PRINCIPLES OF MANAGEMENT PART 1

MASTER OF BUSINESS ADMINISTRATION
(INDUSTRY INTEGRATED)

TWO YEAR FULL TIME INDUSTRY INTEGRATED
M.B.A PROGRAMME


SELF LEARNING MATERIAL

PRINCIPLES OF MANAGEMENT
































Detailed Curriculum
Annamalai University Courses


Unit- I – Management and Organization
Chpater -1. Introduction
1. Introduction

Modern societies are often described as ‘societies of organizations’. When we think of any modern society, institutions like business enterprises, hospitals, religious and social organizations naturally come to our mind. All these organizations affect our lives in many ways. Despite the differences in their functioning and approaches, they all strive to the differences in their functioning and approaches, they all strive to achieve certain objectives. It must also be noted that organizations cannot achieve the objectives effortlessly. Several activities have to be performed in a cohesive way. As such, it is the function of the management to facilitate the performance of activities in a systematic fashion such that the accomplishment of the objectives becomes possible

2. Objectives
After studying this lesson, you should be able to:
• Understand the nature of management:
• Familiarize with the basic managerial functions:
• Describe the levels in management : and
Acquire an in depth knowledge of the skills required of a manager

3. Content
WHAT IS MANAGEMENT?
Management means many things to many people. Economists regard it as a factor of production. Sociologists see it as a class or group of persons while practitioners of management treat it as a process. In simple terms, management is what a manager does. It has been called by Mary Parker Follet: “the art of getting things done through people”. This definition throws light on the fact that managers achieve organisational goals by arranging others to perform rather than performing the tasks themselves.
Management, in fact, is much more that no one single definition has been universally accepted. Nor can any one definition capture all the facets of management, given its dynamic nature. That is why, it is often said that there are as many definitions of management as there are authors in the field. However, the definition given by James A.F. Stoner encompasses all the import6ant facets of management. According to him.
“Management is the process of planning organizing, leading and controlling the efforts of organisation members and of using all other organisational resources to achieve stated organisational goals”. This definition suggests:
• Management is a process because all managers irrespective of their level in the organisation, engage in certain interrelated activities in order to achieve the desired goals;
• Managers use all the resources of the organisation, both physical as well as human;
• Management aims at achieving the organizations goals.
To achieve the objectives, every organisation uses certain inputs like materials, machinery, money and the services of men. These inputs like are drawn form the environment in which the organisation exists. Whether an organisation is engaged in business or non-business, the various inputs are judiciously used to produce the outlays. This process which involves the conversion of inputs into outputs is common to all organizations and is shown in exhibit 1.

EXHIBIT – 1
INPUT – OUTPUT MODEL








The output of the firm may be a physical product or service. Since a business organisation is an economic entity, the justification for its existence lies in producing goods and services that satisfy the needs of the people. Here arises the question of effectiveness in transforming the inputs matter of concern for any society, given the scarcity of resources. Effective management plays a crucial role in this context.
NATURE OF MANAGEMENT
Inspite of the growing importance of management as an academic discipline immensely contributing to the quality of human life, the concept is still clouded by certain misconceptions. No doubt, management as an academic body of knowledge has come a long way in the last few years. It has grown in stature and gained acceptance all over the world. Yet, it is a paradox that the term ‘management’ continues to be the most misunderstood and misused. Scare
Management as a Science
It is therefore relevant to examine the exact nature of management whether it is a science or an art. ‘Before arriving at a conclusion, let us understand the nature of science as well as art. Any branch of knowledge to be considered as science, (like the ones we have physics, chemistry, engineering, etc.) should fulfill the following conditions.
• the existence of a systematic body of knowledge encompassing a wide array of principles;
• the principles have to be evolved on the basis of constant enquiry and examination;
• the principles must explain a phenomenon by establishing cause-effect relationship;
• the principles must explain a phenomenon by establish in cause-effect relationship;
• The Principles have to be amenable for verification.
management has emerged with its own principles. The application of these principles helps any practicing manager to achieve the desired goals. However, while using the principles, one should not lose sight of the variables in the situation, since situations differ from one another. Thus the importance of personal judgement cannot be undermined in the application of principles. Further, management is a dynamic subject in that it has drawn heavily from economics. Psychology, sociology, engineering and mathematics, to mention a few. It is multi-disciplinary in nature. But a word of caution. Though management, considering its subject matter and the practical utility may be considered as ‘Science’ for reasons discussed below, it cannot be viewed as an ‘exact science’. In is a science, but an ‘inexact science’ because:
• Management by definition involves getting the things done through people. Compared to the other inputs, ‘people’, who constitute the human resource of any organisation, are unique in respect of their aspirations, attitudes, perceptions and the like. Dissimilarities in the behaviour patterns are so obvious that standard results may not be obtained in otherwise similar conditions.
• Secondly, the behaviour of the human beings cannot be accurately predicted. Hence ready made and standard solutions cannot be prescribed.
• Thirdly, management is more concerned with future which is complex and unpredictable. As the saying goes, ‘many a slip between the cup and lip’. Many variables in the environment may affect the plans and render them ineffective.
• Lastly, since a business organisation exists in an environment, it has a two-way interaction with the environment. The organisation influences the environment by its several decisions and in turn, is influenced by the various elements of the environment. Important among these are technological, economic, socio-cultural and political factors. The whole thing is so complex that however effective the plans are one is prone to be taken unaware of unexpected changes in the environment.
Unlike the pure or exact sciences where the results are accurate, in the Case of Management, the various factors discussed above may force even the excellent plans and strategies go haywire. Too many complexities and uncertainties render management an ‘inexact science’.
Management as an Art
Art refers to the ‘know-how’ to accomplish a desired result. The focus is on the ways of doing things. As the saying goes ‘practice makes a man perfect’, constant practice of the theoretical concepts (knowledge base) contributes for the formation of skills. The skills can be acquired only through practice. In a way the attributes of science and art are the two sides of a coin. Medicine, engineering, accountancy and the like require skills on the practitioners and can only be acquired through practice. Management is no exception. As a university gold medalist in surgery may not necessarily turn out to be a good surgeon, graduate from the best of the institutes may not be very effective in practice. In both the cases the application of the knowledge acquired through formal education, requires ingenuity, correct understanding of the variables in the situation, pragmatism and creativity in finding solutions to problems.
Effective practice of any art requires a thorough understanding of the science understanding it. Thus science and art are not mutually exclusive, but are complementary. Effectives who attempt to manage without the conceptual understanding of the management principles and techniques have to depend on luck and intuition. With organized knowledge and the necessary skills to use such knowledge, they have a better chance to succeed. Therefore, it may be concluded that management is both a science and an art.
Management as a profession
Another important dimension of the nature of management is whether it is a profession. McFarland gives the following characteristics of a profession:
• Existence of an organized and systematic body of knowledge.
• formalized methods of acquiring knowledge and skills;
• existence of an apex level body with professionalization as its goal;
• existence of an ethical code to regulate the behaviour of the members of the profession;
• charging of fees based on service; and wore
• A concern for the social responsibilities.
Management as a profession does not strictly conform to the above criterion. Unlike medicine or law, management has to go a long way to have a universally acceptable norm of behaviour. There is no uniform code of conduct that governs the behaviour of managers. The apex level body, All India Management Association (AIMA) provides only guidelines and does not have any controlling power over the erring members. Vast differences are also found among managers in respect of their concern for the ethics and values of the system in which they function. Many a time, in their obsession with profit, the societal interests are neglected. However, as in the case of other professions, if is implied that managers are expected to set an example in doing good to the society. After all, given the enormous resources they have at their command, the expectation that managers should address themselves to the problems of society is not unnatural.
Compared to other professions like engineering, medicine, accountancy, etc., the entry to management positions is not restricted to individuals with a special degree. To quote Peter Drucker, ‘no greater damage could be done to an economy or to any society than to attempt to professionalize management by licensing managers, for instance, or by licensing managers, for instance, or by limiting access to management to people with a special academic degree’.
The question whether management is a profession often breathes life into the widely debated issue ‘whether managers are born or made’. It is true that many founding fathers of the industry in India and elsewhere too, did not study management in the formal way. The native wisdom coupled with their vision and ingenuity in organizing the enterprises helped them earn name and fame. Huge industrial empires were built with sheer business acumen. Business history of any nation is fully replete with many rags-to-riches stories. The success achieved by the pioneers in these cases amply demonstrates that success in business requires much more than the academic degree.
The achievements of the pioneers of the industrial development need not, however, shadow the importance of management as a profession. In arguing for and against, we must not ignore the context of the business. There has been a sea change in the environment of the business. Modern business has become more complex due to the uncertainties arising mainly from:
• rapid technological changes
• increased sophistication in technology
• Expansion in the size of organizations and consequently the markets.
All these variables which have a significant bearing on the functioning of a business point to the need for formal training and acquisition of skills in management by pursuing management education.
Professionalization of Management in India
In the last few years, management as a profession has gained a firm footing in India. The awareness about the contributions of professional managers has been increasing. Consequently, there has been a manifold increase in the number of institutes offering MBA and related diploma courses. There has also been a phenomenal increase in the number of students seeking admission into the management programmes.
The following factors seem to be mainly responsible for the growing demand for professional managers:
• The liberalization policies pursued by the government opened up new vistas for the Indian organizations;
• As a consequence, competition has increased in all the sectors of Indian economy:
• Private industrial houses which were indifferent before, have fully realized the need for professional managers. While the promoters in many cases reserve the policy formulation for themselves, the day-to-day managerial activities are entrusted to the professional managers.
• Public sector undertakings are also. Of late, forced to perform. As a result, qualified managers are sought after by PSU’s than ever before.
• Apart from the manufacturing concerns, public utilities like transport, telecommunications, and a host of service organizations are recruiting professional managers in a big way.
FUNCTIONS OF MANAGEMENT
Management is widely regarded as a process. A manager no matter what his level is in the organisation performs a series of functions. Surprisingly, there is no consensus among the management thinkers on the classification of management functions. The number of functions as well as the terminology used to describe them is not alike. Henry Fayol identifies five functions, viz., planning, organizing, commanding, coordinating and controlling. For instance, Newman and Summer recognize only four functions, namely organizing, planning, leading and controlling. Luther Gulic’s popular catch word POSDCORB suggests seven functions, namely, planning; organizing, staffing, directing, coordinating, reporting and budgeting, Koontz and O’Donnell classify the functions into planning, organizing, staffing, directing and controlling. For the purpose of our study, we shall examine the following four functions of management planning, organizing, leading and controlling.
Planning
Planning in simple is outlining a future curse of action. It is unique in that it precedes all the other managerial functions. It attempts to capture the future. It involves deciding the objectives and formulating the policies and procedures to achieve them. Effective planning provides answers to questions like-what to do? How to do? Who is to do> and when to do?
Planning is a function performed by managers at all levels. However, plan made by top managers have a wider scope with a focus on the organisation as a whole and normally cover a longer period. On the other hand. Plans developed by middle and lower level managers relate to the divisions or departments and usually cover a short period. Systematic planning helps in facing the uncertainties of future with less embarrassment. It helps in making things happen in the expected way.
Organizing
Organizations achieve objectives by using physical and human resources. When people work in groups, every one in the group should know what he is expected to achieve and what reporting relationship he has with others. The manager’s task in organizing aims at creating a structure that facilitates the achievement of goals.
Organizing involves:
• determination of activities required to achieve goals; - grouping of these activities into department:
• assignment of such groups of activities to a manager;
• delegation of authority to carry them out: and
• Provision for coordination horizontally and vertically in the organisation.
It must be remembered that the structure varies with the task. A large organisation with huge markets needs a different structure compared to a small organisation. Similarly, structure of an organisation operating in a stable environment may be different from the one operating in a dynamic environment. The way one goes about in organizing the affairs of the organisation, is thus influenced by the size and nature of the activities involved, the type of environment, and the overall business strategy.
Leading
Once plans are finalized and the structure of the organisation is determined, the next step is to help the people achieve the objectives. This involves directing or leading the activities of the people. The manager directs the achieve of his subordinates by explaining what they have to do and by helping them perform it to the best of their ability. In leading the people, the manager performs the following three distinct tasks; listening
Communication the process of passing information from one person to another:
Leadership the process by which a manager guides and influences the work of his subordinates; and
Motivation the act of stimulating the people so that they give their best to the organisation

Leading is a function predominantly interpersonal in nature. In the organisational context many problems arise because of the failure of managers to understand the people, their aspirations, attitudes, behaviour as individuals and in groups. If the manager fails in leading the people towards better performance, any amount of planning and organizing, however effective they are, may not help the organisation.
Controlling
While plans of the organisation spell out the objectives to be achieved, control as a managerial function facilitates to know whether the actual performance is in conformity with the planned one. So that, in the event of deviations, appropriated corrective measures can be taken. In the absence of adequate control mechanism. Unexpected changes in the environment may push the organisation off the track. Thus, controlling implies measuring and correcting the activities to assure that events conform to plans. It involves four main elements:
• Establishing standards of performance;
• Measuring the actual performance and comparing it against the standard performance:
• Detecting deviations, if any in order to make corrections before it is too late; and
• Taking appropriate corrective measures.

MANAGEMENT LEVELS
Though the term ‘manager’ is used to mean anyone who gets the things done through other people, we find the managers in any organisation with varying authority and responsibilities. In any company the total management job requires many skills and talents. Obviously, therefore, the job of manager is divided and subdivided. Such an arrangement implies different levels of management. As a matter of custom and convenience, we normally visualize a company’s management as a pyramid as shown in Exhibit. 2.

EXHIBIT - 2
LEVELS OF MANAGEMENT







The three levels of management that are commonly found in any organisation are lower or front-line, middle and top managers.
Front-Line Managers
This is the entry level job in the management. Managers at this level direct the operating employees (workers). They are close to the action, for their job involves supervising the activities of operatives. Front-Line managers are called foreman, supervisor, and inspector and so on in any organisation.
Middle Level Managers
Middle management level includes, in many organizations, more than one level. Managers who work at all the levels between the lower and top levels constitute the middle management. Departmental heads. Regional managers, Zonal managers and so on fall in this category. They report to top managers. Their principal responsibilities are to direct the activities of lower level managers who implement the organisation’s policies.
Top level Managers
This level consists of a small group of executives. Board of Directors, Chairman, Managing Director and the top functional heads and divisional managers comprise this level. Top managers are responsible for the overall management of the organisation. They decide the enterprise objectives, policies and strategies to be pursued to achieve those objectives. They provide direction to the organisation by guiding the organisation’s interactions with its environment.
MANAGERIAL SKILLS
Management job is different from other jobs. It requires elements of stewardship and commitment to the purpose. It involves the obligation to make prudent use of human and material resources. It requires resourcefulness and capacity for judgement to handle complex situations. Further, the nature of the job becomes increasingly complex at each higher level because of the increase in the scope of authority and responsibility. Therefore, each higher level requires increased knowledge, broader perspective and greater skills.
For purpose of analysis, skills required of any manager are classified under three different heads – technical, human (Employee relations skill) and conceptual skill as shown in exhibit 3. The exhibit helps in understanding the levels of management responsibility, the principal skill requirements, and the extent to which each kind of skill is required at each level.
EXHIBIT - 3
MANAGEMENT LEVELS AND SKILLS









Technical skill
Technical skill is the ability to use the procedures, techniques, and knowledge of a specialised field. It is primarily concerned with the ways of doing the things. It implies proficiency in a specific field of activity. Technical skill is most important for the lower level managers because by nature their job involves supervision of the workers. Effective supervision and coordination of the work of the subordinates, therefore, depends on the technical skill possessed by the lower level manager. Any supervisor without a sound knowledge of the job cannot make an effective supervisor. Such supervisors are not respected by the subordinates at the shop floor. The relative importance of the technical skill as compared to the other skills diminishes as one move up to higher levels of management.
Human skill
Human skill is the ability of the manager to work effectively as a group member and to build cooperative effort in the team he leads. It is the ability to work with, understand and motivate people. This skill is primarily concerned with persons, as contrasted with “things”. When a man is highly skilled in employee relations, he is aware of his own attitudes, assumptions, and beliefs and recognizes their limitations as well as their usefulness. He accepts as an important fact of life the existence of viewpoints and feelings different from his own. He understands why people behave as they do and is able to make his own behavior understandable to them. He can foresee their reactions to possible courses of action and, is able to take their attitudes into account. His skill in working with others is natural and continuous. He does not apply it in random or in inconsistent fashion. It is a natural ingredient of his every action.
Conceptual skill angel
This skill is also called design and problem –solving skill. It involves the ability
• to see the organisation as a whole;
• to understand how its various parts and functions mesh together; and
• To foresee how changes in any one of these may affect all the others.
Conceptual skill extends to visualising the relation of the organisation to industry, to the community and to the political, economic and social forces of the nation as a whole and even to forces which operate beyond the national boundaries. It is the creative force within the organisation. A high degree of conceptual skill helps in analysing the environment and in identifying the opportunities and threats. Managements of companies like ITC, Larsen & Toubro, Asian Paints, Bajaj Auto in the private sector and National Dairy Development Board in the public sector, to mention a few, have amply demonstrated this skill in gaining a competitive edge over their competitors.
All the three types of skills discussed so far are not mutually exclusive. In other words, management job always requires all the three skills but in different proportions depending upon the level of management. There is a gradual shift in the emphasis from the bottom to the top of the pyramid. Technical skill and human skill are always in the top of the pyramid. Technical skill and human skill are always in greater demand at the base of the pyramid, for it is there the productive processes and operations are carried out. It is there where you and most of the people. It is there where the action takes place. The need for conceptual skill is greatest at the peak of the pyramid. Obviously, the top managers are not often involved in the direct application of specific methods, procedures and techniques than those at the lower echelons of management.
Although, each of these skills is needed in some degree at every level of management, there are successful executives who have no great amount of technical skills. But they are able to compensate the lack of that skill through superior creative ability and skill in selecting, planting and effectively motivating subordinates who are strong in technical skill.
As you have understood by now, at every level, management job is different from all other jobs in respect of the skills required. At the entry level into the management job, that is, at the supervisory level, besides technical skills, you have to realise the need to acquire human skill and the problem – solving skills (conceptual). To climb up the organisational ladder, you must not only be good at the skills required for the present job, but also learn and acquaint yourself the skills required at the next level. As a result, in the event of promotion to the next higher level, you would feel at home and discharge the responsibilities with ease.
Organizations engaged in business or non-business use the inputs to produce the output (may be products or service). The conversion of inputs into outputs depends on the effectiveness of management. Management as a discipline has both the elements of science and art. The theory with principles and techniques constitute the science and art. The theory with principles and techniques constitute the science component, while skills and talent required for the use of the principles constitute the art. Management has, of late, emerged as highly respected profession. The process of management is understood under the four basic functions, viz., planning, organizing, leading and controlling. To execute the managerial job successfully, every manager requires three types of skills –technical, human and conceptual skills. The proportion in which these skills are required varies from one level to the other. Technical skills are important at the lower while human skills and conceptual skills are required in that order at higher levels of management.
4. Revision points
o The nature of management:
o The basic managerial functions
o The levels in management
5. Intext questions
 Discuss the important functions of management.
 Is management a Science (or) art?
 Comment on the nature of management.
6. Summary
Organizations engaged in business or non-business use the inputs to produce the output (may be products or service). The conversion of inputs into outputs depends on the effectiveness of management. Management as a discipline has both the elements of science and art. The theory with principles and techniques constitute the science and art. The theory with principles and techniques constitute the science component, while skills and talent required for the use of the principles constitute the art. Management has, of late, emerged as highly respected profession. The process of management is understood under the four basic functions, viz., planning, organizing, leading and controlling. To execute the managerial job successfully, every manager requires three types of skills –technical, human and conceptual skills. The proportion in which these skills are required varies from one level to the other. Technical skills are important at the lower while human skills and conceptual skills are required in that order at higher levels of management.
7. Terminal exercises
1. What do you mean by a profession? Examine the recent trends towards professionalization of management in India.
2. Present a detailed account of the levels of management that are commonly found in any large scale organization. What are the important skills at each level?
8. Supplementary materials
 Drucker, Peter F., 1981. Management Tasks, Responsibilities and Practices, Allied publishers: New Delhi
 Hodgets, Richard M., 1986. Management Theory: Process and Practice, Academic Press, London.
9. Assignments
Role play on importance of planning
10. Suggested readings:
 Drucker, Peter F., 1981. Management Tasks, Responsibilities and Practices, Allied publishers: New Delhi
 Hodgets, Richard M., 1986. Management Theory: Process and Practice, Academic Press, London.

11. Learning activities:
Role play on conceptual skills
12. Key words
Management: getting things done through and with the people.


Chapter – 2 : Planning

1. Introduction:
Most of us plan many things in our day to day lives. We plan to go on a holiday trip, plan our careers, and plan our investment and so on. Organizations are no exception and lot of planning is done by managers at all levels. Thus individuals and organizations both need to plan. Planning is the basic process by which we use to select our goals and determine the means to achieve them. Lot of information has to be gathered and processed before a plan is formulated. In other words, a plan is like a jigsaw puzzle. All the pieces have to be put together properly, so that they make sense.
Planning is necessarily forward looking. It is looking into the further. It bridges the gap between where we are and where we want to go. Let us look at what the following observations suggest about planning.
• “Planning is outlining a further course of action in order to achieve on objective”.
• “Planning is looking ahead”
• “Planning is getting ready to do something tomorrow”
• “Plan is a trap laid down to capture the future”
2. Objectives
After studying this lesson, you should be able to:
• Understand the nature and purpose of planning;
• Acquaint with the important principles of planning; and
Describe the basic steps in planning;

3. Content
PURPOSE OF PLANNING
Needless to say that in the absence of planning, events is left to change. As a manager, in such a case, you are depending on luck. You may, as a result, in all probability, end up in chaos. Organisations often fail not because of lack of resources, but because of poor planning. The following factors further highlight the importance of planning.
To achieve objectives
While developing a plan, you have to ask yourself a few questions:
• Why am I making this plan?
• What am I trying to accomplish?
• What resources do I need to execute the plan?
These questions, obviously, force you to be clear about the objectives, the time frame required to achieve them and the resources required. It forces you to visualize the further in an organized manner.
The saying that “when a man doesn’t know what harbour he is making for, no wind is the right wind” is quite appropriate in the case of planning. Systematic planning, thus, starts with a clear statement of objectives. All the important inputs necessary to achieve the objectives are carefully thought of including the uncertainties of the future.
To make the things happen
Effective manager is rather pro-active. He takes the initiative to make the things happen in the desired way. In any modern business, the interests of many people are at stake. The shareholders, employees, creditors, consumers and the government are the major interest groups in any organisation. Further, the interests and expectations of all these groups are varied and at times are in conflict. If the management fails to achieve, the interest of these groups are affected and the whole exercise results in heart-burns. As a result, you will be forced to indulge in fire-fighting activity.
Therefore, your job, as a manager, is to fore see the future and predict the consequences of actions. In other words, you have to look down the road into future and prepare yourself to meet the uncertainties and the eventualities a head. A well thought out plan solves many of the problems associated with the uncertain future.
To cope with change
Both human beings and organizations are products of environment. The ability to deal with the environment enabled many an organisation to survive, despite other weaknesses. Alert managements continually tune in to the environmental forces. On the other hand, managements which fail to adapt would eventually fall on the way side. Therefore, in the managerial job, you have to constantly analyse the impending changes in the environment and assess their impact on your business.
For instance, business environment in 1990s totally different from that of 1970s and 1980s. The liberalization policies pursued by the government have, of late, brought in too many changes. Markets are shifting due to increased competition, pressure on the resources is increasing, expectations of the employees as well as the consumers are changing, and product life-cycles are becoming shorter due to rapid technological changes. All these changes exert a tremendous pressure on the management.
Certain changes will throw open new opportunities while certain others affect the very survival. If you are not prepared, you will definitely be in trouble. Since environmental scanning is an important element in planning, plans are normally formulated on the basis of a thorough analysis of the environment. Necessary flexibility is built in the plans to meet the unexpected changes. Effective planning thus shows the preparedness of the organisation to manage the change. It helps the organisation to keep itself afloat even in the worst circumstances.
To control the events
Planning and control are often described as the Siamese twins of management. When you plan the events, you expect them to happen in a particular way. Therefore, it goes without saying that you need some mechanisms to know whether the events are happening in the way expected. Planning is important in that it provides the necessary yardsticks to measure the performance. It ensures the events to conform to plans. Thus, if you do not plan (no clear objectives), you do not know whether you are reaching the goal or not. You do not know what to control. Control assumes significance in a dynamic environment as of today, where several forces push you away from the desired path. Appropriate control devices help you to check the course from time to time so that you will be able to keep yourself onto the track.
PRINCIPLES OF PLANNING
Effectiveness in planning depends on the understanding of the following principles. They are relevant to planning the activities of any organisation whether business or non-business. A thorough understanding of the principles underlying the planning, therefore, would enable you to guard yourself against the possible mistakes that are often committed by many managers.
Take time to plan
Any plan is a decision regarding a future course of action. It specifies the sequence of events to be performed. It involves the commitment of organisational resources in a particular way. Therefore, if the plan is not conceived well, the resources would be put to wrong use. It becomes a wasteful exercise resulting in frustration. Hence utmost care has to be exercised in formulating the plans. Several probing questions have to be asked. Planning in haste with incorrect information, unsound assumptions and inadequate analysis of the environment has to be avoided by all means. Otherwise, you may save some time in quickly developing a plan, but in the event of things going wrong, you are hard pressed for time and resources to correct yourself.
Planning can be top down and bottom up
Normally in any organisation overall enterprise plans are developed by the top management. These plans are wider in scope and provide the direction to the whole organisation. They spell out what the organisation wants to achieve. The overall plan thus formulated by the top management is split into departmental plans. Accordingly, plans for production, marketing, finance, personnel and so on, stem from the basic plan of the organisation. The other operational plans at various levels down the organisation flow from the departmental plans. This approach is called top-down approach to planning.
On the other hand, proponents of bottom up approach argue that top management needs information from lower level - that is, about the realities at the ground level in terms of strengths and weaknesses. In this approach, the initiative for planning comes from the lower levels in the organisation. This approach makes use of the rich experience of the subordinates who are close to the action. It also helps to motivate the people and elicit commitment from them. The choice of the method depends on the size of the organisation, the organisational culture, the preferred leadership style of the executive and the urgency of the plan.
Involve and communicate with all those concerned
Operations in modern business organizations are highly interrelated. Organisational plans affect many departments in the enterprise. For instance, a plan to improve the quality of the products (Quality control plan) may require the cooperation of the people in the production, finance, marketing departments and so on. It is, therefore, desirable to involve the concerned people in these departments. Such participation helps in instilling a sense of commitment among the people. They also in turn gain a sense of pride for having been a party in deciding the plan. Such an involvement makes possible the process of sharing information. If plans are not communicated to all those affected by them, there may be unnecessary gaps in the execution.
Plans must be flexible and dynamic
You would be very happy as a manager if there are no unexpected changes in the environment. Day in and day out, you are confronted with too many problems. Most of such problems are caused by unexpected events in the environment. A plan is rigid if there is less scope for a change in its course. In a static environment, of course, there may not be a problem with a rigid plan. But in a dynamic environment, to meet the unexpected changes, adequate flexibility has to be built into a plan. Otherwise, the plan itself becomes a limiting factor.
Evaluate and revise
Evaluation of the plan at regular intervals is necessary to make sure that it is contributing to the objectives. Like a navigator, who in the high seas checks the course to make sure that he is sailing in the right direction, the manager has to, from time to time look back and evaluate the plan. Such an exercise enables to initiate the corrective measure at the right time before it is too late. This depends on the accuracy of the information systems in the organisation through which information reaches the management.
STEPS IN PLANNING
The process of planning may be understood as having the following steps:
Establish goals
Planning begins with decisions about what the organisation wants to achieve over a period of time. The goals of an organisation and its various subunits have to be decided and spelt out in clear terms. It is always desirable to express the goals in quantitative terms for all the key areas of the business like production, profit, productivity, market share, employee relations, social responsibilities, etc. For instance, instead of saying that the objective of business is to achieve a fair rate of return on the investment, it may be given a quantitative expression, say, 10 or 15 percent return on the investment. Specific goals enable the organizations to use the resources effectively.
Since goal setting is the essential first step in planning, managers who fail to set meaningful goals will be unable to make effective plans. If Bajaj Auto is able to retain its prominence in the two wheeler industry (Scooter segment), it is because all the employees of the organisation know clearly that the primary objective is retaining the leadership in the industry.
An awareness of the opportunities and their evaluation in the light of the organisational strengths and weaknesses is essential to set the goals in a realistic way. The mission of the organisation, the corporate values, experience, and policies of other enterprises, observation and data secured from research and experiences provide adequate guidance to the managers in goal setting.
Establish planning premises
Since plans operate in the future, it is imperative to make certain assumptions about the future. This act is called premising. Planning assumptions or premises provide the basic framework in which plans operate. Appropriate assumptions have to be made on various aspects of the environment – both internal and external to the organisation.
i. Internal premises
Important internal premises include sales forecasts, policies of the organisation, skills, attitudes and beliefs of the people, the resources of the organisation.
ii. External premises
Important external premises relate to all those factors in the environment outside the organisation. They include technological changes, general economic conditions, government policies and attitude towards business, demographic trends, socio-cultural changes in the society, political stability, production costs and their behaviour, degree of competition in the market, availability of various resources and so on.
It is evident that some of these premises are tangible while others are intangible. For example, resources, availability, etc. are tangible factors which can be stated in quantitative terms. On the other hand factors like political stability, attitudes of the people, certain of the sociological factors are intangible in that they cannot be measured quantitatively.
Effective premising - the market of appropriate assumptions helps the organisation to identify the favourable and unfavourable elements in the environment. Though accurate premising is difficult, anticipating future situations, problems and opportunities to the extent possible is an essential part of planning.
Decide the planning period
How far in the future should a plan be made is another pertinent questions in the process of planning. Businesses vary in their planning periods. In some cases plans are made for a short period, varying from a few months to a year, while in some other cases, they are made to cover a longer period, to cover a period of more than a year. The period may extend upto 5-20 years and even beyond. Companies normally plan for a period that can be reasonably anticipated. The lead time involved in the development and commercialization of the product and time required to recover the capital investment (pay-back period) influence the choice of the length of the plan.
Develop alternatives and select the course of action
The next logical step in planning involves the development of various alternative courses of action, evaluating these alternatives and choosing the most suitable alternatives. Objectives may be achieved by different courses of action (alternatives). For example, technical know-how may be developed by in-house research, collaboration with a foreign company or by trying up with a research laboratory. Technical feasibility, economic viability and the impact on the society are the general thumb rules to select the course of action. The alternative courses are evaluated in the light of the premises and the overall goals of the organisation.
Derivative plans
The plan thus decided after a thorough analysis of various alternatives suggests the proposed course of action. To make it operational, it has to be split into departmental plans. Plans for the various operational units within the departments also have to be formulated. The plans thus developed for the various levels down the organisation are called derivative plans. For instance, production and marketing of 10,000 units of a product and thus achieving a return of 10 percent on the investment may be the enterprise’s plan relevant for the whole organisation. Its effective execution is possible only when specific plans are finalized for the various departments like production, marketing, finance, personnel and so on with clear-cut objectives to be pursued by these departments.
Review periodically
Success of the plan is measured by the results and the ease with which it is implemented. Therefore, provision for adequate follow-up to determine compliance should be included in the planning work. To make sure that the plan is contributing for the results, its review at regular intervals is essential. Such a review helps in taking corrective action. If necessary, when the plan is in force.
It is an irony that at times even the best of the plans may flounder inspite of careful analysis and mental commitment. So as to avoid the ‘pitfalls’ in planning make sure of the following:
• Set realization and achievable goals;
• Communicate the assumptions on which plans are formulated to all the people and departments concerned;
• encourage and make people participate in the planning programme so as to ensure the right commitment;
• ensure proper coordination between the short-term and along-term plans. They should not be viewed as mutually exclusive;
• encourage creativity in planning. Creativity helps in identifying the best alternatives; and
• pay attention to the resources position of the organisation so as to ensure the availability as and when required.

4. Revision points
Purpose of Planning
• To achieve objectives
• To make the things happen
• To cope with change
• To control the events
Principles of planning
• Take time to plan
• Planning can be top down and bottom up
• Involve and communicate to all those concerned
• Plans must be flexible and dynamic
• Evaluate and revise
Steps in planning
• Establish goals
• Establish planning premises
• Decide the planning period
• Develop a course of action
• Develop derivative plans
• Review periodically
5. Intext questions
 What are the characteristics of planning?
 Describe the important steps in the formal planning process.
 What are the features of good plan?
 What are the benefits and limitations of planning?
6. Summary
Planning is the most fundamental responsibility of a manager. Planning is deciding a future of action. It helps in setting the objectives, to make the events happen, coping with the change and to control the events. Effective planning is a process and involves a few logical steps. The process includes goal setting, promising, identification of the alternative courses of action and selection of a course of action after a vigorous analysis of the pros and cons. However, successful implementation and achievement of results depend on the degree of participation and commitment of the people of various levels in the planning exercise, in the absence of which plans would remain as wishful statements.
7. Terminal exercises
 What are the characteristics of planning?
 Describe the important steps in the formal planning process.
o What are the features of good plan?
o What are the benefits and limitations of planning?
8. Supplementary material
 Dale, Ernest. 1973. Management: Theory and Practice, McGraw-Hill, Newyork.
 Drucker, Peter F. 1974. Management: Tasks, Responsibilities, Practices, Harper & Row, Newyork.
 Koontz, Harold and Cyril O’Donnell. 1976 Management: A system and Contingency Analysis of Managerial Functions: McGraw-Hill Newyork.
9. Assignment s
Case
10. Suggested readings
 Dale, Ernest. 1973. Management: Theory and Practice, McGraw-Hill, Newyork.
 Drucker, Peter F. 1974. Management: Tasks, Responsibilities, Practices, Harper & Row, Newyork.
 Koontz, Harold and Cyril O’Donnell. 1976 Management: A system and Contingency Analysis of Managerial Functions: McGraw-Hill Newyork.
11. Learning activities
Role play on planning
12. Key words
Planning; future course of action.








Chapter – 3. Types of Plans

1. Introduction:
Planning is so pervasive in every organization that it touches very part or segment of the organization. One common ingredient of all planning is time – the period in future that a plan covers. Based on the length of time involved, plants are usually classified as strategic and operational plans. Strategic plans are designed to meet the board objectives of the organization – to implement to mission that provides justification for the organizations existence. Operational plans provide details as to how strategic plans will be accomplished. We will first discuss strategic planning the then proceed to operational planning.
2. Objectives
After studying this lesson, you should be able to:
• Distinguish between strategic planning and operational planning.
• Comprehend how strategic planning is useful for the organization’s long-term survival; and
• The different types of plans that are formulated in organizations.
3. Content
STRATEGIC PLANNING
The terms Corporate planning, long-range planning and strategic planning are used synonymously by many authors. Strategic planning has its origin in military organizations where such planning envisaged a variety of contingencies that may arise when large forces move into operation. When viewed in this backdrop,
strategic planning in a business organisation envisages a comprehensive study of the various external and internal parameters that affect a company in charting a course of action to achieve the goals.
George Steiner has defined strategic planning as “the process of determining the major objectives of an organisation and the policies and strategies that will govern the acquisition, use and disposition of resources to achieve those objectives”. Strategic plans reflect the socio-economic purpose of the organisation and the values and philosophy of the top management. In simple, they relate the organisation to the environment in which it operates by providing answers to the basic questions like:
• Where are we now?
• Where do we want to go? and
• Why do we want to go?
They help the management in:
• Coping effectively with future contingencies.
• Providing an early opportunity to correct mistakes.
• making decisions about the right things at the right time; and
• Understanding what actions to take in order to shape the future as desired.
Strategic planning has been in vogue in the west since long. In India, Multinational Corporation made a beginning in this direction. Other Indian companies (private and public sector) have also realized the importance of strategic planning, thanks to the changed realities in the last few years. As a result every company has now begun to speak in terms of corporate mission, strategic planning and organisational vision. These have almost all become buzz words of the Indian Corporate sectors in 1990’s. Strategic planning serves the following two functions:
Anticipates future opportunities and threats
Business environment is changing so fast these days that a deliberate corporate effort is called for to keep a tab on the broad spectrum over which changes occur. The changes that occur may be precursors of future threats and opportunities. The investment in a large business enterprise today runs into hundreds of crores of rupees. During this period many things may change. Take for instance, the case of the Tata power company. They proposed a 500 MW power station in 1972. The proposal kept shuttling between officialdom for 5 years before it was approved in 1977, but not before the change of government. The project went through so many hurdles and was eventually commissioned in 1983, a full 11 years since it was mooted. In the meantime cost had escalated to nearly 3 times the original estimate. This case demonstrates the need for close monitoring of the potential threats in the environment.
Just as threats can be reasonably anticipated so too can the opportunities. For instance, when the crude oil prices where hiked in 1973, by the OPEC countries it created havoc on petro-based industries. Automobile companies as a result were forced to change to small fuel efficient cars. In this case, the threat was converted into an excellent opportunity. Small car thus has become the fashion of the day. Similarly ITC in India, continuously hounded by excise levels and taxes on their main product, cigarettes – had to think of diversification into hotels, paper, agro products and acqua-culture - which ultimately turned out to be a God sent opportunity.
Provide Clarity of Purpose and Direction
With the overall increase in the size of companies, the internal departments (production, marketing, finance, personnel etc.) have also become quite large. With growing specialization in each of these areas, these departments are prone to become watertight compartment giving rise to inter-departmental rifts.
It is not unusual, for instance, for marketing department to ask the production department to shorten their production runs to cater to demands of various models which is normally resisted by the latter. Similarly, the design department may often specify certain change in the product which may raise the cost of production. The finance department may try to block any measure that increases the cost of production.
In such a situation, corporate objectives spelt out clearly help in smoothening out some of the interdepartmental conflicts. Thus, strategic planning provides unity of purpose and direction, the much emphasized management principle.
The process of strategic planning in any organizations is similar to the general planning process which has been discussed in Lesson – 3. However the emphasis on strategic planning is more on long-term objectives, goals, purpose or mission, rather than the day-to-day issues of management. The objective is to keep firm afloat in the long-run in the light of the several unforeseen contingencies that lie ahead in future. The following are the important steps in the process of strategic planning.
• deciding the corporate mission and broad objectives;
• gathering and analysis information;
• conducting a resource audit (analysis of strength, weaknesses in the light of the opportunities and threats);
• identifying strategic alternatives; and
• making the choice (selection of the right strategy)
The manager’s success lies in understanding the trends in the environment. The trends contain signals and give clues about the potential opportunities and impending threats. Many organizations have paid a heavy price for their failure to draw the right meanings from the signals. Therefore what is required is “the ability to read the writing on the wall”.
Take the case of the public sector giant, HMT which prided itself, for a long time on its dominance in the Indian wrist watch market. The company was in an upbeat mood and failed to understand the shift in the consumer preference towards the more trendy, sleek quartz watches. In the meantime TITAN had entered the market with a wide array of products and began to give HMT a run for its money. TITAN with its innovative marketing strategies has, no doubt, changed the face of the Indian watch market so much that HMT is infact struggling hard to face TITAN. This is only one of the several examples of failures in strategic planning in the contemporary business world.
Technological, economic, sociological and political changes in the environment are so extensive and affect so many activities of an enterprise that is essential to keep their effects in mind. Failure to read the changes and complacent attitude on the part of management costs the firm dearly. There are numerous examples, where yesterday’s leaders have become today’s non-entities solely because of their failure to adapt to the changing realities.
OPERATIONAL PLANNING
While strategic planning is the prerogative of the top management which is the highest policy making body in any organisation, operational planning is done at the lower levels. Strategic planning is mostly concerned with the “Why” of the things whereas operational planning is concerned with the “How” of the things – that is the knitty – gritty of achieving the things.
The focus in strategic planning is on long-term while it is short-term in operational planning. Further, planning is less detailed in the former because it is not involved with the day-to-day operations whereas it is more detailed in the latter. Tactical planning is the other name used to describe operational planning.
Strategic planning provides guidance and boundaries for operational management. Effective management, therefore, must have a strategy and must operate on the day-to-day level to achieve it. At times both may overlap. However, they should not be viewed as mutually exclusive because operational planning identifies the major activities to achieve the objectives of strategic planning. For example, if the strategic plan is to face competition with new and innovative products, major tasks to achieve this goal would be clarified by operational planning. The possible tasks at the operational level include:
• Strengthening the research and development department;
• Motivating the people to work on new products; and
• Creating a climate in the organisation where people are willing to take risks.
In the implementation of strategic plans, it is common that certain departments have far more to do than others. In the above example, in order to bring out new products the operational aspects of the R & D department’s work culture, and the incentives systems to motivate the people need attention.
TYPES OF PLANS
Planning by definition involves deciding a future course of action. Different types of plans are developed by an organisation, namely mission, strategies and policies, Procedures, rules, programmes and budgets. All these refer to a future course of action. However, some variances in respect of the scope and operation are found in the implementation. Some are single-use plans while some others are standing plans. They are discussed below:
Mission or purpose: The terms mission or purpose are often used interchangeably. An organisation’s mission statement includes its philosophy and basic purpose for which it exists. It establishes the values, beliefs, and guidelines that the organisation holds in high esteem. Mission statement suggests how an organisation is going to conduct its business. It defines the basic intentions of the firm. A clear definition of mission or purpose is necessary to formulate meaningful objectives.
Answers to two important questions are provided by the mission statement: what is our business? And what should it be? These questions force the management to define their customers and their needs.
The essence of corporate mission or purpose can be understood from the IBM’s philosophy, as enunciated by Thomas Watson, its founder way back in 1960’s.
• Respect for the individual;
• We want to give the best customer service of any company in the world; and
• We believe that an organisation should pursue all tasks with the idea that they can be accomplished in a superior fashion.
It is interesting to note that almost 30 years after Watson stated these three basis beliefs, IMB’s present chairman stated: “We have changed our technology, changed our organisation, changed our marketing and manufacturing techniques many times, and we expect to go on changing. But through all this change, those three basic beliefs remain. We steer our course by those stars”.
Policies: Koontz and O’ Donnel define policy as “a general statement or understanding which guides the thinking and action in decision-making. Policy is a one time decision. When decisions are to be made, managers consult the policy relevant to the decisions. Policy stipulates how an activity has to be performed. It provides the basic framework within which managers operates. Policies exist at all levels in the organisation. Some may be major company policies affecting the whole organisation while others may be minor or derivative policies affecting the functioning of departments or sections within the departments.
Policies may be very clear and explicit. Good policies are flexible, easy to interpret and consistent with overall objectives of the organisation. Policies are laid down by the management for all the important functional areas. As such, we hear about production policies, financial policies, marketing policies and personnel policies, to mention a few. For instance, in the personnel area, specific policies may be formulated for recruitment, training, compensation, etc. Accordingly, whenever the need for recruitment arises, the personnel manager consults the existing recruitment policy of the company and initiates the steps necessary to fill the vacancies. Thus it is evident that the personnel manager operates within the broad policy of the company in recruiting the people. Thus policy is a one time standing decision that helps the manager in making day-to-day decisions in their operational areas.
Procedures: Another term that is frequently heard in any organisation in ‘procedures’. The term sounds of some bureaucratic element where issues are finalized only after they undergo a long drawn scrutiny. But procedures, if simple and clear would ensure order in the performance of operations. Though procedures exist at all levels in an organisation, they are more detailed at the lower levels. In common parlance, they are called ‘Standard Operating Procedures’ (SOPs).
Procedures for placing orders for material and equipment, for sanctioning different types of employee leave, for handling grievances at the shop floor level, etc., to mention a few, suggest how each of these has to be handled. Policies and procedures are closely interrelated. For instance, a company may follow time-bound promotion policy to promote people from within. But the operational part of the policy is specified by the procedure – the formalities to be fulfilled to effect the promotion are dictated by the procedure.
Rules: A rule is also a plan, but the simplest type of plan. Rules are plans in that they suggest the required actions. A rule requires that a definite action has to be taken in a particular way with respect to a situation. Some definiteness is associated with rules. For examples, ‘no smoking’ is a rule. No deviation is normally allowed from the rule. The essence of a rule is that it reflects a managerial decision that certain actions be taken – or not be taken.
Rules should not be confused with policies and procedures. Policies contain some operational way or discretion while rules allow no discretion in their application. Similarly, procedures though different from rules may contain rules. For example, there may be a procedure to enable customer grievances in respect of post-sale service. The procedure may contain a rule that free service is available only for a period of two years after the sale.

Programmes: Terry and Franklin define programme as “a comprehensive plan that includes future use of different resources in an integrated pattern and establishes a sequence of required actions and time schedules for each in order to achieve stated objectives”. Thus, a programme includes objectives, policies, procedures, methods, standards and budgets. For instance, launching ‘Prithvi’ satellite is a programme ‘Jawahar Rojgar Yojana’ is a programme. The essential ingredients of any programme are ‘time phasing’ and budgeting. It implies that specific dates are prescribed for the completion of various phases of a programme. Adequate budgetary provisions are made for financing the programme. Programmes may be major or minor. For instance, a company may embark upon modernization programme of the plant and machinery and other manufacturing systems in a big way. By all means such an effort is a major programme. Similarly a large organisation may start computerizing all its activities. On the other hand, modernization of small equipment in some section of the factory and computerization of a particular operation in a certain department may be considered as minor programmes.
Budgets: Budgets are plans in that they contain statements of expected results in numerical terms. A budget is a quantitative expression of a plan. It specifies the future course of action as laid down by a plan. In fact, budgeting is a planning device. It is the fundamental planning instrument in many companies. Organisational budgets vary in scope. Master budget which contains the consolidated plan of action of the whole enterprise is in a way the translated version of the overall business plan of the enterprise. Similarly, production budget represents the plan of the production department. Again, capital expenditure budget, raw material budget, labour budget, etc. are a few minor budgets in the production department.
One of the advantages of budgets is they facilitate the comparison of actual results with the planned ones by providing yardsticks for measuring performance. Zero-based budgeting, a recent innovation in budgeting practices makes planning more complete. It emphasizes the need to examine every commitment afresh in terms of decision packages.
4. Revision points
Strategic Planning
• Anticipates future opportunities and threats
• Provides clarity of purpose and direction.
Operational Planning
Types of Plans
• Missions or purpose
• Policies
• Rules
• Programmes
• Budgets
5. Intext questions:
 How does this problem relate to modern management planning?
 Develop a set of tactical plans for the Fairdeal Company.
 What solutions do you offer to overcome the present implies?
6. Summary
Any plan is a future course of action. It facilitates the achievement of goals. Different types of plans are formulated in any organisation. Though all the plans, by whatever name they are called, involve a future course of action, they differ in respect of the length of time, relative importance and the level at which they are more relevant. Strategic plans provide the direction to the organisation and concerned with the achievement of organisational mission where as operational plans are concerned with the day-to-day managerial activities. The various types of plans namely, policies, procedures, rules, pogrammes and budgets plans are also discussed.
7. Terminal exercises
 How does this problem relate to modern management planning?
 Develop a set of tactical plans for the Fairdeal Company.
 What solutions do you offer to overcome the present implies?
8. Supplementary material
 Briefly describe the following types of management plans :
 a. Policies b. Procedures c. Programmes and d. Budget
 Discuss elaborately various types of plans.
 Distinguish between strategic planning and operational planning.
9. Assignment s
 Present the business strategy of any organisation that you are familiar with. Could you offer a better strategy?
 “The importance of strategic planning is now fully realized by the Indian Corporate sector than before”. Discuss.
10. Suggested readings:
 Chopra, BSKS. 1988 Business policy for Indian Industries Times Research Foundations, Pune.
 Gleuck, William F. 1980 Business policy and strategic Management Mc. Graw- Hill New York.
 Koontz, Harold and others, 1984 Management McGraw-Hill, Tokyo.
 McCathay, Danil J, and others 1987 Business policy and strategy : concepts and readings, Richard D. Irwin Inc. Ithinosis.
11. Learning activities:
The importance of strategic planning is now fully realized by the Indian Corporate sector than before”. Discuss.
12. Key words:
Budgets: Budgets are plans in that they contain statements of expected results in numerical terms.



Chapter – 4 : organizational Theory
1. Introduction :
Organisations are made up of people. When people work together in groups to achieve the goals, everyone in the group must know what he is expected to do, with what resources and what reporting relationship he has with others. Otherwise, activities of the people will tend to be directed in different ways resulting in the wastage of scarce resources. The managerial function of ‘organizing’ aims at designing a structure where everyone knows who is to do what and who is responsible for what results. It helps in removing confusion and uncertainty by providing for adequate coordination between groups of people working in various departments or divisions.
Koontz and O’Donnell define organizing as “the grouping of activities necessary to attain objectives, the assignment of each grouping manager with authority necessary to supervise it, and the provision for coordination horizontally and vertically in the enterprise structure”. Thus organizing is the process of creating a structure for the organisation that will enable its people to work together effectively towards its objectives. However, the structure of the organisation has undergone considerable changes over the years in response to changes in the environment. Let us examine, in brief, the various approaches or theories of organizations.
2. Objectives
After studying this lesson, you should be able to:
• Appraise the different approaches to the study of organizations;
• Distinguish between formal and informal organisation; and
• Acquire a correct perspective of ‘organizing’ as a managerial function.
3. Content
Organisational Theories
There are three approaches to understand the organisational theory: Classical, Neoclassical and Modern. The assumptions about human beings and other variables that affect the organisational functioning vary from one approach to the other.
As discussed in lesson 2, the early management thinkers viewed the organisation as a machine and human beings as different parts of that machine. Organisation was viewed as a closed system. The influence of the external environment was ignored. The emphasis was more on increasing the output, and human element in the process received scant attention. Further, early writers concern was mostly to find the ‘one best way’ to design the organisation which would suit all the situations.
Division of labour, scalar principle and span of control are the important principles on which enterprise activities were organized. Members of the organisation were guided by a sense of duty to the organisation and by a set of rules and regulations. Mason Haire has identified the chief characteristics of classical organisation theory as follows:
• Human beings were assumed to be relatively homogeneous and un modifiable;
• Organization was perceived as a closed system with little interaction with the external environment;
• The emphasis was on detection of errors and their correction after they have happened;
• Authority was centralized and the integration of the system was achieved through exercise of authority and implementation of rules and regulations;
• Stability was the central theme in designing the structure.
Classical organisation theory, is thus, based on the contributions of scientific management by Taylor and others, administrative management by Fayol and bureaucratic system by Max Weber.
Appraisal of Classical Theory
March and Simon, Katz and Khan, Victor Thompson and a host of other writers have found the classical organisation theory inadequate in dealing with the complexities of modern organizations. The salient features of the classical theory may be summarised as follows:
I. Mechanistic Structure
Organisations have been treated as closed systems with no environment and hence no interaction with outside world. Classical thinkers assumed two things-there is no impact of the environment on the organisation and human beings are inert elements who can be manipulated. Once the structure is created, it was assumed that it would run smoothly with the rules and regulations.

ii. Organisation as a Static Concept
Classicists held the view that an organisation is a static concept. Once the structure is created, it will work for ever. The need for change or structural adjustment was not given due consideration. The emphasis was more on stability in operations.
iii. Excessive reliance on Principles
Principles like division of work, scalar chain, structural arrangement, order, and span of control were taken as articles of faith. Too much reliance was placed on these classical management principles. Coordination by hierarchy, unity of command, line and staff relationships, discipline, unity of command-all resulted in the creation of command and control structure.
Classical organisation theory has been criticized by many authors on the following grounds:
• It neglects the human aspects of organisation members, assuming that they are motivated only by economic considerations. As educational levels, expectations and aspirations of people have been changing fast, this criticism has become more severe.
• It does not sult the rapidly changing environments of today. Structures designed to function effectively in static environments with an emphasis on stability hardly suit the changing requirements of modern business.
• It assumes that higher-level managers are respected by subordinates because of their knowledge and skills. These days’ young people at lower levels seem to be fully equipped with latest skills. At times they are found to be even outsmarting their superiors. As a result some emotional conflicts between superiors and subordinates have become quite common.
• As organisational procedures become more formalized and tasks more specialised, people tend to loose sight of the bigger picture. They develop a narrow perspective where they are obsessed with their own functional areas.
It should not, however, be construed, from the foregoing analysis, that the classical theory of organisation is completely irrelevant. The contributions of the early thinkers which ensured proper systems and order in the organisational functioning can not be undermined. Classical organisation theory has strengths as well as weaknesses. For example, classical structure provides much task support. At the same time it is weak in psychological support. What is needed is an organisational system that provides both task and psychological support.
Neoclassical Organisation Theory
The classical thinkers with their obsession with economic effectiveness neglected employee satisfaction. They failed to recognize the significance of the impact of human element. Neoclassical theory, on the otherhand, which revolves around the contributions of behavioural and social scientists, aims at complementing for some of the deficiencies in classical theory. The initial impetus