O'Donnell, ''Planning is deciding in advance what to do, how to
do it. when to do it and who is to do it”.
(2) According to Haimann, "Planning is deciding in advance what is to be done".
 (3) According to M.E. Harley, "Planning is deciding in advance what is to be done. It
involves the selection of objectives, policies. procedures and programmes from among
alternatives"
The above mentioned definitions tell us that planning involves choosing and its chief
objective is to anticipate the future course of events and give it a desired direction. In reality
planning becomes necessary when there are many alternatives to choose from.
• Features of Planning
After studying various definitions of planning, the following facts come to light about its
nature and features:
(1) Planning focuses on Achieving Objectives: Management begins with planning and
planning begins with the determining of objectives. In the absence of objectives no
organisation can ever be thought about. With the determining of objective, the way to achieve
the objective is decided in the planning. In case, it is necessary to change the previously
decided course of action for the attainment of objectives, there is no hesitation to do so. It is
thus clear that planning is helpful in the attainment of objectives.
For example, a company decides to achieve annual sales of Rs 12 crores. After deciding upon
this objective, planning to achieve this objective shall immediately come into force. It was
thought to achieve this objective by giving advertisement in the newspapers. After sometime
it comes to be known that the medium of advertisement appeared to be incapable of
achieving the target. In such a situation the medium of advertisement can be changed and
itcan be shifted from newspapers to television In this way, every possible change is made
through the planned action for the purpose of achieving the objective.
(2) Planning is Primary Function of Management: Planning is the first important function of
management. The other functions, e.g., organising, staffing, directing and controlling come
later. In the absense of planning no other function of management can be performed. This is
the base of other functions of management. For example, a company plans to achieve a sales
target of Rs 12 crores a year. In order to achieve this target the second function of
management, i.e., organising comes into operation. Under it the purchase, sales, production
and financial activities are decided upon. In order to complete these activities, different
departments and positions are decided upon. The authority and responsibility of every
position are decided upon. After the work of organising, information about the number of
different people at different levels required to achieve the objective shall have to be provided.
This job will be performed under staffing. Similarly, planning is the base of other functions
like directing and controlling.
(3) Planning is Pervasive: Since the job of planning is performed by the managers at different
levels working in the enterprise, it is appropriate to call it all pervasive. Planning is an
important function of every manager, he may be a managing director of the organisation or a
foreman in a factory. The time spent by the higher level managers in the process of planning
is comparatively more than the time spent by the middle-level and lower-level managers. It
is, therefore, dear that all the managers working in an enterprise have to plan their activities.
For example, the decision to expand business is taken by the higher-level managers. The
decision to sell products is taken by the middle-level and lower-level managers.
(4) Planning is Continuous: Planning is a continuous process because:
(a) Plans are prepared for a particular period. Hence, there is need for a new plan after the
expiry of that period (b) In case of any discrepancy plans are to be revised. (c) In case of
rapid changes in the business environment plans are to be revised.
(5) Planning is Futuristic: Planning decides the plan of action -what is to be done, how is it to
be done, when it to be done, by whom is it to be done, all those questions are related to
future. Under planning, answers to these questions are found out. While an effort is made to
find out these answers, the possibility of social, economic, technical and changes in legal
framework are kept in mind. Since planning is concerned with future activities, it is called
futuristic.
For example, a company is planning to market a new product. While doing so it shall have to
keep in mind the customs and the interests/tastes of the people and also the possibility of any
change in them.
(6) Planning involves Decision Making: Planning becomes a necessity when there are many
alternatives to do a job. A planner chooses the most appropriate alternative. Therefore, it can
be asserted that planning is a process of selecting the best and rejecting the inappropriate. It
is, therefore, observed that planning involves decision making. For example, Mr. Anthony
lives in a town where only commerce stream is taught in schools. His daughter has passed
matric and wants to get admission in 10 + 1. It is evident that there is only one option for her,
i.e., commerce. She doesn't have to think or plan anything. On the other hand, if all the three
faculties- art, science & commerce were available in the schools, she would have to definitely
think and plan about the subject of study. It would have been be nothing but decision making
in this case.
(7) Planning is a Mental Exercise: Planning is known as a mental exercise as it is related to
thinking before doing something. A planner has mainly to think about the following
questions:
(i)What to do? (ii) How to do it? (iii)When to do it? (iv) Who is to do it?
• Importance of Planning
Planning is the first and most important function of management. It is needed at every level
of management. In the absence of planning all the business activities of the organisation will
become meaningless. The importance of planning has increased all the more in view of the
increasing size of organisations and their complexities. Planning has again gained importance
because of uncertain and constantly changing business environment. In the absence of
planning, it may not be impossible but certainly difficult to guess the uncertain events of
future.
The following facts show the advantages of planning and its importance fora business
organisation:
(1) Planning provides Direction: Under the process of planning the objectives of the
organisation are defined in simple and clear words. The obvious outcome of this is that all the
employees get a direction and all their efforts are focussed towards a particular end. In this
way, planning has an important role in the attainment of the objectives of the organisation.
For example, suppose a company fixes a sales target under the process of planning. Now all
the departments, e.g., purchase, personnel, finance, etc., will decide their objectives in view
of the sales target. In this way, the attention of all the managers will get focussed on the
attainment of their objectives. This will make the achievement of sales target a certainty.
Thus, in the absence of objectives an organisation gets disabled and the objectives are laid
down under planning.
(2) Planning reduces Risks of Uncertainty: Planning is always done for future and future is
uncertain. With the help of planning possible changes in future are anticipated and various
activities are planned in the best possible way. In this way, the risk of future uncertainties can
be minimised.
For example, in order to fix a sales target a survey can be undertaken to find out the number
of new companies likely to enter the market. By keeping these facts in mind and planning the
future activities, the possible difficulties can be avoided.
(3) Planning reduces Overlapping and Wasteful activities: Under planning, future activities
are planned in order to achieve objectives. Consequently, the problems of when, where, what
and why are almost decided. This puts an end to disorder and suspicion. In such a situation
coordination is established among different activities and departments. It puts an end to
overlapping and wasteful activities. Consequently, wastages moves towards nil, efficiency
increases and costs get to the lowest level.
For example, if it is decided that a particular amount of money will be required in a particular
month, the finance manager will arrange for it in time. In the absence of this information, the
amount of money can be more than or less than the requirement in that particular month.
Both these situations are undesirable. In case, the money is less than the required amount, the
work will not be completed and in case it is more than the requirement, the amount will
remain unused and thus cause a loss of interest.
(3) Planning promotes Innovative Ideas: It is clear that planning selects the best
alternative out of the many available. All these alternatives do not come to the
manager on their own, but they have to be discovered. While making such an effort of
discovery, many new ideas emerge and they are studied intensively in order to
determine the best out of them. In this way, planning imparts a real power of thinking
in the managers. It leads to the birth of innovative and creative ideas.
(4) For example, a company wants to expand its business. This idea leads to the
beginning of the planning activity in the mind of the manager. He will think like this:
* should some other varieties of the existing products be manufactured?
* should retail sales be undertaken along with the wholesales?
* should some branch be opened somewhere else for the existing or old product?
* should some new product be launched?
In this way, many new ideas will emerge one after the other. By doing so, he will
become habituated to them. He willalways be thinking about doing something new
and creative. Thus, itisa happy situation for a company which is born through the
medium of planning.
(5) Planning facilitates Decision Making: Decision making means the process of taking
decisions. Under it a variety of alternatives are discovered and the best alterative is chosen.
The planning sets the target for decision making. It also lays down the criteria for evaluating
courses of action. In this way, planning facilitates decision making.
(6) Planning establishes Standards for Controlling: By determining the objectives of the
organisation through planning all the people working in the organization and all the
departments are informed about 'when', 'what' and 'how' to do things. Standards are laid down
about their work, time and cost, etc. Under controlling, at the time of completing the work,
the actual work done is compared with the standard work and deviations are found out and if
the work has not been done as desired the person concerned is held responsible.
For example, a labourer is to do 10 units of work in a day (it is a matter of planning), but
actually he completes 8 units. Thus there is a negative deviation of 2 units. For this, he is held
responsible. (Measurement of actual work, knowledge of deviation and holding the labourer
responsible falls, under controlling). Thus, in the absence of planning controlling is not
possible.
• Limitations of Planning
Planning is needed both in the business and non-business organisations. Some people think
that planning is based on the future anticipations and nothing can be said with certainty about
future. Therefore, it is a useless process. In fact, these people point towards the difficulties in
the way of planning. If planning has to be successful and purposeful, the managers should be
aware of these difficulties and limitations of planning. Following are the limitations of
planning:
(1) Planning Creates Rigidity: Although the quality of flexibility is inherent in planning,
meaning thereby that in case of need changes can be brought in, but it must be admitted that
only small changes are possible. Big changes are neither possible nor in the interest of the
organisation. Since it is not possible to introduce desired changes according to the changed
situations, the organisation loses many chances of earning profits. For this limited flexibility
in planning, both the internal as well as external factors are responsible. These facts are called
internal and external inflexibility. They are the following:
(I) Internal Inflexibility: At the time of planning the objectives of the organisation, its
policies, procedures, rules, programmes, etc. are determined. Itisvery difficultto bring in
changes time and again. It is known internal inflexibility.
(II) External Inflexibility: External inflexibility means various external factors that cause
limited flexibility in planning. These factors are beyond the control of the planners. The chief
among them are: political climate, economic changes, technical changes, natural calamities,
policies of the competitors, etc. For example, in political context, as a result of change, a new
government brings up a new trade policy, policy of taxation, import policy, etc. All these
changes make every sort of planning- a meaningless waste. Similarly, a change in the policies
of the competitors suddenly make all type of planning ineffective.
(2) Planning does not work in a Dynamic Environment: Planning is based on the anticipation
of future happenings. Since future is uncertain and dynamic, therefore, the future
anticipations are not always true. Therefore, to consider planning as the basis of success is
like a leap in the dark. Generally, a longer period of planning, makes it less effective.
Therefore, it can be said that planning does not work in dynamic environment.
For example, a company anticipated that the government was thinking about allowing the
export of some particular product. With this hope the same company started manufacturing
that product. But the government did not allow the export of this product. In this way, the
wrong anticipation proved all planning wrong or incorrect. It brought loss instead of profit.
(3) Planning Reduces Creativity: Under planning all the activities connected with the
attainment of objectives of the organisation are pre-determined. Consequently, everybody
works as they have been directed to do and as it has been made clear in the plans. Therefore,
it checks their incisiveness. It means that they do not think about appropriate ways of
discovering new alternatives. According to Terry, "Planning strangulates the initiative of the
employees and compels them to work in an inflexible manner."
(4) Planning Involves Huge Costs: Planning is a small work but its process is really big.
Planning becomes meaningful only after traversing a long path. It takes a lot of time to cover
this path. During this entire period the managers remain busy in collecting a lot of
information and analysing it. In this way, when so many people remain busy in the same
activity, the organisation is bound to face huge costs.
(5) Planning is a Time Consuming Process: Planning is a blessing in facing a definite
situation but because of its long process it cannot face sudden emergencies. Sudden
emergencies can be in the form of some unforeseen problem or some opportunity of profits
and there has been no planning for all these situations before hand and which now requires
immediate decision. In such a situation, if the manager thinks of completing the planning
process before taking some decision, it may be possible that the situations may worsen or the
chance of earning profit may slip away. Thus, planning is time consuming and it delays
action.
(6) Planning does not Guarantee Success: Sometimes the managers think that planning solves
all their problems. Such a thinking makes them neglect their real work and the adverse effect
of such an attitude has to be faced by the organisation. In this way, planning offers the
managers a false sense of security and makes them careless. Hence, we can say that mere
planning does not ensure success, rather efforts have to be made for it.
• Conclusion
After having studied the limitations of planning, it cannot be concluded that planning is
unnecessary or itis only a luxury which only big organisations can afford. But the reality is
different. It is an important part of management and it deserves sufficient attention. It is not a
question of whether plans should be formulated or not, but how well they should be planned.
The plans can be made effective after removing the hurdles coming in their way.
Planning Process
When we look at planning in the context of management process, it is called activity, it being
a part of management. But on the other hand, when it is studied separately it is called a
process because to complete this one has to clear many steps one after the other. So far as the
number of steps included in the planning process are concerned it depends on the size of the
organisation. Different organisations can have different planning process.

Planning is needed in order to solve a problem or take advantage of some profitable situation.
In this context, a manager makes an analysis of the strengths and weaknesses ofthe
enterprises. This analysis keeps in mind the internal and external environment of the
enterprise. For example, if the government is thinking of establishing a factory for the
development some rural area an intelligent manager would certainly like to take advantage of
this situation. Planning starts from this very point. The following steps are generally taken in
the business organisations during the planning process.
(1) Setting Objectives: Objectives are those end points for whose attainment all the activities
are undertaken. In the planning process objectives are determined and defined first of all so
that all the employees concerned can be informed about them to get their complete
cooperation. Objectives have a hierarchy of their own, e.g., organisational objectives,
departmental objectives, and individual objectives. They are determined and defined in the
same hierarchical order.
For example, a company wants to raise its sales to rupees 2000 crore. (This is the
organisational objective). This objective can be defined in this way -say the company has
four major products and their expected sales are rupees 1000 crores, 500 crores, 300 crores
and 200 crores respectively. In this context the objectives of different departments will be
determined. For example, the Production Department will come to know the amount of
production of each product. In the end, all the employees of different departments will be told
about it and what is expected of them.
(2) Developing Premises: The basis of planning are those factors/assumptions which
influence the possible results of different alternatives. Before taking a final decision about
any alternative a forecast of these assumptions is made. The rate of success of planning will
be in direct proportion to the rate of the success of forecasting. The assumptions/premises of
planning are of two types:
(i) Internal Premises: Capital, labours, raw material, machinery, etc.
(ii) External Premises: Governmental policies, business competition, tastes of customers, rate
of interest, rate of taxes, etc.
For example, a company wants to expand its business. It has an alternative to establish a
factory in rural area. In this case its internal premises can be capital, raw material and
availability of labour and the external premises can be the industrial policy of the
government. The manager shall have to make a forecast of all these assumptions. In other
words, it shall have to be considered that necessary capital, raw material and labour will
become available. It shall also be necessary to find out whether the government policy will
not oppose the establishment of such a factory.
(3) Identifying Alternative Courses of Action: Generally, there is no work which has no
alternative method of doing it. On the basis of the objectives of the organisation and the
limitations of planning, alternative courses of doing a particular work can be discovered. For
example, if an organisation has the object of expanding its business, it can be done in many
ways like: (i)by expanding the existing business, for example, if a company is engaged in
producing particular size of T.V. sets, it can start producing T.V. sets of different sizes; (ii)by
entering other area of production, for example, a T.V company can start producing
refrigerators; (iii) by entering into some collaboration with some other organisation and start
a new business; (iv) by taking over some other business enterprise, etc.
(4) Evaluating Alternative Courses: All those alternative courses which are upto the
expectations of the minimum preliminary criteria are selected for intensive study. It will be
seen as to what extent a particular alternative course can help in the attainment of the
objectives of the organisation. There is, however, one problem which confronts us while
analysing these alternative courses. Every alternative course has its merits and demerits. For
example, a particular alternative course can be highly profitable but it requires investment of
more capital and has a long gestation period to yield profits. Similarly, another alternative
course needs less capital investment, has a short gestation period to yield profits but the
profits are not sufficient. In such a situation the planners should evolve a new alternative
course by a mixture of different alternative courses.
TOOL KIT-2
Minimum Preliminary Criteria?
In fact it is not as difficult to find out alternative courses as it is to reduce the list of
alternative courses. Alternative courses should be the minimum possible so that they can be
deeply analysed. To reduce the size of the list of alternative courses Q minimum preliminary
criteria should be decided upon and those alternatives which do not fulfil the minimum
criteria, should be deleted from the list in the very beginning. For example, if the minimum
capital limit is rupees ten crores al1 the alternative courses less than that will be left out.

(5) Selecting an Alternative: After a careful analysis of different alternatives the best one is
selected. Sometimes the analysis yields more than one alternative course with similar merits.
Keeping in view the uncertainties of future it is justifiable to select more than one good
alternative course. One of such alternatives is adopted and the other is kept in reserve. In case
the future forecast proves wrong and the first alternative course fails, the reserve one can
immediately be brought into operation and failure can be averted.
(6) Implementing the Plan: After having decided the chief plan and the subsidiary plans, they
are to be implemented. After implementing the plans the sequence of different activities has
to be decided. In other words, it is decided as to who will do a particular job and at what time.
(7) Follow Up Action: The process of planning does not end with the implementation of
plans. Plans are formulated for future which is uncertain. It isof great importance that there
isa constant review of plans so as to ensure success in the uncertain future. The moment there
appears to be changes in the assumptions on which the plans are based, there should be
corresponding changes in the plans also. In this way we can say planning is a continuously
moving process.

Types of Plans
Planning is a process and a plan is its outcome. Plan is a sort of commitment to accomplish
all the activities needed for the attainment of special results. From this point of view there are
many plans. The following study will help in understanding different kinds of plans.
Every organisation has a central goal which is also called mission. A business organisation is
considered meaningful only if it has some goal. Goal is that standing plan which justifies the
establishment of the organisation. It shows the significance of the business of the organisation
and it tells us in what ways the organisation is different from other similar organisations. For
example, the goal of an educational organisation can be the education of girls. Similarly the
goal of a hospital can be to serve only heart patients.
In the context of achieving the goal many plans are prepared. First of all the objectives of the
organisation are determined. Competition is boldly faced and strategy to convert objectives
into reality is formulated. Policies are put forward to bring unanimity in the decisions of
different managers. After having laid down policies the sequence of activities is determined
which is called a procedure. In this way, methods, rules, budget, programmes, etc. are chief
factors of planning. All these are called plans. A high-level plan gives birth to a lower-level
plan and therefore, they are shown in the form of a hierarchy. This is shown here in a
triangle.

(1) Objectives
Objectives are those end points for the attainment of which all the activities are undertaken.
Following are the examples of objectives:
(i) To improve the communication system to hold regular staff meeting and publish a
newsletter.
(ii) To cross the 20,000 crore mark in turnover of soaps.
(iii) To make available the employment to 100 people every year.
(iv) To reduce quality rejects to 3%.

The objectives should have the following features:

(i) They should be unambiguous.
(ii) They should be linked with the outcome and not with the activities performed to achieve
them.
(iii) They should be measurable
(iv) Time limit should be prescribed to achieve them
(v) They should be achievable.
• (2) Strategies
Strategies refer to those plans which are prepared in view of the move of the competitors and
whose objective is to make possible the optimum utilisation of resources. For example; if a
rival organisation in an effort to increase the sale of its product is going to reduce the price of
its product or is thinking about new methods of advertisement or is going to introduce some
gift scheme to attract the consumers, we shall have to plan our strategy accordingly in the
light of all these things.
Strategy is both external and internal. When we formulate our plans keeping in view the plans
of our rivals, it will be external strategy. If, however, there is a possibility of a problem
within the organisation because of some change, preparing to face such an eventuality in
advance is called internal strategy. For example, installing computer in the office can result in
reduction of the staff. On implementing such a plan, there will be the opposition of the
employees, and efforts will have to be made in advance to face such a situation so that the
new policy is implemented and the employees are also not dissatisfied.
(3) Policies
Policies are those general statements which are decided for the guidance of the employees
while taking decision. Their purpose is to lay down a limit within which a particular work can
be done or a decision taken. Objectives decide what is to be achieved and the policies tell us
how it can be achieved. Sometimes we hear the following things in connection with policies:
(I) Personnel Policy: Under this policy it can be decided that the basis for the promotion of
employees will be their age. Once this is decided, no departmental manager will need the
permission of the General Manager regarding the promotion of the employees.
(ii) Sales Policy: Under this policy it can be decided that the goods will be sold only on cash
payment.
(iii) Price determining Policy: Under this policy it is decided how the sale price of anything
will be fixed. It means what amount of profit will be added to the cost in order to determine
the sale price, what will be the trade discount and what will be the conditions for cash
discount.
In reality, policy is a continual decision which guides the managers in view of the repeated
appearance of similar problems or situations.

TOOL KIT -3
Purpose?
Purpose is the chief role of the organisation which is determined by the society where it
works. Such as the purpose of a school is to give education. Organisations similar in nature
have the same purpose.

TOOL KIT-4
Mission?
Mission or goal tells us that how an organisation is different from the organisations of the
same type. This is different in case of every organisation, e.g., a school can have the mission
to impart education only in the subject of Commerce.

TOOL KIT-5
Objective?
Objective is a special target to be achieved by an organisation, e.g., it can be the objective of
a school to impart education in the subject of commerce to 100 students during a year.

TOOL KIT-6
Strategy?
It refers to a plan which takes into account the environmental opportunities and threats I and
the organisational strengths and weaknesses and provides an optimal match between the
organisation and the environment.

TOOL KIT-7
Policy?
It refers to those general statements which are decided for the guidance of the employees
while taking decision
(4) Procedures
Procedures are those plans which determine the sequence of any work performance. For
example, the recovery of money from the debtors can be done in the following order:
(i) Writing letters. (ii) Contacting on telephone (iii) Meeting personally. (iv) Taking legal
action.
This is the procedure of collecting money from all the debtors. There is a difference between
policies and procedures. There can be two policies of the organisation regarding the recovery
of money from the debtors: (i) Tight Collection Policy, and (ii) Lenient Collection Policy.
Under the first policy an effort is made to recover money from the debtor is by treating him
harshly. Under the second policy the debtor will be given enough time for the payment of
money while treating him leniently. In both these policies the above-mentioned procedures
will remain the same. In other words, the steps taken for the recovery of money from the
debtors remain the same.
TOOL KIT-8
Procedure?
It refer to the plan that determine the sequence of any work performance.
• (5) Methods
Method is that plan which determines how different activities of the procedure are completed,
A method is not related to all steps but only to one step of the procedure. It is more detailed
than procedure. There may be many methods to do a particular work. After extensive study, a
method has to be selected from which a worker feels minimum fatigue, increase in
productivity and there is reduction in costs. A method selected like this is put in routine and it
is called the standard method. The efforts are continuously made to improve this selected
method so that unnecessary or unproductive activities can be deleted.
TOOL KIT-9
Method?
It refers to that plan which determines how different activities of the procedure are completed
• (6) Rules
Rules tell us what is to be done and what is not to be done in a particular situation, In the
presence of rules there is no need to take any decision. Whatever is said in the rules has to be
followed without any thinking. For example, the rule 'No Smoking in the Factory' is
applicable to everybody and it must be observed. Provision for punishment in case of non-
observing of the rule can also be made.
There is a difference between rule and policy. Policy only guides and gives an authority to
the officer to take decision within a certain limit. For example, goods can be sold on credit is
a question of policy. But who is to be given goods on credit or who is not to be given this
facility depends on the sales manager. In other words, he shall have to make use of his
reasoning. On the other hand, rules are static and there is no reasoning involved. For
example, a definite percentage of interest will be charged on the amount of money payable on
account of credit sales after the lapse often days. This is a rule which is applicable to all
customers without distinction.
There is a difference between rule and procedure. Rules tell us what should be done and what
should not be done? On the other hand procedures lay down the manner to complete a
particular work. For example, it is a rule that no interest will be charged if the payment is
received within ten days of the sale. But after ten days, writing letters, contacting through
telephone, having personal meeting and taking legal action is a procedure through which
balance amount is sought to be collected.
TOOL KIT-10
Rule?
It refers to the plan that tells us what is to be done and what isnot to be done in a particular
situation.
(7) Budgets
Budgets describe the desired results in numerical terms A budget is that planning which
provides details about estimated money, material, time and other resources for the
achievement of pre-determined objectives of various departments. For example, the sales
department's budget gives estimated figures about the type of material that will be purchased,
its quantity, the time of purchase and the amount to be spent on it. Similarly, budget of other
departments are also prepared. A budget is related both to planning and controlling. When we
prepare a budget it is related to planning and when we use it as a tool to measure the
deviations, it gets connected with controlling. In this way the manager compares the actual
progress with the figures given in the budget and the information about success and failure is
obtained.
TOOL KIT-11
Budget?
It refers to the quantitative expression of the plan of action.
Sales Budget (For the Year Ending Dec., 31, 2009)
Product Area Sales (in Units) Selling Price Total Sales (Rs.)
(Per Unit) (Rs)
X East Zone 50,000 20 10,00,000
West Zone 1,00,000 20 20,00,000
North Zone 80,000 20 16,00,000
South Zone 40,000 20 8,00,000
Total 54,00,000
Y East Zone 1,00,000 30 30,00,000
West Zone 2,00,000 30 60,00,000
North Zone 1,00,000 30 30,00,000
South Zone 3,00,000 30 90,00,000
2,10,00,000

(8) Programmes
A programme means a single-use comprehensive plan laying down the what, how, who and
when of accomplishing a specific job. Through programme the managers are informed in
advance about various needs so that there is no problem in future. The programmes can be of
different types, e.g., production programme, training programme, sales promotion
programme, management development programme, etc. In case of sales promotion
programme, the what, how, who, when of everything right from the purchase of the raw
material to the manufacturing of the product is defined. The moment a work is completed for
which the programme has been designed, its utility ends. In other words, a new programme is
designed for every new work.

TOOL KIT-12
Programme?
It refers to a plan that covers a relatively large organisational activities and specifies main
steps, their order and timing and the department responsible for each step.

Key Concepts
1. Meaning of Planning: It refers to thinking beforehand.
2. Features of Planning: (i) Planning focuses on achieving objectives, (ii) Planning is primary
function of management, (iii)Planning is pervasive: , (iv) Planning is continuous, (v)Planning
is futuristic, (vi) Planning involves decision making, (vii)Planning is a mental exercise.
3. Importance of Planning: (i) Planning provides direction, (ii)Planning reduces risks of
uncertainty, (iii) Planning reduces overlapping and wasteful activities, (iv) Planning promotes
innovative ideas, (v) Planning facilitates decision making, (vi) Planning establishes standards
for controlling.
4. Limitations of Planning: (i)Planning creates Rigidity, (ii)Planning does not work in a
dynamic environment, (iii)Planning reduces creativity, (iv) Planning involves huge costs, (v)
Planning is a time consuming process, (6) Planning does not guarantee success.
5. Planning Process: (i) Setting objectives, (ii) Developing premises, (iii) Identifying
alternative courses of action, (iv) Evaluating alternatives courses, (v) Selecting an alternative,
(vi) Implementing the plan, (vii)Follow up action.
6. Types of Plans:
(i) Objective: It refers to that end point for the attainment of which all the activities are
undertaken.
(ii) Strategy: It refers to a plan which takes into account the environmental opportunities and
threats and the organisational strengths and weaknesses and provides an optimal match
between the organisation and the environment.
(iii) Policy: It refers to that general statement which is decided for the guidance of the
employees while taking decision.
(iv) Procedure: It refers to that plan which determine the sequence of any work performance.
(v) Method: It refers to that plan which determines how different activity of the procedure
will be completed.
(vi) Rule: It tells us what is to be done and what is not to be done in a particular situation.
(vii) Budget: It refers to the quantitative expression of the plan of action.
(viii) Programme: It refers to a plan that curves a relatively large organisational activities and
specifies main steps, their order and timing and the department responsible for each step

STUDY Assignments
Meaning and Characteristics of Planning
6 Marks
1. Explain briefly any six features of planning. (C.B.S.E. 2004, 05, 06)
2. What are the features of planning? Explain any six. (C.B.S.E. 2007)
3. What are the main features to be considered by the management while planning?
(N.C.E.R.T.)
4/5 Marks
4. Explain any five features of planning. (C.B.S.E. 2009)
3 Marks
5. Define Planning.
6. 'Planning is the basic function of management.' Explain. (C.B.S.E. 2001)
7. Explain any two features of planning. (C.B.S.E. 2002)
8. State any six features of planning. (C.B.S.E. 2004)
9. What are the main points in the definition of planning? (N.C.E.R. T.)
10. Explain, how 'planning is a mental exercise'. (C.B.S.E. 2008)
11. Explain how "planning is a continuous process." (C.B.S.E. 2008)
12. Explain how 'planning is futuristic'? (C.B.S.E. 2008)
13. Why is planning an all-pervasive function of management?
1Mark
14. What is meant by 'Planning'?
Ans. It refers to thinking before hand.
15. Why planning is known as 'Futuristic'?
Ans. Because it is related with future.
16. The planning function of management is conducted at which level of management?
Ans. At all the three levels of management.
17. At which level of management more time is consumed on planning as compared to other
levels?
Ans. At top level of management.
18. One of the functions of Management is considered a base for all other functions. Name
that function. (C.B.S.E. Sample Paper)
 Ans. It is planning.
• Importance of Planning
6 Marks
19. Explain briefly any six points which highlight the importance of planning. (C.B.S.E.
2004)
20. Define planning. State any four reasons, why planning is important? (C.B.S.E. 2004)
21. "Planning is an important function of management." . Explain by giving any six points.
(CB S.E. 2006)
22. Explain why planning is necessary for effective management? (CB.S.E. 2007)
23. Is planning actually worth the huge costs involved? Explain. (N.C.E.R. T.)
24. "Planning is beneficial for all." Explain in brief the benefits of planning as a function of
management.
25. 'Planning is of vital importance in the managerial process.' Do you agree? Explain, in
brief, any five reasons in support of your answer. (CB.S.E. 2005)
4/5 Marks
26. Explain any five points of importance of planning fora large business enterprise.
(C.B.S.E. 2009)
3 Marks
27. Explain how 'planning facilitates decision making'. (N.C.E.R. T; CB.S.E. 2008)
28. Explain how planning reduces the risk of uncertainty. (CB.S.E. 2008)
29. Explain how planning facilitates decision making. (C.B.S.E. 2008)
30. How does planning facilitate control? Justify your answer with the help of a suitable
example.
1 Mark
31. State any two points of the importance of planning.
Ans. (a) It provides direction. (b) It reduces risks of uncertainty.
32. How the happening of 'Overlapping and wasteful activities' can be reduced?
Ans. Through planning.
• Limitations of Planning
6 Marks

33. Explain in brief any six limitations of the planning. (C.B.S.E. 2005, 06)
34. Though planning is an important tool of management, yet it is not a remedy for all types
of problems' .Do you agree with this statement? Give any five reasons in support of your
answer. (C.B.S.E. 2003)
35. Does planning have limitations? Explain any five such limitations. (CB.S.E. 2007)
36. Why does planning sometimes fail inspite of the best efforts of management?
37. "Planning is not a guarantee of success of business." Comment.
4/5 Marks
38. Explain any five limitations of planning. (CB.S.E. 2009)
39. In spite of best efforts of managers sometimes planning fails to achieve desired results
due to its limitations. Explain any four limitations of planning.
3 marks
40. Explain briefly any three limitations of Planning. (CB.S.E. 2001)
41. How does planning restrict creativity? (CB.S.E. 2002)
42. Explain any two limitations of planning. (CB.S.E. 2002)
43. State any six limitations of planning. (CB.S.E. 2004)
44. Briefly explain 'rigidity' as a limitation of planning.
45. How 'costs' create hurdle in planning?
1 Mark
46. 'Planning strangulates the initiative of the employees and compels them to work in an
inflexible manner.' What does it mean?
Ans. It refers to - planning reduces creativity.
47. Does mere planning ensures success? Ans. No, efforts have to be made to get success. 48.
'Planning eliminates changes/uncertainties'. Do you agree? Give reason in support of your
answer. (C.B.SE Sample Paper)
Ans. No, I do not agree because planning only anticipates not eliminates changes/
uncertainties .

• Planning Process
6 Marks
49. Explain the process of planning. (C.B.SE 2006)
50. What are the steps taken by management in the planning process? (N.CER. T.)

4/5 Marks
51. Explain any four steps of planning process
3 Marks
52 Explain the steps involved in the process of planning (C.B.SE Sample Paper).

1 Mark
53. What is meant by 'selecting an alternative' as a step in the planning process? (C.B.SE
2009)
Ans. It means choosing the best possible alternative after a careful analysis of various
alternatives.
54. Give two examples of internal premises of planning.
Ans. (a) Capital (b) Raw Material.
55. Give two examples of external premises of planning.
Ans. (a) Govt. policies (b) Business competition.
56. What step is taken to reduce the list of alternative courses during planning process?
Ans. A minimum preliminary criteria is determined.
57. State first two steps in the process of planning. (C.B.S.E.2009)
Ans. (a) Setting objectives, (b) Developing premises.
58. What is meant by 'follow-up action' as the step involved in the planning process? (Foreign
2009)
Ans. It means a constant review of plans so as to ensure success in the uncertain future.
52. Explain the steps involved in the process of planning.
• Types of Plans
6 Marks
59. Explain, in brief, any six types of plans.
4/5 Marks
60. Explain 'objective' and 'policy' as types of plans using suitable examples. (C.B.SE 2008)
61. Explain 'method' and 'rule' as types of plan. (C.B.SE 2008)
62. What is budget? Give an example of a sales budget.
63. Explain 'Procedure' and 'Programme' as types of plans, with a suitable example. (C.B.SE
2008)
3 Marks
64. What is meant by 'Policy' as a type of Plan? (C.B.SE 2004)
65. What is meant by 'Procedure' as a type of Plan? (C.B.SE 2004)
66. "No Smoking in the Factory" is a rule. Comment on it.
67. What is meant by 'Programme' as a type of Plan?
68. What kind of strategic decisions are taken by business organisations? (N.CER.T.)
69. Why are rules considered to be plans? (N.CER.T.)
1 Mark
70. State any two types of plans.
Ans. (i)Objectives (ii)Strategy.
71. Name the type of plans in which the move of competitors is considered.
Ans. It is strategy.
72. In which type of plans the sequence of activities to complete a job is determined?
Ans. Under procedure.
73. 'No Smoking in the factory'. This statement is related to which type of plans?
Ans. It is related with rule.
74. A Company needs a detailed plan for its new project 'Construction of a Shopping Mall'.
What type of plan is it? (CB.SE Sample Paper)
Ans. It is a programme.
75. What is meant by 'Policy' as a type of Plan? (C.B.SE 2009)
Ans. Policies are those general statements which are decided for the guidance of employees
while taking decisions.
76. Give one difference between Policy and Procedure. (CB.SE 2009)
Ans. Policies are guide to thinking while procedures are guide to action.
77. Define 'objectives' as types of plans. (Foreign2009)
Ans. Objectives are those end points for the attainment of which all the activities are
undertaken.
78. A company needs a detailed plan for its new project, 'Construction of a Shopping Mall'.
What type of plan is it? (CB.SE Sample Paper]
Ans. The company will prepare 'Programme

Query Session
For this query session, questions from readers' side are invited

CHAPTER 9
ORGANISING: IMPORTANCE AND PROCESS
"A poor organisation could run a good product into the ground and that a good
organisation which has comparatively poor product could run a good product out of the
market." - Kenneth C. Towe
Learning Objectives
After studying this chapter, you will be acquainted with:
• Meaning of Organising
• Definitions of Organising
• Characteristics of Organising
• Importance of Organising
• Organising Process
• Meaning, Characteristics, Advantages and Limitations of Formal Organisation
• Meaning, Characteristics, Advantages and Limitations of Informal Organisation
• Difference between Formal and Informal Organisation

Meaning of Organising
After having decided about the first function of management, i.e., planning, managers are
responsible for designing an organisation structure. We call this function 'Organising'. It
includes the process of determining what activities are to be conducted, how the activities are
to be grouped, how responsibility and authory, are to be delegated and who reports to whom.
TOOL KIT-1
Organising?
It refers to harmonious adjustment of various parts to achieve common objectives.

Definitions of Organising
Different scholars have given different views about the meaning of organisation:
(1) According to Haney, '"Organisation is harmonious adjustment of specialised parts for the
accomplishment of some common purpose or purposes”
(2) According to Haimann, "Organisation is the structural framework within which various
efforts are coordinated and related to each other ..
(3) According to McFarland, "An identifiable group of people contributing their efforts
towards the attainment of goals is called organisation”
A study of the above-mentioned definitions makes it clear that organisation is a process of
determining and grouping of activities and creating formal relationship among employees of
an enterprise.
• Characteristics of Organising
From the study of the various definitions given by different management experts, we get the
following information about the characteristics or nature of organisation:
(1) Division of Work: Division of work is the basis of an organisation. Another words, there
can be no organisation without division of work. Under division of work, the entire work of
business is divided into many departments. The work of every department is further sub-
divided into sub-works.
(2) Coordination: Under organisation different persons are assigned different works but the
aim of all these persons happens to be the same -the attainment of the objectives of the
enterprise. Organisation ensures that the work of all the persons depends on each other's work
even though it happens to be different. Hence, it helps in establishing coordination.
(3) Plurality of Persons: Organisation is a group of many persons who assemble to fulfil a
common purpose. A single individual cannot create an organisation.
(4) Common Objectives: There are various parts of an organisation with different functions to
perform but all move in the direction of achieving a general objective.
(5) Organisation is a Machine of Management: Organisation is considered to be a machine of
management. It is that machine in which no part can afford to be ill-fitting or non-functional.
In 'other words, if the division of work is not done properly or posts are not created correctly
the whole system of management collapses.
• Importance of Organising
The importance of organising becomes clear with the help of the following points:
(1) Benefits of Specialisation: Under organising all the activities are sub-divided into
various works or jobs. For all the sub-works, competent people are appointed who become
experts by doing a particular job time and again. In this way, maximum work is accomplished
in the minimum span of time and the organisation gets the benefit of specialisation.
(2) Clarity in Working Relationship: Organising clarifies the working relations among
employees. It specifies who is to report whom. Therefore, communication becomes effective.
It also help in fixing accountability.
(3) Optimum Utilisation of Resources: Under the process of organising the entire work is
divided into various small activities. There is a different employee performing every job. By
doing so, there is no possibility of any activity being left out or any possibility of unnecessary
duplicating any job. Consequently, there is optimum utilisation of all the available resources
(e.g. material, machine, financial, human resource, etc.) in the organisation.
(4) Adaptation to Change: Organising process makes the organisation capable of adapting
to any change connected with the post of the employees. This becomes possible only because
of the fact that there is a clear scalar chain of authority for the managers right from the top to
the lower level. Whenever, a managerial post falls vacant, it is immediately filled up by
promotion. Since every subordinate is well aware of the working of his boss, there is no
difficulty for his taking up the new post.
(5) Effective Administration: It has generally been observed that there is always a condition
of doubt about the authority of the managers among themselves. The process of organising
makes a clear mention of each and every activity of every manager and also of their extent of
authority. It is also made clear as to whom a manager order for a particular job shall.
Everybody also knows to whom they are accountable. In this way, the confusion about
authority is put to end. Consequently, effective administration becomes possible.
(6) Development of Personnel: Under the process of organising, delegation of authority is
practised. This is done not because of the limited capacity of any individual, but also to
discover new techniques of work. It provides opportunities of taking decisions to the
subordinates. By taking advantage of this situation, they try to find out the latest techniques
and implement them. Consequently, it helps them to grow and develop.
(7) Expansion and Growth: The process of organising allows the employees the freedom to
take decisions which helps them to grow. They are always ready to face new challenges. This
situation can help in the development of the enterprise. This helps in increasing the earning
capacity of the enterprise which in turn helps its development.
Conclusion: The above analysis makes it clear that the process of organising by clearly
defining the posts, roles, authorities and relations creates a structure with the help ofwhich the
objectives defined under planning are turned into reality. It is said that the organising has the
same importance for management as a structure of bones in a human body. Itmeans that
organising is a very important function of management.
• Organising Process
In order to complete the organising function of management, following steps are taken:
(1) Identification and Division of Work
(2) Departmentalisation
(3) Assignment of Duties
(4) Establishing Reporting Relations
(1) Identification and Division of Work: The first step of organising is the identification
and division of work. At this step, the total work is divided into various activities. For
example ,the various activities of a mobile phone manufacturing company can be like this-
(i)purchase of raw material, (ii)purchase of manufactured parts, (iii) production, (iv) stocking
of goods, (v) research, (vi) advertisement, (vii)sales, (viii)financial arrangement, (ix)
maintenance of accounts, (x)correspondence, (xi) arrangement of employees, etc.
(2) Departmentalisation: After various activities have been designed in order to achieve the
objectives of the company, starts the departmentalisation of activities. The activities of the
same nature are grouped together and assigned to a particular department (It is known as
grouping), e.g., purchase of raw material, purchase of manufactured parts, etc. are given to
the purchase department. And production, stocking the goods, research activities are given to
the production department. Similarly, advertisement and sales can be given to the marketing
department and the financial arrangements, maintenance of accounts and correspondence can
be put in the charge of finance department. The grouping of activities and departmentalisation
has been shown in the following diagram where the objective of the company is to produce
mobile phones.
Note: (i) If the said mobile phone producing company has its own textile business also, first
of all two divisions of the company will be created, e.g., Mobile Phone Division and Textile
Division. Then in every division the activities will be determined and later on the work of
grouping activities and departmentalisation will be completed. (ii) The above process
undertaken in respect of the manufacturing for single product is called functional and for
more products it is called divisional departmentalisation.
(3) Assignment of Duties: At this stage, the responsibility of each individual or post is
decided, e.g., the purchase manager will be given the task of purchasing goods, the sales
manager will be given the work of sale of goods, the advertising manager will be given the
work of advertisement and in the same way the finance manager will be given the
responsibility of making financial arrangements. While assigning these duties, it is important
to match the nature of the work and the capabilities of the person to whom the work is given.
(4) Establishing Reporting Relations: When two or more than two persons work for the
attainment of common goals their inter-relationship must be defined very clearly. Everybody
should know who is his superior and who is his subordinate? For example, the purchase
manager will be the superior for all the employees of the purchase department; they will
receive orders from him and will also be responsible to him.
Formal and Informal Organisation
The structure of an organisation is both formal and informal. In other words, two kinds of
relationship can be established among the employees -firstly, the relationship that is definite
and defined before hand, and secondly, those relations which are not definite and defined
before hand. We will now study them in detail.
• A. Formal Organisation
A formal organisation means an organisation in which the responsibilities, authority, and
mutual relationships among all the employees working in an enterprise are clearly defined.
According to Chester Bernard, "An organisation is formal when the activities of two or more'
persons are consciously coordinated towards a common objective"
• Main Characteristics of Formal Organisation
Following are the main characteristics of formal organisation:
(1) It has Defined Inter-relationship: Formal organisation is a sort of arrangement which
clearly defines mutual relationship. Everybody knows their authority and responsibilities.
This clearly shows who will be reporting to whom.
(2) It is Based on Rules and Procedures: It is important to observe all the pre-determined
rules and procedures in the formal organisation. The objectives laid down under planning are
thus achieved.
(3) It is Based on Division of Work: The chief basis of formal organisation is the division of
work. It is this that connects the efforts of different departments with each other.
(4) It is Deliberately Created: It is deliberately created in order to achieve the objectives of
the organisation in an easy manner.
(5) It is Impersonal: Under it, personal feelings are ignored and strict discipline is observed. It
is not the person but the work that happens to be important.
(6) It is More Stable: Under this changes cannot be introduced because of the needs of
individuals and their wishes. Therefore, it is more stable .
• Advantages of Formal Organisation
Following are the advantages of formal organisation:
(1) Easy to Fix Accountability: Since the authority and responsibility of all the employees
have been already fixed, inefficient employees can easily be apprehended and in this way
their accountability can be fixed.
 (2) No Overlapping of Works: In the formal organisation, everything moves in an orderly
manner. Therefore, there is no possibility of any work being left out or unnecessarily
duplicated.
(3) Unity of Command Possible: It is possible to observe the principles of unity of
command in view of the presence of scalar chain of authority.
(4) Easy to Get Goals: Under the formal organisation, it is easy to achieve the goals of the
organisation because there is an optimum use of all the material and human resources.

TOOL KIT-2
Formal Organisation?
It refers to the organisation structure which is designed by the management to accomplish a
particular task.

(5) Stability in Organisation: All the people work by observing rules and remain confined
within the domain of their authority. This leads to the establishment of good relationship
which in turn leads to stability to the organisation .
• Limitations of Formal Organisation
Following are the limitations of formal organisation:
(1) Delay in Work: Every activity is bound by rules which causes unnecessary delay in the
completion of work.
(2) Lack of Initiative: In this organisation, the employees have to do what they are asked to
do and they do not have a chance of some independent thinking. This, therefore, kills
initiative.
(3) Mechanisation of Relations: The relationship of all the people are defined. This leaves
no chance of any mutual interplay and thus the knowledge of other people and their
experience cannot be exploited.

B. Informal Organisation
An informal organisation is that organisation which is not established deliberately but comes
into existence because of common interests, tastes, and religious and communal relations.
The chief quality of this organisation lies in friendly relationship and cooperative nature. In
this organisation, an individual does not help another individual in his activities simply
because he is responsible for it but because it is his personal liking. For example, in a formal
organisation a supervisor in a purchase department consults only the manager of his
department regarding all his problems connected with his activities, but in an informal
organisation any manager of any department or supervisor can be consulted. Not only this, a
supervisor can talk directly to the general manager.
According to Chester Bernard, "That organisation is informal where the mutual relations nrc
established unconsciously for common objectives .
• Main Characteristics of Informal Organisation
Following are the main characteristics of informal organisation:
(1) Based on Formal Organisation: This is based on formal organisation where people also
have informal relations. (It means first of all the formal organisation is established and then
informal organisation is created out of it.)
(2) It has no Written Rules and Procedures: In this organisation, there are no written rules
and procedures to govern inter-relationship. But there are group norms which have to be
observed. For example, employees working in an organisation and belonging to a particular
community form a separate group in an informal way. Gradually some norms do emerge -
like helping the member of their group to find solution to the problems related to his work or
his own self. Similarly, they protect the members of their community from the managerial
exploitation. In this way, all the persons joining this informal group will be bound to observe
the norms of the group.
(3) Independent Channels of Communication: In this organisation relations among
different people are not defined because a person at the lowest rank can have direct contact
with the person at the highest level. The flow of communication cannot be specified.
(4) It is not Deliberately Created: Informal organisation is not deliberately created. It
emerges out of mutual relationship and tastes.
(5) It has no Place on Organisation Chart: Informal organisation has no place on the
properly prepared organisation chart. Moreover, there is no information about it even in the
organisation manual.
(6) It is Personal: It is being personal means that under this the feelings of individuals are
kept in mind and nothing is imposed upon them.
(7) It lacks Stability: There is generally a lack of stability insuch an organisation. For
example, an individual mixes with one group of people today but can cross over to another
group tomorrow. Not only this, an individual can be a member of more than one group at a
time.

TOOL KIT-4
Organisation chart
Organisation chart is a drawing which shows the relationship among the various posts
established in the organisations.

TOOL KIT-5
Organisation Manual
In the organisation manual the authorities and responsibilities of various posts established in
the organisation are explained. It also gives other relevant details.

Advantages of Informal Organisation

Following are the advantages of Informal Organisation:
(1) Effective Communication: In the absence of any definite course, it is an effective
system of communication. Messages can be quickly conveyed from one place to another with
the help of this system.
(2) Fulfils Social Needs: In the informal organisation, people having similarity of thoughts
and ideas form a group of their own. All the people in the group stand by one another in all
the organisational or personal matters.
(3) Fulfils Organisational Objectives: Here there is no pressure of formal organisation. In the
informal organisation, the subordinates put their ideas before the superiors without any fear
or hesitation. It helps the superiors to understand their difficulties and immediate solution of
the problem is sought out. Since the problems are easily solved it becomes easier to achieve
the objectives of the organisation .
• Limitations of Informal Organisation
Following are the disadvantages of Informal Organisation:
(1) It creates Rumours: All the persons in an informal organisation talk carelessly and
sometimes a wrong thing is conveyed to the other person which may bring in horrible results.
(2) It resists Change: This organisation resists change and lays stress on adopting the old
techniques.
(3) Pressure of Group Norms: In this organisation, people are under pressure to observe
group norms. Sometimes the people assembled in informal group lose sight of their objective
and all decide to oppose their superiors unanimously. Such a situation adversely affects
productivity.
This is clear from the above description that both the types of organisations have their merits
and demerits. On the one hand, formal organisation is helpful in attaining the objectives of
the organisation very easily, but on the other hand, the informal organisation is not less
important if used properly. In short, informal relations among the employees are
complementary to formal relationship <L>. In this context it is it will also be appropriate to
say that, the attitude of the management towards informal organisation should be positive.

Difference Between Formal and Informal Organisation

The difference between both the organisations is clear in the diagram and table ahead.

It is clear from the above diagram that in a formal organisation the General Manager,
Purchase Manager and Purchase Superintendent have a chain relationship and they have to
conduct themselves within the limitations of this chain. In other words, a purchase
superintendent has to convey his ideas only to the purchase manager. Similarly, this chain
shall operate in the production and finance departments also. On the contrary, in an informal
organisation a purchase superintendent can have talk with the production manager on the
strength of his personal relationship. Similarly, a finance superintendent can place his
problem before the General Manager.
The difference between the formal and informal organisations can be easily understood from
the following table:
Basis of Difference Formal Organisation Informal Organisation
1 Meaning An organisation created by the An organisation born out of
management in the form of mutual relations is called
structure of authority is called informal organisation and it
formal organisation. emerges automatically.
2. Origin It is established because of the It is established because of
rules and policies of the social relationship.
organisation
3 Authority Authority is born out of the post Authority comes into existence
established in the organisation because of individual virtues.
an moves downwards Authority moves downwards or
it can be horizontal.
4. Behaviour Behaviour is pre-detrmined. It Behaviour depends on
means that it is known individual attachment which
beforehand who will do what means it is not pre-determined.
and how will he do it; who will
be the boss and who will be the
subordinate.
5. Flow of Communication Communication is defined. It Communication is not defined.
moves according to the scalar It can move in any direction.
chain of authority
6 Nature It is more stable. Forecasting is It is temporary and less stable.
possible in it. Forecasting is not possible in it.
7 Leadership Because of their high ranks, the The leader is elected.
managers are the leaders.
Key Concepts

1. Meaning of Organising: It refers to harmonious adjustment of various parts to achieve

common objectives.
2. Characteristics of Organising: (i) division of work, (ii)Coordination, (iii)Plurality of
persons, (iv) Common objectives, (v) Organisation is a machine of management.
3. Importance of Organising: (i) Benefits of specialisation, (ii) Clarity in working
relationship, (iii) Optimum utilisation of resources, (iv)Adaptation to change, (v) Effective
Administration, (vi)Development of personnel, (vii)Expansion and growth.
4. Concepts of Organising: (i)Organisation as a process, (ii)Organisation as a structure of
relationship.
5. Organising Process: (i) Identification and division of work, (ii)Departmentalisation;
(iii)Assignment of Duties, (iv)Establishing Reporting Relations.
6. Formal Organisation: It refers to the organisation structure which is designed by the
management to accomplish a particular task. Main Characteristics of Formal Organisation: (i)
It has defined inter-relationship, (ii) It is based on rules and procedures, (iii) It is based on
division of work, (iv)·It is deliberately created, (v) It is impersonal, (vi) It is more stable.
Advantages of Formal Organisation: (i)Easy to fix responsibility, (ii) No overlapping of .
works, (iii)Unity of command possible, (iv)Easy to get goals, (v)Stability in organisation.
Limitations of Formal Organisation: (i) Delay in work, (ii)Lack of initiative,
(iii)Mechanisation of relations.
7. Informal Organisation: It refers to the natural groupings of people in the work situation to
meet personal needs. Main Characteristics of Informal Organisation: (i) Based on formal
organisation, (ii)It has no written rules and procedures, (iii)Independent channels of
communication, (iv) It is not deliberately created, (v) It has no place on organisation chart,
(vi) It is personal, (vii)It lacks stability. Advantages of Informal Organisation: (i) Effective
communication, (ii) Fulfils social needs, (iii)Fulfils organisational objectives. Limitations of
Informal Organisation: (i) It creates Rumours, (ii)It resists change, (iii) Pressure of group
norms.
8. Difference between Formal and Informal Organisation: (i)Meaning, (ii)Origin,
(iii)Authority, (iv) Behaviour, (v) Flow of Communication, (vi)Nature, (vii)Leadership.

STUDY Assignments
Meaning, Importance and Process of Organising
6 Marks
1. Describe the steps involved in the process of 'Organising' .
2. Explain the importance of organising as a function of management. (C.B.SE Sample
Paper)
4/5 Marks
3. Aman, Avneesh and Amrish have decided to start a business of manufacturing toys. They
identified the following main activities which they have to perform:
(i)Purchase of raw materials
(ii)Purchase of machinery
(iii)Production of toys
(iv)Arrangement of finance
(v)Sale of toys
(vi)Identifying the areas where they can sell their toys
(vii)Selection of employees
In order to facilitate the work they thought that four managers should be appointed to look
after:
(a) Production (b) Finance (c)Marketing (d) Personnel.
(1) Identify the function of management involved in the above mentioned para.
(2) Quote the lines from the above para which help you in identifying this function.
(3)State the steps followed in the process of this function of management. (C.B.S.E. 2009)
3 Marks
4. Define 'Organising' as a function of management. (CB.SE. 2003)
5. State three steps in the process of organising. (C.B.SE. 2004)
6. "Organisation is a machine of management." Comment.
7. How effective administration is possible through organisation?
1 Mark
8. 'Organisation is a mechanism of management.' What does this statement indicate?
Ans. It indicates about the importance of organisation.
9. How 'effective administration' is possible through organising?
Ans. It makes clear the activity of every employee and also of their extent of authority.
10. What is meaning of 'Departmentalization' as a step of organising process?
Ans. At this stage, the activities of similar nature are assigned to a particular department.
11. 'Identifying and dividing the work' is the first step in the process of one of the functions
of management. Identify the function. (C.B.S.E.2008)
Ans. Organising function of management.
12. Name the functions of management which co-ordinates the physical, financial and human
resources and establishes productive relations among them for achievement of specific goals.
(C.B.S.E. 2008)
Ans. Organising function of management.

Formal Organisation
6 Marks
13. What is meant by formal organisation? Explain any five features of formal organisation.
(CB.SE 2009)
14. Explain the merits and limitations of formal organisation.
4/5 Marks
15. State two advantages and two limitations of formal organisation.
(3 Marks)
16. State any three advantages of 'Formal Organisation'. (CB.SE 2008)
17. What is meant by 'formal organisation'? List any two limitations of 'formal organisation'.
(C.B.SE 2008)
18. What is meant by 'formal organisation'? List any two advantages of formal organisation.
(C.BSE 2008)
1 Mark
19. Name the organisation which is based on rules and procedures.
Ans. Formal organisation.
20. Name the organisation which is deliberately created. Ans. Formal organisation. 21. Name
the organisation which has the benefit of 'Easy to Fix Responsibility'. Ans. Formal
organisation.
22. Formal organisation has the limitation of 'Delay in Work'. Comment.
Ans. Under it every activity is bounded by rules which causes unnecessary delay in work.

Informal Organisation
6 Marks
23. What is meant by 'Informal Organisation'? Explain any five features of informal
organisation. (Foreign 2009)
24. Explain the advantages and limitations of informal organisation.
4/5 Marks
25. Give the meaning of informal organisation with the help of a suitable example. (CB. SE
2002)
26. The employees of Manik Ltd., a software company, have formed a Dramatic group for
their recreation. Name the type of organization so formed and state its three features. (CB.SE
Sample Paper)
3 Marks
27. Explain the meaning of informal organisation. 28. What is meant by 'informal
organisation'? List any two limitations of informal organisation. (CB.SE 2008) 29. State any
three advantages of informal organisation. (CB. SE 2008)
1 Mark
30. Out of formal and informal organisations which one is established first?
Ans. Formal organisation.
31 Name the organisation which is directed by 'Group Norms'.
Ans. Informal organisation.
32 Informal organisation is not deliberately created. Then how it is created?
Ans. It emerges out of mutual relations and tastes.
33 What is organisation chart?
Ans. Organisation chart is a drawing which shows the relationship among the various posts
established in the organisation.
34What is organisation manual?
Ans. In the organisation manual the authorities and responsibilities of various posts
established in the organisation are explained. It also gives other relevant details.
35 Name the organisation which has the advantage of 'Effective Communication'.
Ans. Informal organisation.
36 Name the organisation which has the limitation of 'resisting Change'.
Ans. Informal organisation

Formal and Informal Organisation

6 Marks
37. How will it be appropriate to say that the attitude of management towards informal
organisation should be positive?
38. "Informal organisation is considered better than formal organisation." Do you agree with
this statement? Give reasons.
39. "Formal organisation is considered better than informal organisation." Do you agree with
this statement? Give reasons.
4/5 Marks
40. Distinguish between 'Formal' and 'Informal' organisations (any four points). (CB.SE
2007)
3 Marks
41. "Formal Organisation is Impersonal while informal organisation is Personal." Clarify this
statement.
1 Mark
42. Distinguish between formal and informal organisations on the basis of 'leadership'.
Ans
Basis of Difference Formal Organisation Informal Organisation
Leadership Because of their high ranks The leaders are elected
the managers are the leaders
Query Session
For this query session, questions from readers' side are invited.