Chapter-1

THE NATURE OF ORGANIZATIONS

Concept of Organization
Organization is an association of two or more individuals working together co-ordinatingly
to achieve a common goal. In other word, an organization is a collection of people working
together in a division of labor to achieve a common purpose.
Conclusively, people form an organization on the basis of their common goals, to make
division of works on the basis of efficiency, to delegate the authority and responsibility,
to maintain communication among them and to coordinate the activities among all the
members.
“Organization is a systematic arrangement of people brought together to accomplish
some specific purpose.” _ Decenzo and Robbins
Characteristics of Organization
1. Collection of people: The concept of organization comes into existence when to more
people come together to accomplish a definite goal. Therefore, organization is a human
association in which, people interact with each other to produce a synergic effect and
develop a network to communicate information and to maintain unity in work.
2. Common goal: The basis of an organization is a specific goal and it serves as a reason of
its existence. All the activities of involved members, concentrate on the fulfillment of
common goal.
3. Division of work: The total work is a divided into small units on the basis of their nature
in an organization. Each work is assigned to different individuals according to their skills,
abilities and experiences.
4. Coordination: Coordination is the process that integrates the function of different units
of an organization; there should be good coordination among the departments and
members through executive leadership.
5. Hierarchy of authority: Organization consists of a formal structure in which hierarchy of
authority of each member is clearly defined. The hierarchy of authority is formed on the
basis of degree of responsibility and accountability. It clarifies the role of each individual
from top to the subordinate levels.
6. Perpetual existence: An organization is formed for an indefinite period to perform
business for a long period of time. An organization continues its existence and operation
even while changing in structure, membership, objectives and management.
7. Environment: An organization performs activities in a dynamic environment. It consumes
resources from environment and also exports output to it. Basically, impact of external
 environment like political, economic, socio-cultural and technology must be taken into
consideration.
8. Technology: Technology refers to new knowledge, skills, ideas, procedures, equipment
and tools. It is essential to convert raw materials into finished products. The use of
appropriate technology in a job helps to develop working efficiency and also help to
minimize the cost of output.
Organizational Goals
Concept
Goals are objectives or aims for which an organization is formed. And setting goals of an
organization is the initial function of management. Goals, in fact, are what organizations
want to achieve in future. They are the objectives toward which organizations direct their
resources and efforts Goal gives meaning and purpose of the organization. They, on the
one hand, determine the scope of future activities and serve as reference points to
concentrate resources and efforts, on the other they determine the action to be taken at
present to obtain result in the future.
“Organizational goals are the objectives that management seeks to achieve in pursuing
the firm’s purpose.”--- Moorhead and Griffin
Purposes of Organizational Goals
1. To provide guidance and unified direction: Goals are the basis of future performance of
organizations. By considering the goals managers of organizations provide guidance and
unified direction to their members. Therefore, goals help every member of an
organization to understand where the organization is heading for.
2. To promote good planning: Goals are the basis of planning, and a good planning focuses
on goals. Managers formulate corporate, tactical and operational plans only by
considering organizational goals. Organizational resources are allocated on the basis of
goals, because the goals also facilitate in decision making.
3. To serve as a source of motivation: Specific, realistic and challenging goals serve as a
source of motivation to employees. Such goals are the basis of motivation for efficient,
skilled and hardworking employees. Likewise, goals motivate employees to devote their
time efficiently.
4. To provide effective mechanism for evaluation and control: Goals provide an effective
mechanism for evaluation and control of performance. They help to set a standard of
performance of an organization. When standard goals are achieved, it is assumed that
performance is efficient. But if actual performance is below standard, it is essential to
corrective measures to improve future performance.
5. To provide distinct image and identity: Sound and realistic goals provide a distinct image
and identity of an organization among the public. These distinctive image and identity
facilitate to attract efficient and competent employees in the organization. Further, the
involvement of skilled employees helps to maximize productivity and to improve quality
of goods and services.
6. To allocate and utilize resources properly : Goals help to develop good plan, and good
plan in turn, helps allocate and utilize available resources. In that sense, goals serve as
guidance for the optimum utilization of resources. However, proper allocation of
resources ( such as human, physical, financial and information) depend on management
skills and knowledge of managers. If the goals are clearly stated the wastage and misuse
of resources can be minimized.
Types of Organizational Goals
A. On the Basis of Levels of Management

a. Corporate goal: Corporate goals are formulated by top level management. These goals
focus on the realization of the dream of the top level management. These goals reflect
the direction in which an organization has to go and the roles each business unit in the
organization has to play pursuing that direction. Corporate goals consist of vision, mission
and strategic goals.
 Vision
Vision refers to the long term aspiration of management. A clear vision provides the
foundation for developing comprehensive mission statement and it visualizes the
company’s future strategy course. Vision answers the question “Where we want to be?”
 Mission
Mission focuses on the vision of the organization. It also represents the philosophy and
ideology of the organization. It is the statement of its fundamental unique purpose for
setting a business apart from other similar firms, and for identifying the unique scope of
the business operation in product and market terms. Mission forces managers to identify
carefully for the scope of its product or service by answering the basis question of what
its business is.
 Strategic goals
Strategic goals are developed on the basis of mission focus on long term objectives of an
organization. These strategic goals entail all the basic management functions by setting
goals to excel the management of an organization. Generally, strategic goals are set for
five to ten years. The examples of such goals are: profit maximization, quality
improvement, new product development, allocation of resources, research and
development etc.
b. Tactical goal
Tactical goals are developed on the basis of strategic goals. Middle level management sets
these goals for one or more years by focusing on how to take the necessary actions to
achieve the strategic goals. In these stage, strategic goals are classified into departmental
goals like production, marketing finance, personnel etc.

c. Operational goal
Operational goals are developed on the basis of tactical goals. Lower level management
consisting of supervisors and foreman are responsible setting these goals. These goals are
basically set for day to day operations of an organization. In this stage, tactical goals are
classified into small units to be achieved in a short span of time like in a day or a week.

B. On the Basis of Nature of Business and Environment

a. Survival goal
This goal is related to the existence of the organization. It focuses on minimum
requirements of an organization to ensure its survival. When organizations face the
problems like competition, global financial crises, shortage of funds, then it may be
necessary for the organization to find new for survival.
b. Growth and profit goal
Most of the organization follow growth and profit goal. When an organization seeks to
increase profit, it may become profit goal for that organization. Growth goal, on the other
hand, mainly emphasize to increase sales and market share all the time.
c. Efficiency and leadership goal
Efficiency goal focuses on the minimization of the operation cost but maximization of
productivity whereas leadership goal, on the other hand, refers to creating image and
leading the industry. Organizations that focus on leadership goal put emphasis on
innovation and quality improvements. They try to create distinct image in the industry
sector.
d. Service and social responsibility goal
Service goal refers to putting effort to make customer satisfied by providing quality
service. Social responsibility goal, on the other hand, puts emphasis on the highest degree
 of social responsibility. This goal refers to meeting the need of stakeholders including the
interest of business itself.

C. On the Basis of Area

a. Production goal
Production goal is necessary for manufacturing organizations. This goal focuses on
production of quality goods in reasonable price at the right time. This goal is essential to
fulfill the market demand and to meet organizational goal.

b. Marketing goal
Marketing goal focuses on fulfilling marketing mix; and the marketing mix consists of
product, place, price and promotion. Therefore, marketing goal consist of distribution of
quality product to needy customers at the lowest possible price, involving for the
development promotion strategy to increase market shares through competitive
strength.
c. Finance goal
Financial goal focuses on monetary management of the organization. And, the monetary
management consists of preparation of budget; cash flow trend, position of working
capital, cost of capital etc.
d. Human resource goal
This goal concentrates on recruitment, appointment and placement of right persons to
the right jobs. It involves manpower development activities like training, workshop,
seminar etc.

D. On the Basis of Time

a. Long - term goal
Organizational mission and strategy are long term goals of an organization. Mission
focuses on the vision of the organization by representing its philosophy and ideology.
Long term goals often extend for ten years or longer.
b. Medium -term goal
Tactical goals are medium term goals of an organization. Middle level management sets
these goals for one to five years. These are the sub-division of long term goals to be
implemented in practice. In this stage, strategic goals are classified into departmental
goals production, marketing, finance personnel etc.
c. Short-term goal
Operational goals are short term goals of an organization. These goals are developed on
the basis of medium term goals. These goals are basically set for day to day operations of
the organization or for one year or less.
 Features of Effective Organizational Goals

1. Specific: An organizational goal must be clearly defined and achievable through

organizational resources. It should not to be vague. For this, goals of each department
and individual should be clearly stated. For instance, only increase in production is not
specific, but 20% increase in production from the previous year is specific.
2. Measurable: The goal of an organization should be measurable in terms of quantity, cost,
time and quality. It also helps to judge whether goals are achieved or not. For example,
production of 100 units of output within one week at a cost of Rs.50 per unit, and quality
should meet the N.S.(Nepal Standard) mark.
3. Acceptable: the goal should be acceptable and agreed upon by all members of the
organization. Managers and subordinates should sit together and discuss the various
aspects of the goals and should accept the result through mutual agreement. The goals
should not be enforced upon the employees. To achieve the goals, all the members should
work as a team.
4. Realistic: The goals must be achieved by the hard works of members, though they are
challenging. Therefore, the management must set a realistic and challenging goal. For
instance, increment of 100% sale may not be achievable but increment of 20% sale may
be achievable.
5. Time-bound: The goals must be set for specific period of time. It should achievable within
a defined time frame. It is essential because achievement of goals after the expiry of the
defined time may be useless. If is delayed, competitors may take benefit. For instance,
production of 100 units of output per day is a time-bound goal.
6. Engaging: It means organizational goals should be attractive and appealing to its member.
Such engagement of people is possible only when concerned people participate in goal
setting process. When goal setting is discussed with employees, they are more confident
and supportive about themselves.
7. Shifting: During the course of organization life, the most consistent thing only
organization will experience is change. It means the goal will shift or change over the
course of time. The organization need to be flexible while they pursue their goals. In this
rapidly changing environment organization that stick to the same goals for years can’t
successfully achieve them.
8. Team effort: People generally don’t follow agreement thoroughly that were set with
others. However, a team effort members will be more sensitive to continuing their goals
because they will report their success and failure to their managers and supervisor. Team
effort binds people together and puts emphasis to accomplish goal successfully.
 Goal Formulation Process

1. Environmental scanning: Environmental scanning is the initial stage of the goal formation
process. It is the process of accumulating and analyzing information from the
environment. Basically, both internal and external environments are to be scanned to
analyze their impact on organizational performance. SWOT analysis- the study of
Strength, Weakness, Opportunities, and Threats- is helpful for environmental scanning.
Strength and weakness are the outcome of internal environments and opportunities and
threats are the outcome external environment. Internal environment involves
organizational goal, culture, resource and structure; whereas external environment are
political, economic and socio-cultural environment and technology.
2. Formation of overall goal: This is the second stage of goal formation process. In this stage,
mission and strategic goals of an organization are defined. The top level management
involves in setting the overall goals of an organization. For the overall goal formation,
information from the environment should be collected and analyzed. It is a long term goal
and directed by environmental trend and focuses on profit goal of the organization. In
this stage, the management must fix the financial goal, product-market mix goal, and
functional goal.
3. Formation of specific goal: This is the final stage of the goal formation process and
involves sub-divisions of the overall goals of the organization. In this stage, contribution
of each department, unit, branch and individual is defined to fulfill the overall goals of the
organization. It is the short term goal and set for a day, a week, a month and so on. Middle
and lower level management formulates it for them.

Approaches to Goal Formulation

1. Top-down approach: This is the traditional approach of the goal setting process. In this
approach, top level management sets strategic, tactical and operational goals of the
organization. In this approach the top level managers do not take any suggestion and
feedback from middle and first line managers while setting goals. They believe that they
know what is best because they can only see the big picture of the goal of the
organization. The top level authorities may take suggestions and technical guidance from
experts and professionals but they take the final decision themselves. They also formulate
goals of the organization and circulate to subordinates for implementation.
2. Bottom-up approach: In this approach, middle and first line managers are given authority
to set their own departmental and unit goals within the given framework. On the basis of
the framework of corporate and strategic goal, middle and first line mangers set their unit
and individual goals. In this approach the top- level managers integrate and unify the unit
 goals in consultation with and consent of subordinates playing the role of facilitators and
never interrupt in the goal setting process. However, top- level managers may modify the
unit and individual goals but only with the consent of subordinates.
3. Management by objective (MBO) approach: Management by objective is a
comprehensive technique applied for goal setting. Peter F. Drucker propounded this
approach in 1954. In this approach, both top and operational level managers of an
organization jointly identify the common goal; define each individual’s major areas of
responsibility in terms of the results expected from them. MBO process involves four
steps consisting of collaborative goal setting, action plan development, periodic review of
performance and performance appraisal.

Goal Succession
Concept
Goal succession is the act of intentional review and modification of existing goals. It is
essential when existing corporate goal has been achieved or cannot be achieved in the
exiting form due to environmental influence. In course of functioning due to
environmental influence, it is necessary to modify the existing goals according to the time
and situation to achieve the corporate goals. It is also the part of goal succession.
When the organization faces keen competition, declining sales, scarcity of funds and
other environmental challenges, it needs to identify new goals for survival and perpetual
existence of organization. For instance, in Nepal, during the political crises between,
between 2055 to 2063, hotels and resorts modified their profit goals to survival goals.
Reasons for Goal Succession
1. Achievement of original goal: When original goal is achieved in a given period of time, it
is essential to set a new goal, because it is a part of goal succession. For instance, a cement
manufacturing company sets a goal to produce 1000 tons of cement in a process within
six month and after achievement of this goal within the time it has to set anew goal for
the next period.
2. Non- achievement of original goal: The non-achievement of original goal needs goal
succession. When original goal cannot be achieved even by the hard work of
management, it needs to review and modify the existing goal for perpetual existence of
the organization. For instance, a business organization sets a profit goal for a fiscal year,
but after some interval it is found that the stated profit cannot be achieved; and
therefore, it sets a survival goal for that fiscal year.
3. Change in environment: Environment is dynamic and regularly influences organizational
functioning. It is more difficult to forecast and predict environmental changes, basically,
of external environment. Therefore, every organization needs to modify its original goal
in accordance with the environmental changes.
4. Organizational priority shifting: Goal succession is the outcome of shift in organizational
needs and priorities. Although there may be many objectives that an organization has to
achieve, it becomes impossible to achieve more objectives at a time by mobilizing scarce
resources. Therefore, an organization may modify its original goal on the basis of its
available resources and priority.

Goal Displacement
Concept
Goal displacement is the act of unintentional change in the original goal into a new goal.
In this situation, original corporate, strategic and operational goals are discarded and new
goals are set for the survival of the organization. In goal displacement, existing resources
are diverted from original goal to achieve new goal. For instance, many cinema halls in
Nepal have been converted into party palaces and go-downs due to lack of audiences as
movies are nowadays easily available through cable TV and in compact discs. In fact, in
goal displacement, the organization involves in various activities such as:
 Substitutes its official strategic goals for some other goals,
 Pursues a goal for which it was not established,
 Pursues a goal for which resources were not allocated to it,
 Seeks a goal which is not known to serve.

Reasons for Goal Displacement

1. Excessive delegation of authority : Excessive delegation of authority to the subordinates
may result in distortion of the original goal. Generally, the mangers delegates authority
and responsibility to subordinates, but maintains proper supervision and control over
their activities. But excessive delegation of authority and responsibility to subordinates
without a proper controlling system may not meet the objectives of delegation and
results in goal displacement.
2. Subordination of organizational goal: It is an acceptable principle that top priority must
be given to the organizational goals. However, if employees give more priority to their
individual goals by subordinating organizational goals, it results in goal displacement.
3. Employees’ attitude: The management sets organizational goal and circulates them to
the employees for their implementation. If employees have a positive attitude towards
the organizational goals they can be achieved in an effective way. However, if employees
and their unions have a negative attitude towards management decisions, they do not
perform effectively, which may result in goal displacement.
4. Vague goal: An abstract and vague goal cannot be achieved. Generally, a goal must be
specific and achievable within the defined time. However, if a goal is unclear, members
of the organization cannot achieve with limited resources. In such a case, the
management needs to displace the original goal.
5. Bureaucratic difficulties: The management develops rules, policies and procedures to
perform organizational functions in a systematic way. However, it is essential to modify
and amend such a system remains rigid and static, it may create difficulties to perform
jobs effectively. Such difficulties arises in bureaucratic type of organizations.

Problems of Goal Formulation

The basis function of the top level management is goal setting. In setting goals,
management faces many obstacles. Managers must understand the obstacles that can
hamper the goal setting process. Rocky W. Griffin(2000)has identified the following six
major barriers in goal setting.
1. Inappropriate goal: An unattainable goal is known as inappropriate goal. Organizational
goals become inappropriate when the management lays more emphasis either on
quantitative or qualitative measures. For instance, goals, especially those relating to
financial areas, are quantifiable, objective and verifiable, while goal relating to
employees’ satisfaction and development are difficult to quantify. Similarly, putting too
much emphasis on one type of goal to the exclusion of the other may create difficulties
in the overall goal formation process of the organization.
2. Improper reward system: An improper reward system such as a major barrier to goal
setting. In an 0organization there must be a balance in reward and goal setting efficiency
of the employees. Because, the appropriate reward system encourages employees to
devote their effort in the goal setting process. But if the management rewards employees
for setting poor goal and does not reward or even penalizes them for setting proper goals,
the employees get frustrated.
3. Dynamic and complex environment: The environmental change may create difficulty in
goal formulation. The rapid technological innovation and keen competition can increase
the difficulties of an organization to set goals. At present, it is difficult to assess accurately
the future environmental opportunities and threats in goal achievement. Therefore, it is
essential to amend organizational goals on the basis of environmental influence.
4. Reluctance to set goals: Some managers are reluctant to set goals for themselves and
their subordinates may create barriers in the overall goal setting of the organization. If
mangers set goals that are specific, concise, and time-bound, then the achievement of
the goals is obvious. Mangers who consciously or unconsciously try to avoid this degree
of accountability are likely to hinder an organization’s goal setting. However, the reason
for this reluctance may be lack of confidence or fear of failure.
5. Resistance to change: The resistance to change is another barrier for goal setting.
Generally, people tend to resist change because of lack of confidence and conservative
attitude. Members of an organization may fear losing their job due to change in goals. It
happens due to lack of proper communication about the outcome of the goal change.
6. Resource constraints: Lack of sufficient resources may also create a barrier in goal
formulation of the organization. Strong competition, time limit and government
restrictions are common constraints in the goal setting process. Therefore, the
management needs to consider available organizational resources in goal setting.
Changing Perspective on Organizations

1. Open system: Traditionally, organizations were viewed as a close system where they
didn’t consider social needs and expectation. In close system there is no interaction with
the environment and organizations performing their business in this system are treated
as machines.
In an open system, there is regular interaction with the environment. The development
of competition, technological change, change in government rules and regulations and
change in social expectation creates challenges to the organizations.
2. Organizations as culture: Culture is the sum- total of values, norms, tradition, beliefs and
assumption of an organization. These are the basis of organizational functioning. If any
dispute and misunderstanding arises among members or between the management and
the employees, organizational culture is taken as the basis to resolve such disputes. An
organization having good culture can maintain social prestige and status. Therefore, to
strengthen its existence every organization needs to develop a sound culture.
3. Globalization: The concept of globalization has been emerging today in business
organization. Any quality product and service produced in one corner of any country can
easily reach all parts of the world without any restriction and barrier. Especially,
multinational companies are global players in business not only to survive but also to
prosper. For instance, Coca-Cola, a USA based soft drink, gains about 80% of its profit
from foreign sales in nearly 200 countries.
The globalization brings the concept of keen competition among the entrepreneurs of the
world. Therefore, present managers have to work by considering the global prospective.
 Being innovative and adjustable to the changing environment of the business, they have
to work with new situations, culture, people and also new parts of the world.
4. Learning system: It is fact that knowledge is power and present society is based on
knowledge. In this competitive environment, customers expect new ideas, new things and
creativity in product and service from any organization.
Knowledge is not only confined to or acquired by managers; however, it can be learned
from subordinates through interactions. Every employee involved in an organization may
have specific or new knowledge in certain areas of management. Therefore, the most
important job of present day managers is to manage knowledge of subordinates on the
basis of requirement from outside sources to fulfill social expectation and to maintain the
standard of the organization.
5. Temporary employment: The concept of employees’ appointment on temporary basis,
on contract basis or on daily wage system has been evolved in many organizations. Slowly
the concept of permanent employment is being terminated due to priority to work rather
than job security and flexibility of work schedule. On the basis of requirement, the
tendency of outsourcing and sub-contracting for some minor jobs has emerged in many
organizations.
6. Workforce diversity: Workforce diversity is concerned with involvement of
heterogeneous nature of employees in an organization. Such diversity is increasing in
organizations today because of changing population dimensions, to improve workforce,
official pressure and increased globalization. Among, the several dimensions of diversity,
the important ones are age, gender, and ethnicity.
An efficient manager has to manage diverse workforce both from the individual and
organizational approaches. The first approach involves development of better
environment like understanding, empathy, tolerance, and willingness to communicate,
the latter approach involves development of policies, practices, training, and good
culture.
7. Team empowerment: Teams are formed today to formed a variety of jobs on the basis
of requirement in the organization. The members of the team are experts in their own
area of operation. The team members, thus, are the in-charge of their work and can
perform their work themselves according to their own logic and knowledge. And the
managers only communicate information and play the role of coordinators.
8. Work time flexibility: Work time flexibility is the emerging practice in competitive
business organizations. It is contrast with traditional organizations, like in government
offices, where working time for employees is fixed. In such organizations, workers work
only for a fixed time specified by the management like from 10 AM to 5 PM. However, in
competitive business organizations, the concept of twenty-four-hour operation has been
evolved. For this, the total working hours are divided into shifts and workers are allowed
to choose their shift according to their convenience.
9. Participative culture: The practice of participation of employees in planning and decision
making has been emerged in modern organizations. In this practice the top-level
management collects opinions, views and suggestions from subordinates before setting
goals and taking any decision on its implementation. Basically, the concept of
management by objective is implemented in practice, where all the members participate
in the decision making.
10.Technological development: Technological development is ever growing and an
emerging perspective in every organization. It emerges in every sector of social activity
including transportation, communication, computer software, data processing works,
machine and equipment etc. Such technological development tends to increase the
aspirations and expectations of customers, investors, competitors, employees and other
stakeholders of the organization.
It is the responsibility of managers to keep in touch with any technological change in their
own sector of business and grasp the opportunity to make business a success. They have
to modify products and services on the basis of changing needs of the customers.
Similarly, quality goods and services must be provided to the customers on the right time,
cost and place through the use of modern technology.
CHAPTER-2 INTRODUCTION TO MANAGEMENT
Concept and Definition of Management
Management is the process of getting things done through others with the help of some
basic activities like planning, organizing, directing, coordinating and controlling.
Management is the set of activities (including planning , organizing, leading and
controlling) directed at an organization’s resource (human, financial, physical and
information) with the aim of achieving organizational goal in an efficient and effective
manner.
BASIC RESOURCES FUNDAMENTAL FUNCTIONS STATED OBJECTIVES
The 6Ms Process of management End results
PLANNING DIRECTING
Men and women

Materials

Machines

Methods Goals
Money
Market
ORGANIZING
CONTROLLING

FIG: Management System

Source: Terry Franklin 2003, Principles of management
In conclusion, management is the process by which managers direct and control other
people to concentrate and balance their efforts for efficiently accomplishing
predetermined goals within the prevailing environment.
Characteristics of Management
1. Goal oriented: Every organization is established for a specific objective.
management, under organization, is an instrument or system that contributes for
the efficient use of human and other resources to achieve predetermined
 objectives. And the main objective of management is to maximize productivity with
optimum use of human effort.
2. Universal activity: Management is essential where there is human activity. It is also
necessary in all types of organizations. The process of management may be different
from organization to organization and place to place but the basic principles of
management are the same.
3. Social process: Management is a part of social process to achieve the objectives by,
with, and through the people. It utilizes human resources for the achievement of
organizational goals. Management has to consider not only the organizational
objectives but also the social objectives. It has to fulfill the needs of employees
within the organizational resources.
4. Dynamic/modifiable activity: Management is the dynamic and continuous process.
The management system of today may not be applicable or effective for tomorrow;
therefore, management must be dynamic and flexible with the changing
environment of the society. And it has to modify its style according to the time and
situation to adjust the changing environment of a business.
5. Group activity: The concept of management is not applicable if there is only one
person or proprietor. It requires a team, class or section of people involved in
various managerial functions. It is essential to have a group of people involved in
performing any activity to achieve common goals.
6. Distinct process: Management is a process involves various types of functions. One
function of management is interrelated with another function. The management
clearly defines the specific process of work to achieve a predetermined goal without
considering any trial and error approach.
7. Both science and art: It is experimentally proved that science is a systematized body
of knowledge, principle or truth. Similarly, art is the personal skill and ability to
apply the scientific principles.
8. A profession: Profession involves the specific type of work, followed by special
knowledge and education. With the development of joint stock companies and
multinational companies the ownership and management has been different.
Management of huge organizations has been entrusted in the hands of
professionals having specific skill and knowledge.
9. Multi- disciplinary in nature: Management is multi- disciplinary in nature. So, many
of the principles and techniques used in management are borrowed from a number
of other disciplines like psychology, sociology, economics, and mathematics.
Principles of Management
1. Division of work: This principle is similar to the famous economist, Adam Smith’s
principle of division of labor. According to the principle, every employee is an
organization must be assigned only a specific type of work to increase efficiency.
The development of specialization ensures simplicity and accuracy in
performance.
2. Authority and responsibility: Authority and responsibility are two interrelated
terms in management. While authority is the power and right inherent in a
managerial position through the manager commands subordinates, similarly
responsibility is the obligation to be fulfilled by the subordinates. This principle
emphasizes on the balance between authority and responsibility. Authority
without responsibility can make a person irresponsible and there is possibility of
misuse of power. Similarly, responsibility without proper authority makes a
person ineffective.
3. Discipline: Discipline means obedience to superiors and their guidelines. It is also
concerned to follow the rules, regulations and procedures of an organization.
This principle is applicable to mangers and subordinates alike because all are
within the rules of organizations.
4. Unity of command: According to this principle every worker/ subordinates must
get orders and instructions only from one superior at a time. It means a
subordinate should be accountable to a single superior at a time. Further, this
principle is essential to fix the responsibility and avoid confusion.
5. Unity of direction: Unity of direction implies that there should be one head and
one plan for a group of activities having a common objective. There must be one
plan for common work and one in-charge to coordinate all the members of unit.
6. Subordination of individual interest to general interest: Individual interest
means fulfillment of employees’ objectives, while general interest means the
fulfillment of organizational objectives. This principle concentrates on the basic
management philosophy that individual objectives of employees are subordinate
to the common objectives because achievement of group objectives in the long
run helps to fulfill individual objectives. Hence, it is essential to reconcile
individual objectives with that of group objectives.
7. Remuneration of personnel: It is the reward paid to the employees for their
contribution. The remuneration should be acceptable both to the management
 and employees. Wages should be determined by considering both employees’
responsibilities, cost of living and financial condition of the organization. Basic
wage should be fixe; besides, there should be provision of monetary and non-
monetary incentives.
8. Centralization and decentralization: Centralization is the retention of decision
making authority at the top level management. On the other hand,
decentralization is the systematic division of decision making authority from top
to bottom in a hierarchy. Generally, in small organizations where the range of
activities is limited, centralization is preferred whereas in large organization
decentralization is preferred.
9. Scalar chain: The scalar chain refers to the unbroken line of authority from top to
bottom in hierarchy. This principle is important for systematic and orderly
communication of information in an organization. Information has to be
communicated through successive chain from top to bottom and vice versa.
According to Fayol, the scalar chain must be strictly followed, except in
emergencies.
10. Order: This principle is concerned with the systematic arrangement of materials
and people. Fayol has classified order into two types: material order and social
order. And placing machines and other physical things in proper place and
quantity is material order, and placing right person to the right job is called social
order. The material order emphasizes that all the physical resources necessary
for proper functioning must be available at the right place at the right time.
11. Equity: This principle is concerned with kindness and justice to all the employees
working in an organization. Being in the equity, management has to realize that
loyalty and devotion can extracted from the members only through kindness and
justice. Therefore, being concerned in it, management has to avoid the concept
of favoritism and partiality among the employees.
12. Stability of tenure: According to this principle, employees must have a feeling of
security of their job to continue the work efficiently. Instability of employees is
the cause of poor management whereas the stability of employees helps to
develop experience and efficiency.
13. Initiative: According to this principle, every employee should be given reliable
freedom to exercise judgement in formulation and execution of plans. Obviously,
employees do not expect any kind of interruption or guidance from superiors for
minor technical work; instead, they want to fulfill their responsibility in their own
 risk and knowledge. For instance, freedom provides a sense of self- motivation
among the employees making them more dedicated and loyal towards the
organization.
14. Esprit De Corps: Esprit De Corps is a proverb that means union is strength. It is
possible only through harmony and mutual understanding among the workers.
According to this principle, the manager has to take necessary steps to promote
team spirit and develop a feeling of harmony among each other. Managers have
to attain organizational objectives through group effort.

Process and Functions of Management

Managerial function includes all managerial activities from setting to
taking essential steps to ensure and achieve organizational objectives. These
functions are essential to create a better working environment to achieve
predetermined objectives. The major functions of management include:
1. Planning
Planning is the primary function of management. It involves selecting the
objectives, policies, procedures and program to achieve a desired result. It is
also the process of thinking before doing anything. Planning gives solution to
various problems, which may arise in course of functioning. It minimizes
future uncertainties and risk. It saves time, effort and cost of the
organizations. Planning includes:
 Setting organizational objectives.
 Forecasting the events.
 Formulating policies and procedures.
 Preparing work schedule and budget.
2. Organizing
Organizing is the process of identifying the major activities, grouping them
into jobs according to the nature and assigning the jobs to different
departments and individuals. It is concerned with developing the structure
and framework and arranging required resources to perform required
activities. Thus, it is the framework where all the mechanisms involved in
achieving common objective being clarified. The major activity of organizing
includes:
 Identifying major activities.
  Grouping them into their managerial units.
 Assigning jobs to different departments and employees.
 Delegating necessary authority to fulfill given responsibility.
 Coordination of these activities and authority relation throughout the
organization.
3. Staffing
Staffing is concerned with recruitment, selection, appointment and placement
of right person to the right job. Staffing is the life-blood of an enterprise
which mobilizes all other resources for the achievement of common goals.
Staffing is the continuous process for the continuous existence of an
organization. Staffing includes:
 Determining the total manpower requirement.
 Recruitment, selection and appointment of right person to the right
job.
 Organizing seminar, workshop and training to develop employees’ skill.
 Performance evaluation, promotion and transfer of employees.
 Remunerating employees according to their skill and ability.
4. Directing
Directing is a complex function that includes all those activities which are
designed to encourage a subordinate to work effectively and efficiently.it is
concerned with instructing, guiding and inspiring subordinates to achieve
organizational objectives. The direction function of management includes:
a. Supervision: Supervision refers to the direct and immediate actions to
the subordinates to ensure the execution of assigned works. The main
motive of supervision is to ensure optimum utilization of human and
physical resources so as to achieve organizational objectives.
b. Motivation: Motivation is a psychological and human aspect.it is the
process of stimulating subordinates to achieve predetermined goals. It
is based on need and human behavior. As a social being, workers want
fulfill their basic and social needs. They might be motivated both from
financial and non- financial incentives.
c. Leadership: Leadership is the art of influencing the behavior and
performance of the subordinates. It is the ability to persuade others to
make them work willingly to achieved desired goal. A person is said to
 be a leader when he is able to influence others and they accept his
guidance, suggestions and directions.
d. Communication: Communication is the process of transmitting ideas
and information from one person to another. It is exchange of facts,
opinion, ideas, and views among two or more persons. Effective
communication system among all the stakeholders of an organization is
essential for its successful operation. So, there must be an effective,
direct, and clear communication system to follow information on
various management levels.
e. Coordination: Coordination is the process of integrating all the units
and departments of an organization. It is the process of orderly
arrangement of group efforts to provide unity of action for the
attainment of common goals. Different department and people
perform different functions in an organization. Therefore, coordination
among all departments is necessary to bring uniformity in action to
achieve organizational goals.

5. Controlling
Controlling is the process of setting a standard, measuring performance,
comparing actual performance with that of planned performance and taking
corrective action. Taking corrective action is necessary if actual performance
is not in accordance with the planned performance. Controlling includes:
 Setting standards.
 Measuring actual performance.
 Identifying deviation, if any, between actual and planned performance.
 Taking corrective actions to achieve predetermined goals.
Managerial Hierarchy/ Levels of Management
The managerial hierarchy refers to the arrangement of managerial positions in
an organization. The common managerial hierarchies practiced in different organizations
are as follows:
 Top Level Management (Board of Directors, Chief Executives Officers)
 Middle Level Management (Department Heads)
 Lower Level Management (Supervisor, Foreman and Account-in-charge)
1. Top Level Management
This is the highest level of managerial hierarchy and is also known as the brain of
management. The top level management derives its power directly from the
owners of the enterprise. In corporate enterprise, top level management
constituted with a management committee elected directly from shareholders as
members of board of directors. Besides, this level also includes a chief executive
like a chairman, president, managing director or general manager. The basic
functions of top level management are:
 To define overall objectives of an organization.
 To set up organizational structure to complete the work in efficient and
systematic manner.
 To prepare strategic plans and policies of the organization.
 To direct, coordinate and lead all the subordinates.
 To appoint departmental managers and guide them to do their work.
 To exercise overall control of all members of the organization.
 To evaluate and review the performance of all departments and take
necessary steps to achieve organizational objectives.
 To represent the organization to the outside world.
2. Middle Level Management
Middle level management is the largest group of managers in most
organizations. It is known as backbone of an organization. This level of
management consists of departmental heads like human resource manager,
production manager, marketing manager, finance manager, procurement
manager and similar other positions. In some big organizations, this level of
management may have two layers- senior and junior middle level managements.
Head of the department come under the senior level whereas branch heads are
considered as under junior level management. The top level management
delegates a major part of its authority and responsibility to this level. This level
plays the role of mediator between top and first line management. The basic
functions of basic level management are:
 To play the role of mediator between top- level and first line management.
 To implement plans and policies laid down by the top level management.
 To prepare departmental plans and strategies on the basis of guidance and
information from top-level.
  To divide work among subordinates and maintain coordination among
them.
 To delegate authority and responsibility to the first line management.
 To make provisions of training, workshop, seminar and other activities.
 To submit progress reports and recommend valuable suggestion to the top
level management.

3. Lower Level Management

This level is known as first line or operating level of management. It is directly
involved in the actual operation of production, marketing, financing, accounting,
etc. this level consists of supervisors, foreman, sales officers, accounts officers,
superintendents, and other operational heads. The basic functions of first line
management are:
 To make day to day plans and to implement plans formulated by middle
level management.
 To assign responsibilities and duties to the employees.
 To provide necessary instructions and guidance to subordinates.
 To manage resources.
 To maintain close and harmonious relation among all the employees.
 To perform intermediary functions between middle level management
and operating level employees.
 To submit progress report to the middle level management.
 To operate and create better environment for work.
Types of Managers
Managers working in an organization may be classified into different groups. The
common classification of managers can be made on the basis of levels and the nature of
works.
On the Basis of Levels of Management
1. Top Level Managers
2. Middle Level Managers
3. Lower Level Managers
(*note-already defined in level of management)
On the Basis of Nature or Area of Managerial Job
1. Generalist manager: Managers who perform different types of jobs in an
organization as per the requirement are called generalist managers. They do not
specialize in any special area. But they have to look after the overall activities of the
organization apart from any particular area of operation. They have over workload,
as they have to perform diverse nature of jobs. Chief executive officers, president,
vice presidents, general managers or deputy general managers fall under this
category.
2. Functional managers: Managers who specialize in specific area are functional
managers. Their authorities, duties and responsibilities are already described in the
job description. In practice, all department heads of a business firm are functional
managers. In normal course of operation, they are accountable about the
performance to their own department and unit.
3. Staff managers: They are professional and experts in a specific area of business.
They are given no specific formal position in management level. However, they play
the role of advisors between generalist and functional managers. They provide
guidance and suggestion to both the above managers on the basis of requirement.
Legal advisors, external auditors, management consultants are examples of such
managers.
Managerial Skills
A skill is an ability to translate knowledge into action that result in desired
performance. Whether they are top level managers, middle level managers, or lower level
managers, working in the public or private sectors, all managers need specific skills to be
effective.
1. Technical skills: Technical skill is the ability to use specific knowledge and expertise
in order to deal with day to day problems or activities. This skill is highly necessary
for lower level managers as they are closest to day-to-day activities and problems.
The need and importance of technical skill usually diminishes with successive higher
levels.
2. Conceptual skills: Conceptual skills consist of ability to visualize or conceptualize the
whole organization by understanding internal as well as external realities. These
skills are more important to top level managers as they are required to fully
understand the organizational system, various subsystems and their
 interrelationship, and the external environmental factors that influence the
organization. The relevance of conceptual skill for lower level managers is
substantially low as they are mainly concerned with their own unit’s functions only.
3. Human skills: Human skill is the ability to work with other people in a cooperative
manner. It involves understanding patience, trust and genuine involvement in
interpersonal relationships. The human relations skill is essential at every level of
management as it is the reflection of a manager’s leadership abilities. Since the
lower level managers are required to handle relatively larger number of people at
the workplace, this skill is more important to them.
4. Diagnostic or analytical skills: This skill refers to a manager’s analytical ability where
a manager can logically and objectively investigate and analyze a problem or
opportunity. It is needed to understand a situation in a particular context and make
appropriate decisions. This skill is extremely significant to the performance of top
level managers.
5. Communication skills: Communication skill is the ability to properly transmit ideas,
information and understanding from one person to another. It is almost equally
important for managers for all levels. Proper communication eliminates delays,
misunderstanding, confusion, distortions and conflicts and improves coordination
and control.
6. Political skills: The word “politics” has a bad reputation in the workplace, with
connotations of manipulation and dark dealing.it actually means the ability to read
the situation well, understand others and develop and use networks effectively to
enhance one’s personal and organizational agendas. Higher level managers are
generally required to be more political to exert influence on their subordinates in
order to get things done.
7. Computer skills: Computer skills involve the conceptual understanding of computers
and, in particular, the ability to use the computer software to perform many aspects
of one’s job. Regardless the level of management and the type of organization, it is
quite important these days.
Managerial Roles
1. Interpersonal Roles
This role of managers relates to his contacts and dealings with other people.
Manager, in this role, tries to maintain an interpersonal relationship with employees
 and outsiders on behalf of the organization. The interpersonal role of a manager
includes:
a. Figurehead: Managers play this role when they perform duties that are
ceremonial and symbolic in nature. These include greeting the visitors,
distributing gifts, attending ceremonial functions etc.
b. Leader: Managers play this role when they perform official functions. And this
role is essential to maintain discipline and efficiency among the staff of the
organization. The leadership role involves directing, motivating, leading and
controlling to carry out operating activities as per the organizational plans.
c. Liaison: Managers play this role when they work as connecting link between
their organization and outside institution or people. This role of managers helps
to maintain social and business relation with outsiders. Through this role,
managers work as bridge between different units of the organization and
outsiders.
2. Informational Role
Information is the lifeblood of an organization; and communication of day-to-day
information is necessary in every organization. The role involves receiving, collecting
and disseminating information.
a. Monitor: This role involves receiving information about internal performance of
the organization and also external events. For this, a manager may appoint
manpower of different skills to examine the environment in order to gather
information about changes, opportunities and problems that may affect the
organization. The formal and informal contacts are useful for collecting
information.
b. Disseminator: This role involves transmitting relevant information to the
members of the organization. And, this information may relate to the internal
information and external environment.
c. Spokesperson: As a spokesperson, a manager formally relays information to
people outside the organization. Performing such a role, the managers act as an
agent of the organization. The manager explains the view point of enterprise on
significant matters or answers queries of the people.
3. Decisional Role
Decisional role involves making choices to solve organizational problems. Collecting
information and maintaining relationship with others serve as a basis for decision-
 making. The four important decisional roles are entrepreneur, disturbance handler,
resource allocator and negotiator.
a. Entrepreneur: This role involves initiating change or acting as a change agent and
taking risks for better performance. A manager develops new ideas and strategic
models for implementation. First line supervisors continuously look, for new
ideas or new methods to improve unit performance. For example, an effective
marketing mangers continually seeks new product ideas.
b. Disturbance handler: This role involves taking corrective action when the
organization faces unexpected disturbance like strike, feud between
subordinates etc. The immediate step is to respond quickly and bring
back/restore normality. As such, the managers have to handle a conflict tactfully.
c. Resource allocator: Resources include money, people, time and equipment. The
manager has to allocate the scarce resources in many departments and units
where they are most needed. Therefore, a manager has to decide exactly who
should get what.
d. Negotiator: A manager must bargain with other units and individuals to obtain
advantage for unit. The negotiations may concern work, performance, objectives,
resources or anything else influencing the units.
Emerging Challenges for Management
1. Globalization: The introduction of network in transportation, communication, and
economic interdependency has tied the people of the world together and causing
the global to shrink. Any quality product or service produced in one part of a
country can easily reach all parts of the world without any restriction or barriers.
Since globalization has brought the concept of keen competition among the
entrepreneurs of the world. Therefore, the present managers have to work hard be
considering the global prospective. For that, they must be innovative and adjustable
according to the changing environment.
2. Development of environmentalism: Environmental issues are major issues in
management these days. These issues involve deforestation, global warming and
depletion of the ozone layer, toxic waste and pollution of land, air and water.
The green movement has spread in Europe, North America and other parts of the
world to maintain the environmental ecology. Therefore, the present managers
have the challenge to develop creative ways to make profit without harming the
environment in the process of production.
3. Quality of productivity: The introduction of quality enhancement program provides,
broadly, three positive results to the management. Firstly, the number of defects
will be decreased causing low return of defects from customers. Secondly, when the
number of defects goes down, the involvement of resources to rework on the
defectives will decrease resulting in minimized wastage of resources. Thirdly, when
employees become responsible to maintain quality, it reduces the need of quality
inspectors as a result of which efficiency and effectiveness of the organization will
improve. The maximization of productivity ultimately minimizes per unit cost of
output.
4. Ethics and social responsibility: Ethics and social responsibility have become
growing concerns for managers today. Ethics is an individual ‘s personal beliefs
about what constitutes right and wrong. It is developed through family, experience,
personal values, and morals, and situational factors. The most vital ethical concern
of modern managers is to know how an organization treats its employees, how
employees treat the organization and also how an organization treats other
economic agents like customers, competitors, suppliers, union etc.
5. Workforce diversity: Workforce diversity is increasing in organizations today
because of changing population dimensions. There are several dimensions of
diversification; however, the important ones are age, gender, and ethnicity. From
one angle it can be the source of cost advantage, source of resource acquisition,
marketing, creativity, problem solving and system of flexibility. From another angle
it could be a source of conflict in an organization.
6. Innovation and change: Innovation of new knowledge to fulfill the expectations of
stakeholders is increasing today. It has become a fact of everyday life for everyone
in business operation. At present managing change is a critical challenge to the
managers. Change may occur in attitude and behavior pf stakeholders like
competitors, customers, employees, suppliers, and lenders. It is an important
responsibility of managers to handle such change in a scientific and practical way.
They have to improve quality of products and service to fulfill the changing need of
customers.
7. Empowerment of employees: Employees are the major element of the internal
environment of an organization. To maintain mutual relation between managers
and employees it is essential to delegate the decision making authority to
subordinate level employees, which is a challenging task. At present, employees
have become more powerful due to decentralized authority and labor unions
 affiliated to political parties, and this has been a serious problem for many
organizations.
8. Knowledge management: In this competitive, environment, knowledge has become
power. And the society expects new ideas, new things and creativity in product or
service from any organization. To fulfill such social expectations, the managers has
to accumulate knowledge and ideas from all members involved in the organization.
9. Technological management: Today, technological development is an ever growing
process. Technological development tends to increase the aspirations and
expectations of customers, investors, competitors, employees and other
stakeholders of an organization. The most important challenge of present- day
managers is to identify and predict the ever developing new technology. The
management of technology is newly emerged aspect in the field of management. It
is the responsibility of managers to keep pace with the changes in technology and
grab the opportunity to make business success.
10. Multi culture effects: Innovation of modern communication and transportation
system has tied the multi- cultured people together. They work together to meet
their common and professional objectives even if they have different traditions,
values, social attitudes, religious belief and living approach. The involvement of
cross- culture professionals in organizations is continuously increasing. Management
is effective only when it is able to maintain coordination among multi culture
professionals.
In the context of Nepal, political instability, powerful labor unions
affiliated with political parties, rising public expectations and lack of skilled
manpower due to brain drain are the major challenges for managers.
CHAPTER-3 MANAGEMENT : HISTORY AND CURRENT THINKING

Introduction
Management is as old as the human civilization. The concept of management
has been in practice since ancient times. At present management has become a
complex function, therefore, it attracts the attention of psychologists,
sociologist, anthropologists, political scientists, economists and so on.
The Classical Theory
It is initial stage of the development thought. It focuses on efficiency and
recommends that managers continuously try to increase the organizational
efficiency to increase production. The classical theory includes three different
approaches to management:
 Scientific management theory
 Administrative theory
 Bureaucratic theory
All the three theories were propounded on almost similar assumption and the
practical effort of them is basically the same. They were developed at almost the
same period of time and are compatible and complementary to each other.
Scientific Management Theory
The concept of scientific management is introduced to replace the
traditional method of management. It concerned with development and
application of scientific problem solving approach.
Therefore, scientific management involves studying each activity in
detail to ensure that all activities of the organization are performed in an
economic and effective manner.
Principles of Scientific Management Theory
Management principles are the statement of fundamental truth, which
provide guidance for managerial decision making and action. Principles are
derived through observation and analysis of events, which the manager has to
face in actual practice. As a guide to the practice of management, Taylor
developed the number of principles, which may be outlined as follows:
1. Development of a science for each element of an individual's work:
This principle suggests that the work assigned to each employee should
be observed and analyzed in order to replace the old rule of thumb
approach. Development of science for each element of individual's job
requires that decisions should be made on the basis of facts rather than
an opinions and beliefs.
2. Scientific selection, training and development of workers:
This principle suggests that workers should be selected and trained in
accordance with the requirements of the job to be entrusted to them.
The physical, mental and other requirements should be specified for
each job and workers should be selected and trained to make them fit
for the job. The management has to design systematic training to
improve their skills and efficiency making efforts to develop each
employee's greatest efficiency.
3. Close co- operation between management and workers:
Workers should understand that they cannot perform their work
without the existence of the management and the management
should understand that it has no identity without the existence of
labor. Maximum prosperity for both cannot achieved in the absence of
cooperation between management and workers.
4. Equal division of work and responsibility between management and
workers:
The task and related responsibility should be clearly divide among
management and workers. The management should decide the time
required for doing a particular work, while the responsibility for
actually doing the work should be given to workers. Thus planning
should be separated from doing.
5. Maximum output in place for restricted output:
This principle is necessary for the prosperity of workers, owners and
also to the society at large. Maximum production ensures more wages
to workers because of piece rate system of wages. It also ensures
maximum profit to owners because more volume of production
minimizes cost per unit of output. It is also helpful to society as it
upgrades the living standard of the people.
6. Mental Revolution:
The workers and management should have a complete change of
outlook, a mental revolution with respect to their mutual relations and
 in relation to the work efforts. Similarly, workers should attend to their
jobs with utmost devotion and be careful not to waste resources of the
organization. Instead of fighting for dividing the surplus, the
management should co- operate to increase it.
Contributions of Scientific Management
The following are the important contribution of scientific
management to the field of management:
i. It helps to increase production by using modern machines and tools,
by planning and controlling and by optimum use of resources.
ii. It seeks to minimize the cost of production, which enables business
firm to increase profit.
iii. It helps develop workers' efficiency by using improved machines and
tools.
iv. It brings changes in the attitude of employer and employees.
v. It emphasizes on training and development of workers, which helps
to increase output and reduces wastage of materials and time.
Limitations of Scientific Management
The following are the major limitations of scientific management:
i. It lays too much emphasis on technical aspects of the work by
ignoring human interest.
ii. Employees are forced to work on the same task time and again
leading to monotony. Workers have no life outside their work.
iii. In the name of increasing efficiency, workers are forced to speed up
the process beyond their capacity.
iv. Workers/laborers are not allowed to take initiative. Foreman issue
detailed set of instructions in respect of the job to be performed and
the method of performing it.
Bureaucratic Theory
Max Weber (1864-1920)
Max Weber, a German sociologist, developed a theory of bureaucracy.
Bureaucracy is a form of organization characterized by division of labor, a clearly
defined hierarchy, detailed rules and regulations and impersonal relations.
 Bureaucracy theory of Max Weber is most common in large organization
and government institutions. It is applicable in the organization where more
numbers of employees perform their activities to meet common goals. There
should be clear division of work, authority and responsibility and all the
employees should be responsible for the immediate superiors.
Principles/features of Bureaucracy Theory
1. Formal rules and procedures: In every organization, there must be system
and procedure for the completion of defined work. All the members of
the organization from top to subordinate level have to follow these rules
and procedures in every stage of their activities without breaching them.
2. Functional specialization: Work should be divided among the employees
on the basis of their functional specialization. In other words, the
placement of right person to the right job id the main theme of this
principle.
3. Well defined hierarchy of authority: It emphases scalar chain of authority
from top level to subordinate level. The well defined hierarchy of
authority from highest level to the lowest level is essential to maintain
unity in direction and in work.
4. Supervision by a higher authority: The higher level management
delegates authority and responsibility to the subordinate levels
essentially to solve the problems on the spot and complete the work in
definite time. Thus, from time to time, higher level authority has to
supervise the subordinates to know about their achievement and
problems.
5. Technical competent for employment and promotion: This is one of the
important features of bureaucracy theory. The recruitment, selection,
appointment and placement of employees are considered on the basis of
their technical competence. Similarly, for the promotion of employees,
efficiency, knowledge, skill and experience are taken into consideration.
6. All decision should be recorded: Different acts are passed and actions
are taken in various times. Those acts, actions and decisions should be
recorded in a separate for future reference.
7. Interpersonal relation: In organization, interpersonal relation among
employees should be maintained on the basis of rules and regulation.
Personal relation is not taken into account.
 Advantages of Bureaucratic Theory
1. Focus on chain of command: There should be hierarchy of authority
involving superior subordinate relationship and chain of command.
Every subordinate should be responsible only to his immediate superior
which facilitate to fix responsibility.
2. Proper division of work: This theory involves proper division of work on
the basis of nature. After such division each work should be entrusted to
the employees based on their competency and functional specialization.
3. Specific procedure: There should be a system of rules, regulation and
procedures. Ana all the members should consider the specified rules and
regulations of the organization.
4. Relationship based on position: A rule of law leads to impersonally in
interpersonal relations. Bureaucratic theory emphasizes interpersonal
relations in the organization are based on positions and not on
personalities. It helps to fix authority and responsibility.
5. Focus on technical competency: Work should be divided to the
employees on the basis of functional specialization. And incentives and
promotion of employees should be based on technical competence.
6. Job security: It emphasizes on job security of employees in the
organization. The practice of any time termination of employees from the
job must be avoided. It helps to develop dedication toward job loyalty
toward organization is developed among the employees.
Disadvantages of Bureaucratic Theory
1. Rigid rule and regulation: this theory emphasizes on specified rules,
regulation and procedures for completing any work. But, it becomes more
difficult to modify rules and regulations according to changing
environment of the society.
2. Ignores innovation: Creativity and innovation is essential for adaptation
according changing environment of business. The top level management
involves only in formulation and implementation of rules and regulations.
3. Lack of effective communication: The proper channel of communication
should be followed for transforming information within and outside the
organization. Since it needs more time and procedures for communicating
information, the prompt communication is not possible.
4. Problem of role conflict: In some situation, role conflict may arise among
employees due to outdated or unclear rules and regulation. Such
 misunderstanding among employees can generate obstruction in fixation
of responsibility and smoothness in performance.
5. Ignores informal relationship: It should not take into account the
informal relationships between individuals working in the organization.
Relationship among employees is maintained on the basis of designed
authority.
Human Relation Approach
The term" human relations" is generally used to describe the ways in
which managers interact with their subordinates. The famous Hawthrone
studies undertaken by Elton Mayo and his colleagues laid the foundation for
human dimension in organizations. Mayo was a professor at the Harvard
business school. He conducted the series of experiments in 1924 to 1932 at
the Hawthrone plant of Western electric company in Chicago. The study was
conducted in four phases, which can be summarized as follows:
1. Illumination experiment: This experiment was started in1924 in
Hawthrone Plant and continued for three years. The study was primarily
conducted to measure the effects of lighting on the productivity of the
workers in different departments of the organization. Illumination was
manipulated for one group of workers and held constant for another
group but in both, the conditions productivity increased. From the
experiment it was observed that improved productivity could be gained
not only by improved working conditions but also by promoting social
relationships among workers as group members.
2. Relay assembly test room experiment: In this experiment two groups of
six female telephone relay assemblers were put in separate rooms. In the
process, frequent changes were made in their working conditions such as
hours of work, no change was made in the other room.in spite of the
frequent changes being made in working conditions over a period of
several years, productivity tended to increase; even though it rose and fell
irrationally.
3. Mass interviewing program: Under this phase a group of 20,000 workers
were interviewed to elicit information on their perceptions on the
working life. The focus of this interviewing program was on human
relations rather than on physical working conditions. After completing
interviews, it was confirmed that the importance of informal relations,
 social and psychological needs influence the workers' behavior and their
productivity.
4. Bank wiring observation room experiment: Under this experiments, 14
male workers were formed into a small work group and intensively
observed for seven months in the bank wiring room. The men were
engaged in the assembly of terminal banks for the use of telephone
exchange. The purpose of the research was to make a more detailed
analysis of the social relationships in a work group. From the experiment,
the researchers concluded that employees would labor hard if they
believe that the management was concerned about their welfare and
supervisors paid special attention and care to them.
Contributions of Human Relation Theory
The results of the Hawthrone studies were published in 1941. The results
have led to the increase in knowledge and understanding of workers and
their works. The main contributions of Hawthrone studies can be
summarized as follows:
i. Employees are not motivated solely by money. Personal and social
factors are important to motivate employees' attitudes towards their
work.
ii. The importance of recognizing the concept of "social man" became
unavoidable.
iii. Management must understand and recognize interpersonal and
relations on the job.
Limitations of Human Relation Theory
i. Human relation theory adequate focus on work. It lays all emphasis
on interpersonal relations and informal groups.
ii. Human relations tend to neglect the economic dimension of work
satisfaction.
iii. The human relation movement is anti-individualist. The discipline of
the boss is simply replaced by the discipline of the group.
Behavioral Science Approach
Behavior science is concerned with scientific investigation, analysis
and human behavior in organizations. A large number of behavioral
scientists have made notable contributions to the management theory and
 practice. Notable scholars among them are Abraham Maslow, Douglas
McGregor, Frederic Herzberg, Mary Parker Follet etc.
Abraham Maslow: Need Hierarchy Theory
Abraham Maslow, a human psychologist developed theory of human needs
in 1943. He, in his theory suggested that people have a complex set of needs.
People always have needs, and when one need is relatively fulfilled, others
emerge in predictable sequence to take place. Human needs tend to follow
a basic hierarchical pattern from the most basic needs are fulfilled, a person
will not try to meet his higher level needs. His theory of motivation is based
on some assumptions. They are:
 Human needs and motivates are complex.
 Needs from hierarchy
 Unsatisfied needs are the reasons of motivation.
 People seek growth and development.
The types of needs as per Abraham Maslow explained as:
1. Physiological needs: Physiological needs are also known as basic needs
and are common to all individuals. These needs involve food, water,
clothes, shelter, rest and other similar basic needs. These needs are at the
lowest level in the hierarchy of needs. Such needs of employees might by
satisfied by providing appropriate wage and better working environment.
2. Safety/ security needs: Every human being seeks physical safety and
economic security. Generally, safety needs can be sub- divided into three
types: e.g. economic security, physical security and social security.
Economic security means an assurance about the fulfillment of basic
needs on a continuous basis. Physical security needs include protection
against unexpected events like fire, accident etc. Social security needs
include a need for security in old age, fever, and permanent incapability.
Management can motivate employees of this level providing the facility
of job security, medical facility, provision of provident fund, life insurance
facility etc.
3. Social/affiliation needs: Human beings are social animals. They always
want to live in the society and want to consume social elements. These
social elements include belongingness, friendship, love and affection,
social acceptance, social status and prestige etc. management can
motivate such employees by considering their social value. Generally,
 management has to develop the feeling of belongingness, team spirit,
promotion, authority on the basis of efficiency etc.
4. Esteem/ ego needs: These needs are psychological in nature and at right
level in hierarchy. There are two types of esteem needs: self- esteem and
public esteem. Self-esteem is the internal recognition and is concerned
with self- respect. Public esteem is external recognition and is concerned
with self-respect. Public esteem is external recognition and concerned
with respect from others. In an organization, management can fulfill ego
needs by defining position and by developing the system of reward and
punishment.
5. Self-actualization needs: These are the highest level needs in Maslow's
need hierarch. These are activated as a motivator when all other needs
have been reasonably fulfilled. These needs are soul searching and inner
oriented. These needs motivate to develop fully and realize one's
capabilities and potentialities to the fullest extent possible. At this level,
individuals seek challenging work assignment that allow for creativity and
opportunities for personal growth and advancement. Self- actualized
individuals are creative, independent, spontaneous, and have a good
perception of reality. Management can motivate such employees by
providing creative and challenging works. In fact, such workers expect
decision making position.
Douglas McGregor: Theory X and Y
Douglas McGregor was the professor of management. He proposed two
distinct views of human beings: one negative leveled theory X and another
positive leveled theory Y.
Theory X is based on the traditional assumption about human behavior. The
general assumption of theory X are:
 Employees inherently dislike work and whenever possible, will
attempt to avoid it.
 Since employees dislike work, they must be corrected,
controlled or threatened with punishment to achieve desired
goals.
 Employees will avoid responsibility and seek formal direction
whenever possible. Most workers place securities above all
other factors associated with work and will display little
ambition.
 Theory Y is an optimistic view of workers. It believes in positive and intrinsic
motivation. Theory Y represents participative management. The subordinates,
managers and organization are seen as mutually supportive. This theory is based
on the following assumptions:
 Work is natural activity like play or rest.
 People will become committed to organizational objectives if they are
rewarded for doing so.
 People will exercise self- direction and self-control if they are
committed to objectives.
 The average person can learn to accept and seek responsibility.
 Many people in the general population have imagination, ingenuity and
creativity.
Frederic Hertzberg: Two Factor Theory
Frederick Hertzberg developed the two- factor theory for work motivation.
He was among the first behavioral scientists to look at motivating employees
from different angles. This theory is based on the contents of interviews
conducted on 200 engineers and accountants. In carrying their research,
Hertzberg and his associates asked participants to describe job experience that
produced good and bad feeling about their job. From the research he found that
there are two sets of needs or factors namely motivating factor and hygiene
factor to motivate employees.
1. Hygiene factors: Hygiene factor is also known as dissatisfiers or
maintenance factors. These factors are external to the job itself. The
presence of these factors does not motivate employees, but their absence
also causes dissatisfaction. When these factors are adequate, people will
not be satisfied but they will not be satisfied either. Hygiene factor
includes company policy and supervision, relationship with supervisor,
working condition, salary, relationship with peers, personal life,
relationship with subordinates, job security, status etc.
2. Motivating factors: Motivating factors are also known as motivators,
satisfiers or job content factors. These factors are job centered and relate
directly to the job itself. The presence of motivating factors causes high
levels of motivation and job satisfaction, whereas their absence do not
cause high dissatisfaction. These factors include achievement,
 recognition, advancement, work itself, the possibility of personal growth,
responsibility etc.

Contributions of Behavioral Science Theory

The main contribution of Behavioral Science Theory are:
 This theory has identified the role of human elements in organization.
 It has recognized the quality of leadership as important factor for the
success of management.
 It has emphasized on non- financial rewards.
 It has greatly emphasized the role of individual psychology and group
behavior for organizational effectiveness.
 This theory has emphasized the self- direction of subordinates through
workers' participation in planning and decision making.
Limitations of Behavioral Science Theory
The following are the main limitations of behavioral science theory:
 This theory has neglected the economic dimension of job satisfaction.
 It has not considered situational variables.
 It has viewed management as nothing but applied behavioral science.
 It has a clinical bias and lack of scientific validity.
System Theory
System theory is new thinking in management literature. A system is a set
of interrelated and interdependent parts of arranged in a manner that produced
a unified whole. A system is not a mere collection of parts but an organic whole.
The system is composed of a number of subsystems and all the subsystems are
related to each other. An organizational sub system can be classified as physical,
mechanical, biological and social. The system theory can be best studied on the
basis of input, processing and output component as mentioned in the figure:
 Environment

Outputs
Transformation Process
Inputs
 Employees Work  Products and
 Raw materials Activities services
 Human Resources  Management activities  Financial Results
 Capital  Technology and  Information
 Technology Operation Methods  Human Results
 Elements of ST
Information

feedback

Environment
Elements of System Theory
1. Goal orientation: Every system is purposeful. It is directed towards
achieving certain objectives.
2. Subsystem: The parts of components of a system are called subsystems.
Each system may be a subsystem of a larger whole making another
system. They interact with each other.
3. Synergy: Synergy means the whole Is greater than the sum of its parts.
Thus synergic effect means 2+2=5. It means that the performance of the
whole Is dependent on how well its parts are related and not on how well
each parts operates.
4. System boundary: Every system has a boundary that separates it from its
environment. The boundary determines which parts are internal to the
organization and which are external. In an open system, the system
boundary is flexible while in closed system it is rigid. Many organizations
have flexible system boundary.
5. Flow: A system has flow of materials, information, money, human and
other resources. These enter the system as input, undergo transformation
process and find out as outputs in the form of product of service.
6. Feedback: The reaction and response to the environment is known as
feedback. It is useful in evaluating and improving the functioning of the
system. Hence, feedback is the key to system control.
7. Open or close system: Systems are of two types. An open system
continually interacts within its environment whereas a closed system is
self-contained and isolated from the environment.
Contributions of System Theory
 It provides conceptual framework for a meaningful analysis of
management and organizations.
 It exhorts managers to analyze and understand every element of a
problem in a relation with other elements.
 It tries to integrate various management theories by emphasizing
physical aspects, behavioral aspects and environment considerations.
Limitations of System Theory
 It is too abstract and cannot be directly and easily applied to practical
problems.
 It does not offer any tools and techniques of integration and nature of
interdependencies between organizations and management
 It does not offer a unified body of knowledge.
Decision Theory
Decision theory looks management as a decision making process. The
manager is regarded as the decision- maker and a major challenge for him is to
take rational decisions. The success and failure of an organization greatly
depends on the decision-making ability of manager. So, the manager must be
rational in decision making and try to take the right decision on the basis of
requirement, which is essential to maximize productivity.
Herbert Simon, Luther Gulick and Lyndall Urwik are major contributors
to this theory. They express the managers' deciding rationally are able to achieve
goals, so that, they must have clear understanding of an alternative course of
actions to take the right decision. This theory consists of following
characteristics:
 Management is basically a decision making process.
 Members of an organization are decision makers and problems solvers.
 Organizational effectiveness is judged on the basis of quality of
managerial decisions.
 Participative approach is desirable in decision making.
 Proper information management system is essential for decision
making.
The rational decision making consist of the following concept:
 Definition of the problem.
 Identifying relevant alternatives.
 Evaluating the alternatives.
 Selecting the best course of action.
 Implementation of action.
 Evaluating the result.

Contributions of Decision Theory

The following are the important contributions of decision theory:
 This theory is helpful in developing problem solving skills.
 It helps develop different mathematical and quantitative tools for
decision making.
 It has emphasized the knowledge of economics in decision making.
 It has contributed much in information management.
Limitations of Decision Theory
The following are the main limitation of decision theory.
 This theory does not take the total view of the management.
 It is narrow and limited scope.
 It has ignored the situational variables.
 It has not stressed the human relation and behavioral aspects.
Management Science Theory
Management science theory is also called mathematical, quantitative,
and operational research approach. This theory emphasizes on application of
mathematics and statistics for taking decisions and solving management
problems. This approach was originally developed during the Second World War
to solve military problems by the U.K. and the U.S.A. in later years when the war
ended, people made use of this technique in solving industrial problems too. The
main feature of management science theory is the use of mixed terms of science
from several disciplines. Joel Dean PMS Blackett are the main contributors of
this theory. Management science approach focuses on solving the technical
rather than human behavioral problems. And computer programs are used to
analyze the problems. Now-a-days operation research terms are formed to solve
complex management problems. The team consists of members from any fields.
They analyze the problem and develop a mathematical representation.
Contributions of Management Science Theory
 Complex relations among variables can be expressed more effectively.
 It presents management with an objective basis for making a decision.
 It emphasizes the replacement of intuition and hunch by factual data
and logical analysis in decision making process.

Limitations of Management Science Theory

 It does not deal with the people aspect of an organization.
 All the required data cannot be updated and are not accurate.
 It requires unrealistic or unfounded assumptions.

Contingency Theory
This theory is also called situational or practical approach to management. It is
a relatively new thinking among management scholars and related to system
approach. Practicing managers, consultants and researchers who tried to apply
the concept of earlier management theories into practice and developed it.
According to this approach, the best way to lead, plan, organize and conduct
managerial activities varies with the situation. A particular method suitable in
one organization at a time may not necessarily be suitable to another
organization at other time. Hence, there are no plans, organization structures,
and leadership styles or control technique that will fit in all situations since every
organization is unique, management decision and structure must be unique.
There are four contingency variables that determine management practice.
1. Organizational size: The number of people in an organization is a major
influence on what managers do.
2. Routineness of task technology: Organizations apply technology to
transform inputs into outputs. Routine technologies require
organizational structures, leadership styles and control systems that differ
from those required by non- routine technologies.
 3. Environmental uncertainty: the degree of uncertainty caused by political,
technological, socio-culture and economic change influences the
management process. The best style in a stable environment may be
totally inappropriate in a rapidly changing and unpredictable
environment.
4. Individual differences: Individuals differ in terms of their desire for
growth, autonomy, and tolerance of ambiguity and expectations. These
and other individuals' differences are particularly important when
managers select motivation techniques, leadership styles and job design.
Hence, the management cannot have ready-made universally applicable and
acceptable principles to be applied to all situations as everlasting truth.
Management needs to recognize the nature of technology, the variation human
participants, and the wide diversity in environmental relationship. All
managerial actions depend upon particular prevailing circumstances and
situational factors. It requires managers to have a thorough understanding of
the situation and the ways of tackling situations. Based on the above
explanation, the following featured can be identified:
 Organizations are open systems and interact regularly with the
environment.
 It is an integrative approach in a sense that it attempts to integrate in
finding other managerial perspectives.
 It is applicable in intellectual dealings in which habits and customs
cannot be taken for granted.
 It requires knowledge of various sets of situations and tools to work
best.
 It is based on empirical researches and has developed its tools on real
findings in varied situations.
Contributions of Contingency Theory
 Managers get help in innovating new and better approaches to meet
complex situations.
 It gives them the capability to think in analytical, critical and
multidimensional ways.
 Managers are given more freedom.
 Managers become more sensitive and alert.
Limitations of Contingency Theory
 It ignores the universally applicable principles.
 It fails to enlist all contingency variables.
 It focuses on mere situation but which tools should be used in what
situation is not satisfied.
 It ignores human behavioral aspects.
Chapter-4 Environmental Context of Management
Concept of Business Environment
Business environment consists of all components of surroundings
of a business organization, which affect or influence its operations and
determines its effectiveness. Environment is dynamic and change according to
time, it is also complex and difficult to forecast. Therefore, management needs
to estimate and forecast environmental influence time and again to sustain its
business operation in a competitive environment.
"Environment refers to institutions or forces that affect the organization
performance." -Stephen P Robbins and Marry Coulter
"Business environment is the aggregate of all conditions, events, and
influences that surround and affect it." -Keith Davis
Types of Business Environment: Internal and External
Broadly, there are two types of environments internal and external.
Internal Environment
All conditions and forces within the organization affection a business
operation is internal environment. Such environmental components can be
controlled by the management. The components of internal environment
consist of owners or shareholders, broad of directors, resources and
organizational structure and organizational culture.
1. Owners: Owners are the investors who have the direct interest in the
welfare and prosperity of business organization. They have the legal right
on the property and assets of the business. In sole trading concerns they
are known as sole proprietors, in partnership form as partners and in joint
stocks of the companies, they are known as shareholders. Depending
upon types of organizations and the nature of business, they are directly
and indirectly involved in management of the business.
2. Broad of directors: Members of broad of directors are the representatives
of shareholders who are directly involves in the day-to-day operations of
the company. Their responsibility is to run the business in the best interest
of the shareholders and other stakeholders. They are also involved in the
preparation of long term plans and business strategies of the
organization.
 3. Organizational resources: For effective operation of the business, every
organization needs resources consisting of human, financial, physical and
information. The success and failure of the organization depends upon
the effective and efficient utilization of these resources.
4. Organizational structure: Organizational structure is the foundation of an
organization involving job definition, division of work, hierarchy of
authority and responsibility and coordination among all the departments
and members. It defines the formal relationship among executives and
subordinates and also helps maintain functional network among them.
5. Organizational culture: Organizational culture is the set of values that
helps its members understand what the organization stands for, how it
does things and what it considers important. It is a system of shared
beliefs held by the organization's members. In every there are systems of
values, symbols, rituals, and practices that have evolved over time.
External Environment
The external environment refers to forces and institutions outside the
organization that potentially can affect the organization's performance. The
external environment is made up of two components, the specific or task
environment and general environment.
Specific or Task Environment
The task management consists of specific organizations or groups that
influence the organization's performance. Such environments have a direct and
immediate impact on the managerial decision and actions and are directly
relevant to the achievement of organizational goals. The task environment
consists of competitors, customers, suppliers, government, pressure groups,
media, financial institution and strategic allies.
1. Customers: Customers pay money for goods and services and are the
main source of revenue. They represent potential uncertainty to an
organization because their taste and preferences may change with in time
and fashion. A satisfied customer of today may not be satisfied tomorrow
through the same kind of goods and services. Therefore, it is necessary to
collect information about preferences and demands of customers
through market research, survey and report from representatives and
other means.
 2. Suppliers: Suppliers are the parties and institutions that supply materials,
machines and other resources to organizations. The management of
every organization seeks to ensure regular and steady flow of needed of
inputs as a reasonable price. However, if suppliers do not supply materials
in time and also charge high price, it reduces the organizational
effectiveness.
3. Competitors: Competition is the basic feature of an open market
economy. Competitors are the rivals that compete with the organization
for resources. No business organization can its competitors and their
business strategy. Therefore, a manager of an organization should have
the ability to forecast customers' demand and develop new strategies to
increase market share.
4. Government: The government is concerned with regulating new rules and
regulation for the welfare and wellbeing of the society. It also enacts
various rules and regulations to control unfair business practices and to
protect public interest. A new legislation enacted by the government to
protect public interest may create new challenges to business
organizations.
5. Pressure groups: Pressure groups are special interest groups, which may
also create problems and difficulties in business activities. They exert
considerable influence by using the media to draw attention to their
positions. These pressure groups consist of labor unions affiliated with
political parties, consumers' associations, human rights activists,
environmental associations, media, social institutions etc.
6. Financial institutions: Financial institutions consist of commercial banks,
development banks, finance companies, insurance companies etc. they
supply short and long term credit to business firms. Their credit policy
directly affects the operation, expansion and diversification of business
activities.
7. Strategic allies: When two or more companies work together in a joint
together in a joint venture or other partnership form, it is known as
strategic allies. Such allies help to get expertise from other companies to
gain new business ideas and knowledge.
General Environment
General environment refers to the institutions and forces that create
overall context of an organization. This environment is also known as macro
environment. It is controllable in comparison to the micro environment. Thus,
general environment comprises general trends and forces that may not
immediately affect the organization but sooner or later will alter the way
organization operates.
Basic Components of External Environment

Economic Environment

Economic environment plays a significant role in the business system

because the condition of the economy and in present and in future affects
the fortunes and strategy of the organization. The economic environment
of the businesses includes the following factors:
1. Economic system: The economic systems prevailing in a country
determines the scope of private business and its activities. The
prevailing economic systems can be grouped into three categories
such as:
a. Free Market Economics (Capitalism): In a free market economy, all
the factors of the production such as land, labor and capital are
privately owned and production is carried on by private
enterprises. What to produce, how to produce and whom to
produce, all these economic problems and settled by the forces of
demand, supply and market mechanism. USA and Japan present
examples of free market economy.
b. Centrally Planned Economics(Communism): Under the centrally
planned economic system, the state owns all the means of
production and determines the goals of production. The
consumption pattern is decided by the state. North Korea and Cuba
present the examples of centrally planned economies.
c. Mixed Economics: The system of mixed economy falls between the
two extremes capitalism and communism. In a mixed economy,
both the public sector and private sector co-exist as in Nepal and
India. In many mixed economies, several basic and strategic
industries are owned and managed by the state. The state regulates
the activities of the private sector so that it may serve the interest
of the nation rather than its own interest.
2. Economic policies: The economic policies of the government also
influence the business policies of an organization. Key economic
policies influencing business organizations are as follows:
 a. Monetary Policy: It is concerned with money supply, interest rates,
credit availability and exchange rates. It effects the level of
spending and cost of capital.
b. Fiscal Policy: it deals with the collection and spending of money by
the government. It is concerned with the use of taxation and
government expenditure to regulate economic activities.
c. Industrial Policy: It makes conditions favorable or unfavorable for
business. Incentives, licensing, infrastructure, technology transfer
and other facilities given to business create favorable condition for
business.
d. Commercial Policy: It indicates the import – export policy
consisting of export duty, customs duty, clearance charge etc.
3. Economic Conditions: Economic condition fluctuate continuously.
They indicate the health of the economy in which the business
organizations operate. The major elements of economic conditions are
as follows:
a. Stage of Economic Development: An economy can be least
developed, developing and developed. Such stages of economic
development influence on the business activities.
b. Income Distribution: Income provides ability to spend for business
purpose increasing purchasing power. Per capita income people
should be strong.
c. Employment: Employment situation also influence on business
activities. It determines purchasing power of people and availability
of labor. During the high employment condition, economy grows
faster and increases purchasing capacity of people.
d. Trade Cycle: Trade cycle also indicates the economic conditions of
the country. The stage of trade cycle can be prosperity, recession,
depression and recovery. Each stage affects the health and
operation of business organizations.
e. Inflation: It refers a sustained rise in the general price level of goods
and services. Inflation reduces the purchasing power of consumers.
It seriously affects the business activities.
4. Economic Integration: Economic integration is also known as regional
economic groups. It is an association of nations in a particular region
of the world. It is involved in promoting trade and socio-culture
 ssrelations among the member countries and providing financial aid to
them.
The South Asian Association for Regional Cooperation(SAARC),
Association of South East Nations(ASEAN), the European Union(UN),
North American Free Trade Agreement(NAFTA) are some examples of
regional economic groups that have promoted economic integration.
Socio-Cultural Environment
The socio-cultural environment is made up of institutions and other
forces that affect a society's basic values, perception, preferences, and
behaviors. Socio- cultural forces usually influence the welfare of a
business firm over the period of time. We have ever changing society. A
good socio-cultural environment analysis combines the following
components:
1. Social Environment: Social environment refers to all the social
surroundings that influence business organizations. It involves the
following elements:
a. Demographics: Business is started from people. Demography is
concerned with human population and or people and its
distribution. It includes the following elements:
 Size Distribution and Growth of Population: Larger size,
distribution and growth of population indicate growing
business opportunities. The large size of population is
attractive to business organizations. For instance, the large
size and growing rate of population of India and China have
attracted many investors from capital-rich countries to reap
the benefits of the large size of market.
 Age Composition: it is also an important demographic factor
that influences the business activities. Product demand
differs according to age group or composition.
 Urbanization: When people migrate from rural areas to
urban areas they naturally adopt the urban life-styles. It
creates a large market for consumer durable, furnishing,
fashion-related products and beauty aids.
 Migration: It is the population movement from one
geographical range to other. It may occur as population
migrates from one country to another country, from rural to
 urban, and then suburban areas.it is also influences business
activities. For example, migration of people from Hill and
Terai to Kathmandu has created new demand for
convenience and shopping goods.
b. Social Institutions: They consist of family, reference group, and
social class. They also influence on business activities:
 Family: it is constituted by two or more persons related by
blood, marriage and adoption who reside together. Family
plays an important role in influencing consumption
pattern. Thus, managers need to understand the nature of
family's influence on its member and the way in which
purchase decisions are made by the members.
 Reference Group: They consist of group that have direct or
indirect influences on the attitudes and behavior of people.
For examples, famous film stars, musicians, other popular
personalities fall in reference group. Reference group serve
as a point of comparison or reference for an individual in
the formation of either general or specific values, attitudes,
or behavior.
 Social class: Social class indicates societal stratification.
Members of a social class share similar values and
attitudes. Generally, individual can be categorized in one of
the four informal social class structures: the affluent class
(i.e. high class), the middle class, lower middle class and the
poor. Social class shows distinct product and brand
preferences in areas such as clothing, home, furnishing,
automobile, etc.
c. Social change and Mobility: Social change and mobility are the
realities of today. Change and mobility are making things different.
They are reflected by one-child family, disintegrating joint family,
married working women, delayed marriages and social pressures
against environment pollution. Such change implies modification in
relationship and behavior patterns of individual and groups in a
society.
2. Cultural Environment: Culture refers to habit, tradition, morality,
belief, values and so on derived by individual as a member of the
society. It differs in different region, different races and community
 even in the same country. Business organization should be produce
clothes, food, drinks, etc. according to the culture of the people.
People consume new clothes, delicious foods, superior drinks, meat
etc., during the time of festival. Due to this, the demand for such goods
is high during the time of festival. The demand for gold and jewelry is
high during the time of wedding season. It involves the following
factors:
a. Religion: Religion refers to a specific and institutionalized set of
beliefs and practices generally agreed upon by a number of persons
or society. Different people have own religion, religion of people
creates own lifestyle and attitude. They want to fulfill interest as
per their religion.
b. Attitude: An attitude can be defined as any affective reason to a
person object, ideas or activity. It is created by culture. Work
motivation, profit motivation, attitudes towards gift-giving,
meaning of body gestures and attitudes towards time vary from
culture to culture.
c. Values and Beliefs: The values and beliefs are the norms of the
society. They affect the attitude to towards business and work
itself. For example, employees' value and beliefs about various
work- related issues like working hours, work shift, supervision,
technology employed, organizational reforms, and so forth have
significant effects on their work attainment.
d. Language: it is medium of expressing views, ideas, knowledge,
experiences, etc. It may differ on the basis of castes and ethnicity.
Generally, language represents the tradition and culture of the
society. It also affects the needs and wants of the people.
Political-Legal Environment
Political- legal environment offers the environment in which the
managers have to operate their business organizations. The important forces
are:
1. Political Environment: Political environment consist of factors related to
management to public affairs. It consists of the following components:
a. Political System: It is an important factor of political environment. It
includes political ideology, election process, the process of
government formation, etc. Besides, political stability or instability also
 consists in it. A stable, efficient, and honest political system is essential
for the growth of business organization.
b. Political Institutions: Political institutions include
legislature(Parliament), executive (Government), and Judiciary (Court
of Law) which affect business organizations.
 Legislature: It is the parliament that is regarded as the mirror of
public opinion. It performs the function such as formulating
laws, making policies, approving budget. Legislature, thus, has
profound effect on the business. Legislature decides what
should be size, nature of business, who can operate what type
of business, how the earning of the business should be
distributed, what types of rules and regulations should be
obeyed by the business, what contribution should be made to
the government, what type of work should be done or not in the
interest of people.
 Executive: It is known as the government consisting of council
of minister and bureaucracy. The functions of executive
particularly is to implement to decisions made by the legislature.
Therefore, executive has great influence on businesses.
 Judiciary: It is also known as courts. It decides whether the
government is functioning according to the rules and
regulations enacted by the legislature and whether they are
inconsistent with given law or not. The judiciary serves as
watchdog. It settles the issues between government and people
and between people and people.
 Other Constitutions Bodies: The new constitution, 2072 has
made some provisions about other constitutional bodies such as
Commission for the Investigation of Abuse of Authority, Auditor
General, Public Service Commission, Election Commission,
National Human Rights Commission, National Natural Resources
and Fiscal Commission, National Women Commission etc.
activities of such constitutional bodies have effects on business
activities.
c. Political Philosophies: They are the ideologies that a state has
adopted. The political philosophies can be democratic, socialism or
mixed.
  Democratic Philosophy ensures the human rights of the
citizens. It gives emphasis to the role private sectors in business
activities. In the socialism philosophy, the power remains in the
hand of the state. The government plays important roles in
socialist countries. In the mixed political philosophy, the power
lies in the hands of both the people and the state. In such
political philosophy, the private sector and state play important
roles in organization in the economy. So, business organizations
and mangers should analyze political philosophies.
d. Pressure Groups: They are special interest groups, which may also
create problems and difficulties in business activities. They exert
considerable influence by using the media to draw attention to their
positions. The pressure groups consist of labor unions affiliated with
political parties, consumers' associations, human rights activities,
environmental associations, media, social institutions, feminist
groups, trade associations, etc.
2. Legal Environment: It is critically important for the prosperity of business.
This environment plays crucial role in business decision-making by
affecting production and marketing activities. There are many legal
provision regarding minimum wage, health and safety standard, pollution
control standard, fair pricing and marketing behavior. The following are
common components of legal environment:
a. Legislation/ Laws: Legislations relating to business aim to protect
consumers from unfair business practices and organization from unfair
competitions. Legislations regarding standardization, patents,
trademark, intellectual property, copyright etc., protect the business
organization.
b. Courts: They are also included in the legal environment of business.
They solve the legal problems. There may be different types of courts
according to the level and nature of legal problems. However,
according to the new constitution 2072, the following courts will
remain in Nepal:
 Supreme Court
 High Court
 District Court
 Specialized Courts
 c. Legal Administrators: They are the law implementation bodies. They
are government bodies, police, jails, advocates, etc.
Technological Environment
Technology is a systematic application of scientific or other organized
knowledge to practical tasks. Technological environment helps to shape changes
in styles of life with the help of technology. A good technological environment
analysis combines the following components:
1. Level of Technology: Managers must adopt the level of technology to
satisfy the customers' needs, Now-a-days most of the people need high
technology products. There are five levels of technology in business.
 Manual Technology: It human-based technology. It uses more
manpower.
 Mechanized Technology: It is machine based technology. It uses
power in the production process.
 Automated Technology: It is based on machines that operate
automatically.
 Computerized Technology: it is based on use of computer-based
machines. Digital technology is computerized technology.
 Robotized Technology: It is based on use of robots. This
technology is guided by computerized software programmes.
2. Pace of technological Changes: Technology is dynamic. Its pace of
changing is very fast. The change of technology leads to immediate impact
in business of managers. It creates both opportunity and threats to the
business organization. A business can only be successful if it is able to grab
the opportunities created by the changing technology.
3. Technology Transfer: Technology transfer means to import new and
advance technology from developed countries to technologically
developing countries. Technology can be transferred through
globalization, projects, trade, technical assistance, training and
publication, etc.
4. Research and Development (R & D) Budget: Customers' need keep on
changing. Old technology may be useless to fulfill the changing needs. So,
it is necessary to develop new technology. Research and development is
the main basis of development of new technology and innovation. So
managers should pay attention towards this aspect. For this, it is essential
 to invest a certain part of the budget of the business organization in
research and development work.
Global Environment
The global environment includes relevant new global markets, existing
markets that are changing, important international political events, and critical
cultural and institutional characteristics of global markets. Globalizations of
business markets creates both opportunities and challenges for firms.
Some global organizations such as world Trade Organization (WTO),
World Bank and International Monetary Fund (IMF) have positive impact on
development of global business. Global environment involves the following
steps:
 Global economy
 Global market scenario
 Global consumerism
 Global laws and provision
 Global political condition, etc.
Social Responsibility of Business
Social responsibility is the obligation of an organization to protect social
norms and rules within which the organization is operating. Business
organizations are established, exist and perform functions in the society. They
also expand and diversify their business activities in the society. They utilize
natural resources in production and distribution activities according to their
convenience and facility. It is responsibility of business organization to perform
their activities within the existing rules, regulations and norms of society.
" Social responsibility is the set of obligations an organization has to protect and
enhance the society in which it functions." -Ricky W Griffen
Therefore, social responsibility is the obligation of an organization to
protect social norms and rules within which the organizations perform business
activities to fulfill their objectives of earning profit and enhancing wealth.
Approaches to Social Responsibility
Ricky W Griffen has given four approaches to social responsibility. Brief
descriptions of these approaches are:
 Degree of Social Responsibility

Social Social Social Social

Obstruction Obligation Response contributions

Lowest Highest
1. Social obstruction: This is very traditional and classical view of social
responsibility. According to this approach, the main motive of business
is to earn profit for the welfare of owners or shareholders. The
managers of this approach emphasize only on economic welfare of the
firm.
2. Social obligation: This approach is one step forward than social
obstruction but is most consistent with the arguments used against the
social responsibility. The managers of this approach also emphasize
that their job is to earn profit. For instance, as per legal provision it is
necessary to install standard equipment to control pollution but
managers may install inferior quality equipment, which may not
control environmental pollution.
3. Social response: This approach of social responsibility is improved
than social obligation. The managers following this approach fulfill
their legal and ethical environments for social responsibility and also
will go beyond these requirements in selected cases. This willfully
participate in social welfare programs but it is essential that they be
encouraged by somebody else.
4. Social contribution: This approach considers the highest degree of
responsibility. The managers in this approach believe that they are the
good citizens of the society and proactively seek opportunities to
contribute in social welfare programs. They willingly participate in
social welfare activities, education, sports, health, sanitation and
charity. The fulfillment of social responsibility will automatically meet
the economic objectives of business organizations.
Areas of Social Responsibility
1. Towards Investors (Shareholders)
Shareholders are the owner of the business firm. They invest capital for
the establishment of the business and bear risk of losses. They also take
 part in the management directly or as a representative of shareholders.
Shareholders have direct interest in the welfare and development of
business towards the shareholders are:
 To ensure safety of capital investment.
 To provide fair and regular return on investment in terms of
dividend.
 To provide correct and regular information of financial and other
transactions.
 To offer reasonable opportunities to shareholders for
participating in planning and policy making.
 To maximize value of capital investment through optimum
utilization of resources.
2. Towards Consumers
Consumers are the main source of revenue. They are the basis of growth
and development of businesses. In competitive business, consumers'
satisfaction is the main purpose of business. It is essential to take some
steps to satisfy the needs and expectations of consumers. The major
responsibilities of business towards consumers are:
 To supply better quality goods at the right time in reliable price.
 To take necessary steps to improve quality, reduce price and
development of network for distribution.
 To provide after-sales service on the basis of nature of product.
 To perform research and developmental work for better quality
and for new products.
 To avoid unfair trade practices like black marketing, adulteration
false advertising etc.
3. Towards Employees
The employees are directly involved in production and distribution
functions of the organization. They have direct interest in the welfare and
development of business. Since they are the assets of business
organization, their welfare is the main responsibility of the management.
Employees should be treated as part of the organization and should
encourage and motivate them for their better performance. The
organizations should provide both financial and non-financial incentives
to develop a sense of belonging among the employees. The following are
the responsibilities of business towards the employees:
 To provide job security.
  To provide fair wages and other benefits like bonus, allowances,
share of profit etc.
 To ensure welfare facilities like further education, promotion,
medical facilities, foreign visit, training etc.
 To provide favorable working environment and recognition of
their performance.
 To provide opportunity to participate in management and career
development.
4. Towards Government
Government is responsible for the administrative and developmental
work of the country. It protects and controls all the business activities and
creates business opportunities in new areas. All the business activities
should be conducted within the rules and regulation of the government.
A business concern cannot be established and perform business without
co-operation of government. The major responsibilities of business
towards the government are:
 To follow strictly the government rule, regulations and laws.
 To pay tax to the government honestly and regularly like value
added tax, income tax, customs duty etc.
 To avoid monopolistic and unfair trade practices.
 To support to solve national problems such as unemployment,
poverty, illiteracy, family planning etc.
 To emphasize on fair dealing in import and export trade to
maintain the reputation of the nation.
5. Towards Community (Public)
Business organizations have responsibilities towards the general public.
And they perform their business activities in a community and normally
public expect from them. Business organizations should take necessary
steps for the economic and social well-being of the community are:
 To check environmental pollution and maintain environmental
ecology.
 To create employment opportunities for the people.
 To take necessary steps for maximum utilization of resources
available in the society.
 To maintain and develop social and culture values and norms.
 To involve in social welfare programs like education, health, games
and sports etc.
Business Ethics
Ethics is the set of moral principles and rules guiding an individual's
behavior. It is the basis of determining right or wrong in a given situation. It is
an individual's personal perception and belief while taking a decision. Ethical
behavior of an individual depends upon the moral standard or codes of conduct
determined by society. Managerial ethics is the standard of behavior that guides
individual managers in their work. It is the moral principles and rules of conduct
that is applied in the business. It is generally accepted that business should be
conducted according to certain self-recognized moral standard of the managers.
Making ethical choices can be difficult for managers. Though it is compulsory to
obey the law but acting ethically goes beyond mere compliance with the law.
Significance of Business Ethics
Ethics is derived from the society and the norms, values, beliefs,
culture and standard of the society determine it. The following are the common
significance of business ethics:
1. Promotes goodwill and image: Ethical business dealing helps to promote
goodwill and image in the society. The supply of goods and services by
considering quality, quantity, time and price expected by the customers
facilitates to gain their trust. For this, the concept of artificial shortage,
black marketing, inferior quality etc. must be avoided.
2. Helps maintain better relation with stakeholders: Ethical behavior helps
to maintain better relation with different interested groups consisting of
employees, customers, suppliers, lenders, government etc. an ethical
manager always tries to fulfill the needs and requirements of these
stakeholders.
3. Less interference from government: In case a business is not ethical, it
will certainly attract intervention of the government. However, an ethical
businessman never performs any business activity by violating
government rules and regulations.
4. Promotes fair competition: Business ethics helps to promote fair
competition among the firms. It discourages businessmen to involve in
unfair trade practices like artificial shortage, black marketing,
adulteration, obsolescence etc.
5. Promotes social responsibility: The manager performs business in the
society to fulfill his economic objectives. Business ethics guides managers
 to involve in social welfare programs like participating in education,
health, sports, environmental protection etc.
6. Improve working environment: Business ethics guides managers to
develop a better working environment in the organization. He tries to
motivate employees by introducing a feeling of justice, equality, freedom,
belongingness, sense of responsibility and ownership.
7. Helps to increase market share: An ethical business practice of a manager
helps an organization gain prestige and reputation in the society. In the
long run it helps increase market share of the business firm.
Emerging Business Environment in Nepal
1. Emergence of Open Market Economy: After the restoration of democracy
in 1990, government has adopted a liberal and open market economic
policy. In this policy, economic freedom has been given to private
business organizations by minimizing administrative hurdles in licensing,
registration, incorporation etc. Now, private enterprise and
entrepreneurs have freedom to choose the line of business on the basis
of their interest with nominal administrative formalities and scope.
2. Increasing Role of Private Sectors: The open market economy has
increased the role of private sectors in economic activities. They have
started to play major roles in the economic development of the nation.
The invest not only in general lines of business but also involve in core
areas of economic activities. The government has terminated the
monopoly power of public enterprises in hydropower,
telecommunication, water supply, airlines etc.
3. Private Sector's Investment in Infrastructure Development: The free
market economy policy of the government has also encouraged private
investment in infrastructure development of the nation. Private company
including foreign investors started to invest in infrastructure areas of the
nation consisting of hydropower, telecommunication, transportation,
water supply and health education etc.
4. Emergence of Multinational Companies: The economic liberalization
policy of government has opened the door to multinational companies to
perform business activities in Nepal. They involve in commercial,
industrial and also in auxiliary services through joint venture with
Nepalese entrepreneurs. Generally, they involve in banking, finance,
insurance, soft drink, cold drink, hotel industries, education,
telecommunication, hydropower etc.
5. Development of Information Technology: The rapid development of
information technology(IT) has also affected the Nepalese business. The
use of IT resources consisting of computer programs, e-mail, internet,
network system, e-commerce, fax etc. increase the efficiency of business
organizations. Many business organizations like banks, finance
companies, educational institutions, hotels and restaurant,
telecommunications, airlines, manufacturing and trading organization use
IT resources.
6. Emergence of Consumerism: The evolution of free market economy has
diverted the concept of seller's market to consumer market. Open market
policy has developed a competitive environment among the
manufacturers and suppliers and has provided selection facility to the
consumers. Business organizations have developed different strategies to
draw the attention of customers and to satisfy them. Customers can
purchase goods and services on the basis of their needs and
requirements.
7. Growth and Service Sectors: There has been growth of service sectors in
Nepal in recent years. Entertainment industry is flourishing. Newspapers,
printing services, radio broadcasting services, cinema and television
broadcasts are now fast expanding in the country. Modern services have
been fast emerging in the country, are courier services, credit cards, car
rental services, telecom and internet services, and fax and e-mail services.
8. Shifting Social Cultural Values: Nepalese socio-cultural values are shifting
day-by-day. The modern means of communication like mobile, telephone,
e-mail, fax, internet, television, etc. are promoting western culture in the
country. Celebration of Valentine day, Western New Year, friendship day
and Christmas are common in urban teenagers. Cross-cultural influences
are increasing in Nepalese societies. Traditional cultural values and norms
are changing. These all have created new business scope in Nepal.
9. Rising Customer Awareness: Urbanization is growing significantly in
Nepal. Modern society and culture are expanding in Nepal. People's
education level is also increasing. Their excess to information technology
is also increasing. Brand awareness and consciousness are increasing.
10. Workforce Diversity: Population dimension of Nepalese people is
changing. A wide variety of factors such as globalization, ethnicity, an
aging population, entry of females and minorities into new career,
knowledge-based workers, work teams, virtual employees and part-time
 or contingent employees have created much more heterogeneous
workforce in Nepal.
11. Rise in Online Business: The use of modern technologies is common now-
a-days in Nepalese organizations the access to internet and information
technology is increasing. Because of it, online business is rising. E-business
is getting popular.
12. Use of Social Media: The use of social media is getting popular in Nepal.
People are spending many hours in social media like Facebook, Twitter,
Instagram, etc. Because of these social media, people's excess to
information is also increasing and the social media is taking as the means
of fast advertisement.
CHAPTER- 5 PLANNING AND MAKING DECISIONS

Planning
Planning is one of the major functions of management. It is to decide future
course of action. It is systematic activity which determines when, how and who is
going to perform a specific job. Planning involves defining the organization's goals,
establishing an overall strategy for achieving these goals, and developing plans for
organizational work activities.
Stephen P. Robbins: "Planning is deciding about what to do, how to do it, when to
do it, and who is to do it. It provides the ends to be achieved."
Thus, planning involves setting objectives and developing appropriate
courses of action to achieve these objectives. Objectives provide direction provide
all managerial decisions and actions. Planning provides a rational approach for
achieving predetermined objectives.
Types of Planning
A. Types of Planning According to Managerial Hierarchy
According to managerial hierarchy there are three types of plans. They are:
1. Strategic Plans: Strategic plans are documents prepared by top level
management to guide the organization in the process of performing its
activities in order to achieve its long-term objectives. A strategic plan also
tells managers the goals of the plan period and how the objectives are to
be achieved. These plans usually designed for a period of four or five years
or more.
2. Tactical Plans: Tactical plans are prepared and implemented to achieve
part of the strategic plans. Tactical plans are often developed by senior
and middle management and implemented by middle and junior
managers. The time frame for tactical plans is between few months to
five months to five years.
3. Operational Plans: These plans focus on carrying out tactical plans to
achieve operational goals. These plans are to deal with what to be done
at the sub-system of the organizational (the very grassroots level) the
development of operational plans involves middle and junior managers.
 There are two basic forms of operational plans; single-use plan which is
developed to carry out a course of activities that recur regularly over a
period of time. The time frame for operational plan ranges from one
month to one year.
B. Types of Planning According to Time
According to time there are three types of plans. They are:
1. Long-term Plans: These are the plans formed by an organization to guide
it in the process of performing its activities in order to achieve long-term
objectives. They guide managers and other employees to be aware of the
long journey ahead, the difficulties and the benefits that can result. These
plans are usually designed for a period of five years and more.
2. Intermediate Plans: These are the plans set by and for middle level
management. They are set to allocate divisional activities like production,
finance, marketing, personal and others. They focus to get the things
done complete. These plans are usually designed for a period of more
than one year to five years.
3. Short-term Goals: These are the operational plans set by and for middle
level management. They determine the each and every activity of the
department. The time frame for these plans is range from one month to
one year.
C. Types of Planning According to Frequency of Use
According to frequency of use, there are two types of plans. They are follows:
1. Single Use Plans: Single use plans are devised to meet the demand of a
particular situation and are not meant to serve as standing guides to
thinking and action. These plans are prepared for non-repetitive activities
and they are used only once. Single use plans include programmes,
projects, schedules, budgets etc.
2. Standing Plans: Standing plans are also known as repeated-use plans.
These plans are formulated by the managers at different levels and meant
for repeated use as and when the occasion demands. Examples of
standing plans are mission, objectives, policies, procedures, rules,
strategies, etc.
D. Types of Planning According to Flexibility
According to flexibility plans can be classified in two groups:
 1. Specific Plans: Examples of specific plans are specific procedures, budget
allocation, specific schedules of activities, etc. Such plans cannot be
misunderstood and misinterpreted.
2. Flexible Plans: These are the plans that can be smoothly adjusted without
delay to the requirement of changing condition without serious loss of
economy or effectiveness. Flexible plans are also known as directional
plans, which provide general guidelines.
E. Types of Planning According to Formality
1. Formal Plans: They are the plans designed to identify objectives and to
structure the major tasks of the organization to accomplish them. Formal
plans are approved officially.
2. Informal Plans: They are not approved officially but followed to achieve
the objectives of organization.
Planning Process/Steps

Analyze
opportunities

Reviewing the planning

Setting goals
process

Determination of
Implementation of plan
premises
PLANNING
PROCESS

Formulation of Determination of
derivative plans alternatives

Selecting a best Evaluation of

course of actions alternatives
1. Analyze opportunities: This is the pre-step of planning. The management has
to analyze the Strength, Weakness, Opportunities and Threats (SWOT) from
the changing environment of the business. Strength and weakness are the
outcome of internal environment like availability of materials, machines,
manpower, organizational structure, technology adopted etc.it is essential
to make a detailed study of the above factors and should consider it while
setting goals.
2. Setting goals: This is the first and actual starting point of planning. The
objectives must be specific, clear and practical. They should be time- bound
and expressed in numerical terms. They should not be idealistic or over
ambitious. A minor mistake in setting objectives might affect the
implementation of a plan. Therefore, the management has to define the
objective clearly by considering organizational resources and opportunities.
3. Determination of premises: Premises are assumptions of the future on the
basis of which the plan is formulated. The future environment is estimated
on the basis of forecasting. Premises may be tangible and intangible or
internal and external. Tangible premises involve capital investment, units of
production, unit sold, cost per unit, time available etc. Similarly, intangible
premises involve employees' s moral, goodwill, motivation, managerial
attitude etc. Internal premises involve money, materials, machines and
management whereas external premises involve competitors' strategy,
government policy, technological change, and social and cultural beliefs.
4. Determination of alternatives: Management needs to identify various
alternative courses of action for the achievement of organizational
objectives for this, it is essential to identify all the possible alternatives. The
management must develop alternatives through support of experienced and
intellectual experts in management.
5. Evaluation of alternatives: This is a logical step to evaluate each and every
alternative from cost and benefit point of view. Each alternative is studied
and evaluated in terms of some common factors such as risk, responsibility,
planning, premises, resources, technology etc. Therefore, management must
apply a broad-based analytical approach for the evaluation of available
alternatives.
6. Selecting a best course of action: Management selects the best course of
action after evaluating all the alternatives. For this, purpose management
 has to consider past experience, present situation and future contingencies
of such decision. Besides, it needs to forecast about the comparative cost
and benefit factors.
7. Formulation of derivative plans: After selecting the course of action, it is
essential to formulate action plans for each department of the organization.
These action plans involve formulation of policies, rules, schedules and
budget to achieve defined objectives.
8. Implementation of plan: After selection of a course of action and
preparation of derivative plans, if not implemented, the plan remains in
paper only. This step brings all the procedures of plan into action. For the
implementation of a plan, the management needs to take some steps such
as to communicate with subordinates who initiate plans into action, provide
necessary instruction and guidance, make arrangement of all resources like
materials, machines, money, equipment etc. And make timely supervision
and control of subordinates.
9. Reviewing the planning process: Planning is a continuous function and lasts
till the organization is in existence. For this, it is necessary to know about the
actual performance. The managers can take corrective action in proper time
only after evaluating the actual performance. A right decision at the right
time is necessary to achieve objectives according to plan. It is also essential
to adapt with the changing environment of the business.
Importance of Planning
Planning is a primary and inseparable function of management. It is the
continuous process up to the existence of organization. It defines a clear
line of action so that wastage of resources can be minimized. A good
planning is the foundation of an organization and a sign of efficient
management. The following are the importance of planning:
1. Focus on goal: Every organization is established with a definite
objective and all the activities of the organization concentrate to
achieve defined objectives. Plan helps to draw the attention of the
manager and other employees to the same objectives. It also
eliminates confusion and haphazard activities. It facilitates in bringing
unity in action and coordination among all the units of works.
Therefore, good planning is the sign of management by objectives.
2. Minimize uncertainty: Planning is a must to minimize future risk and
uncertainty.it involves forecasting and anticipating future
uncertainty and changes. It is well known that future is uncertain and
changeable. Planning estimates anticipated future changes and
makes necessary provision to overcome such changes.
3. Maintain effective control: Planning is the basis of control. It
determines the standard of work to be performed. Management
provides instruction and guidance to do the work on the basis of a
plan. It helps to compare actual performance with that of planned
performance. Control without planning is not possible. However,
planning makes control effective and meaningful.
4. Innovation and creativity: As an intellectual exercise, planning
encourages innovative thought and creative action among the
managers. An effective plan forces managers to think about the best
objective and best alternative course of forces managers to think
about the best objective and best alternative course of action. It
contributes in motivating and developing morale and among the
employees. It is also essential to maintain up-to- date position in
business operation and face business complexity. Thus, a sound plan
contributes in developing innovating ideas and creative action.
5. Organizational effectiveness: Planning helps eliminate wastage and
utilize available resources in the best possible way. It leads to
maximize productivity and minimized cost of output. Planning is the
foundation for the successful completion of organizational activities.
Therefore, a sound planning contributes in minimizing cost of
production and developing organizational effectiveness.
6. Economy in operation: Planning avoids the concept of trial and error
or hit and miss or random activity. It selects the course of action,
which is beneficial from the organizational point of view. It defines
the clear line of action for all level of management. It helps to bring a
system in the organization which ultimately contribution in
developing working efficiency of all members.
7. Facilitates coordination: Planning is a primary function, which
maintain coordination with other functions of management. It clearly
defines objectives and strategies to be achieved and brings other
 functions of management in action.it also plays important role to
maintain close relation among all the departments. This is necessary
to develop a feeling of team spirit among all the members of the
organization.
8. Avoid business failure: The basic motive of planning is to overcome
the probability of business failure. Besides, it also defines a clear line
of action for every member. It helps to maintain unity in action,
better coordination among all the members of the organization.
Ultimately, it contributes to maximize productivity and minimize cost
of output.

Strategic Planning
Strategic planning is the comprehensive master plan stating how the
organization will achieve its mission and objectives. It is a dynamic and long range
planning which focuses on the organization as a whole. It is the process of
determining how to achieve long term goals, minimum of five years, with use of
available resources in dynamic environment. Basically, the top level management
consisting board of directors and chief of executive formulate the strategic plan.
Formulation of Strategic Plan
The formulation of strategic plan consists of following steps:
1. Identifying organization's current mission, goals and strategies: The
identification of organizational current mission, goals and strategies is the
initial step of strategic plan formulation. First, mission is the reason for the
existence of an organization. It tells who are and what we do as well as
what we would like to become. Mission also developed by top level
management, which defines the fundamental unique purpose that sets an
organizations of the similar type. Second, goals are the planned to results
to be achieved. Goals specify what is to be accomplished whom and should
be shown in quantitative terms, if possible. They should be consistent with
the mission of the organization. Third, strategy is a comprehensive master
plan stating how the organization will achieve its mission and goals. It
determines the basic long- term objectives of organization and adoption of
course of action and allocation of resources necessary to achieve the goals.
 It maximizes competitive advantages and minimizes competitive
disadvantages.
2. Analyze the external environment: The analysis of external environment
is the second step in the strategic planning process. It refers to forces and
institutions outsides the organization that can potentially affect the
organization's performance. The external environment is made up of two
components, the specific and task environment and general environment.
The task environment consists of customers, suppliers, competitors,
government, pressure groups, financial institutions, and strategic allies.
Similarly, general environment consists of politics, economy, society,
culture and technology.
3. Identifying opportunities and threats: After analyzing the external
environment, managers need to identify opportunities that can be
capitalized and threats that an organization my face. Opportunities that
can be capitalized and threats that an organization may face. Opportunities
are the positive trends and scope in the external environment factors and
threats are the negative trend challenges to the organization.
4. Analyzing internal environment: All conditions and forces within the
organization affecting business operation are internal environment.
Managers need to analyze the internal environment to know about the
position of resources. The components of internal environment can be
controlled by the management. These components consist of owners or
shareholders, board of directors, resources and organizational structure
and organizational culture.
5. Identifying strengths and weaknesses: Analysis of internal environment
facilitates in identifying strengths and weaknesses of an organization.
Strengths are the activities that the organization does well or unique
resources that it has. Weaknesses are the activities that the organization
does not do well or resources it needs but does not possess. Therefore, in
the formulation of strategic plan it is necessary to identify the strength plan
it is necessary to identify the strengths to capitalize and weakness to
overcome them.
6. Formulating strategic plan: On the basis of identification of organizational
mission and environmental analysis, strategies are developed for
corporate, business functional levels. For this, managers need to develop
 and evaluate strategic alternatives and then choose a strategy that gives
their organization the most favorable competitive advantages.
Implementation of Strategic Plan
Strategic implementation is the method by which strategies are
operationalized or executed within the organization. A manager should implement
the strategic plan to achieve defined goals. The formulation of strategic plan
becomes fruitful only after its proper implementation. The following strategies
should be taken into consideration foe effective implementation of strategic plan:
1. Organizational structure: For proper implementation of strategic plan it
is essential to develop an organizational structure. It is a network of
assigned tasks, defined roles and designed relationships among the
organizational members. In the organizational structure, division of
activities, interaction and behavior of the members are also specified. It
defines the pattern of formal relationship of the superiors and
subordinates and also their authorities and responsibilities.
2. Communication: All members concerned should be communicated the
strategic plan for its implementation. All the members of the organization
must be clear about their respective duties and responsibilities. It is the
part of the top level managers to communicate all strategic plans to their
subordinates for proper implementation.
3. Technology: Technology consists of knowledge, equipment, method and
process implemented for production and distribution. Effective
implementation of strategy requires application of new and advanced
technology. For introduction of new products, diversification of existing
line and for expansion of business, it is essential to redesign the existing
production process and develop new infrastructure facilities.
4. Provision of resources: Organizational resources are the main source of
implementation of strategic plan. These resources consist of human,
financial and physical resources, and technology. It is the duty of the top
level management to acquire the required resources for effective
implementation of strategic plan.
5. Group and team work: For effective implementation of strategic plan, it
is essential to focus on participative management. The concept of team
 work and group effort must be developed in the organization. The works
should be assigned to different groups consisting of experts of different
of works. The required authority and responsibility should be selected be
delegated to the team. The top-level management should play the role of
a supervisor to provide guidance and suggestion.
6. Motivating employees: Motivation is an important tool to inspire and
encourage the employees. For effective implementation of strategic plan,
there must be reward and punishment system in the organization.
Rewards may be financial and non-financial. The employees should be
rewarded on the basis of their efficiency.
7. Leadership: An effective leadership is necessary to implement the
strategic plan. All the activities of the organization concentrate on the
activity of the leader; therefore, the leader must be dynamic and
energetic. He has to supervise, guide, motivate and influence the
subordinates for effective implementation of strategic plan.
8. Monitoring and evaluation: The manager should monitor the activities of
subordinates regularly to ensure their proper performance. Similarly, the
actual performance achieved should be evaluated with planned
performance at fixed intervals. Such timely evaluation of actual
performance achieved with that of planned performance helps to take
corrective action which finally facilitates to achieve strategic goals.

Tactical Planning
Tactical planning is short-range planning that emphasizes the current
operations of various parts of the organization. It is the plan that determines how
specific tasks can best be accomplished on time with available resources.
Tactical planning is developed for achieving tactical goals of an organization
and to implement specific plan. Tactical plans define the actions of major
departments that are required in the execution of strategic plan. Managers use
tactical planning to outline what the various parts of the organization must do for
the organization to be successful at some point one year or less into the future.
Tactical plans are usually developed in the areas of production, marketing,
personnel, finance, and plant facilities.
Comparing and Coordinating Strategic and Tactical Planning
The main different between strategic planning and tactical planning are
summarized below:
Area of Strategic Planning Tactical Planning
Difference
1.Individuals Strategic plans are usually developed Tactical planning usually developed by
involved by upper-level management. Upper- middle-level management. Middle-level
level managers are involved to managers involved to formulate tactical
formulate strategic plans because plans because they generally have a
they generally have a better better understand of the day-to–day
understanding of the organization as organizational operations than upper-
a whole than lower-level managers level managers do.
do.
2.Facts on which Strategic planning emphasizes Tactical planning emphasizes analyzing
to base planning analyzing the future. the everyday functioning of the
organization.
3.Amount of Strategic plans are based primarily on Tactical plans are based on known
detail in plans a prediction of the future. So, these circumstances and day-to-day
plans are generally less detailed than operations that exist within the
tactical plans. organization. So, these plans are
generally more detailed than strategic
plans.
4.Uncertainty It is generally based on long-term It is generally based on the past
forecasts about technology, political performance of the organization and is
environment, etc. and is more less uncertain.
uncertain.
5.Decision It decides the major goals and policies It decides use of resources for achieving
for allocation of resources to achieve each goal.
these goals.

The Planning and Levels of Management

Planning is performed at multiple levels within an organization. However,
the scope and nature of activities of the planning process often differ at each level
of the management. Based on level of management the planning can be segmented
into the following three categories:
1. Strategic Planning: Planning starts at the top of an organization with
strategic plans. Strategic plans are set by the board of directors with the
involvement of chief executive officer(CEO) and high ranking managers. The
 term strategy implies a game plan made to allocate resources, fix priorities
and decide actions to implement. Plan is set for the application of whole
organization and involves decisions such as merging one organization with
the other one, acquiring a new firm, transferring skills from one unit to
others, etc.
2. Tactical Planning: It is set by the middle level management integrating ideas
of strategic plans. This planning involves the process of translating broad
strategic plans and goals into more specific plans and goals that are relevant
to a definite areas of organizational functioning like production, marketing
or human resource. Tactical planning is coordinative in nature as it is
concerned with implementation of strategic plans by coordinating the work
of different departments and activities in the organization.
3. Operational Planning: It is prepared by lower level management. Operating
planning involves the process of identifying specific procedures and
processes to carry out organizational activities associated with workplaces of
different departments. It is done to perform routine tasks such as production
runs, delivery schedules, human requirements, arrangement of machinery
and production facilities, etc. it provides detail breakdown of budget, time
horizon, manpower requirements, responsible persons and the like to
support to achieving strategic goals. Operational planning is set at the lower
level focusing more specifically in small set of activities. This planning is
preserve of lower level managers such as foremen, supervisors and
inspectors.
Meaning and Concept of Decision Making
Decision making is an indispensable component of management process. It
is also known as the heart of management. In general terms decision making is the
process of selecting a best course of action out of many available alternatives. It is
the process of identifying and defining the problems, developing alternative
solutions, evaluating them in terms of possible consequences and choosing the
best solution among them and implementing the decision effectively.
Approaches of Decision Making
The main approaches to decision making may be studied in the following
three dimensions:
1. Classical approach: This is also known as prescriptive, rational or
normative model. It specifies how decision should be made to achieve the
desired outcome. Under this approach, decisions are made rationally and
are directed toward a single and stable goal. It is applied in certainty
condition in which the decision maker has full information relating to the
problem and also knows all the alternative solutions. It is an ideal way in
making a decision. This model assumes the manager as a rational
economic man who makes decisions to meet the economic interest of the
organization. This model is based on the following assumptions:
 The decision maker has a clear, well-defined goal to be achieved.
 All the problems are precisely defined.
 All alternative courses of action and their potential consequences
are known.
 The decision maker can rank the entire alternatives on the basis of
their preferred consequences.
 The decision maker can select the alternative that maximizes
outcome.
2. Behavioral approach: This approach is also known as descriptive
approach and administrative model. The theory is proposed by Herbert A
Simon, a well real life situations. Managers have limited and simplified
view of problems because they do not have full information about the
problems, do not possess knowledge of all possible alternative solutions,
do not have the ability to process environmental and technological
information and do not have sufficient time and resources to conduct an
exhaustive search for alternative solutions to the problems. Therefore,
this model is based on two concepts: bounded rationality and satisficing.
 Bounded Rationality: Simon believed that managers are bound by
limited mental capacity and emotion, as well as, by environmental
factors over which they have no control. Real life challenges, time and
resources limitations, political pressure and other internal and
external factors force the manager to work under the condition of
bounded rationality. Therefore, the manager cannot take a perfectly
rational decision.
 Satisficing: It is the selection of a course of action whose consequences
are good enough. Bounded rationality forces managers to accept
 decisions that are only 'good enough', rather than ideal. Such
managerial decisions become rational but within the limits of
managers' ability and availability of information. Managers make
decisions based on alternatives that are satisfactory. The examples of
satisfying decisions are fair price, reasonable profit, adequate market
share, proper quality products etc.
3. Implicit favorite model/Retrospective approach
This approach is applicable in non-programmed decisions. In this
approach, the manager first chooses an alternative solution to the
problem and highlights its strength, and compare with other alternatives
and then identifies its drawbacks. This is done with a view to proving that
the alternative selected by him is the best solution to the given problem.
Types of Decisions
1. Programmed and Non-Programmed Decisions
 Programmed decisions are routine and repetitive in nature. Managers
can solve problems easily an in-depth without deep study by
considering the past decision for similar of problems. Generally, such
decisions are taken by first line managers on the basis of framework
of policies, rules, regulations and standard operating procedures of
the organization. In practice, more than 90% of managerial decisions
are of this type.
 Non-programmed decisions are also known as unique or creative
nature decision. They are novel and consequential in nature. In case
of such a decision, there are no existing policies or standard operating
procedures available to guide the decision maker. Decisions such as
product diversification, changing marketing strategy, dropping an
existing product, new investment and all policy decisions are of this
type.
2. Routine and Basic decisions
 Routine decisions are related with day-to-day operation of the
organization. Such decisions are taken promptly and also
implemented in a similar way. In regular activities of the organization,
many repetitive problems may arise. Such problems create
obstructions in the smooth performance of the organization. The
 examples of routine decisions involve exchange of work between co-
workers, repair and maintenance of machines, making availability of
raw materials for production process etc.
 Basic decisions are also known as strategic decisions. Such decisions
are necessary for long run survival and growth of business activities of
the organization. Generally, top level management is responsible for
taking such type of decisions. For examples of such decisions are:
investment of extra capital, expansion of business, replacement of
plant and machines, recruitment and selection of new staff etc.
3. Organizational and Personal Decisions
 Organizational decisions are also known as formal or official decisions.
In such decisions, the decision maker has to consider his official
authority before he comes to any decision. Besides, he has to fulfill all
the official procedures, system and formalities for taking any decision.
The examples of official decisions are appointment, promotion,
transfer of employees etc.
 Personal decisions are also known as informal or individual decisions.
Such decisions are taken on the basis of personal skill, knowledge and
capacity of the individuals. Such decisions do not affect regular
performance of the organization because they are made on the basis
of personal interest, desire and necessity of the decision maker. To get
voluntary retirement from service, reject promotion, refuse to go for
higher education etc. are examples of personal decisions. And
personal decisions cannot be delegated to others.
4. Individual and Group Decisions
 In individual decisions, a single person is involved in the decision
making process like the general manager, departmental manager etc.
Here, the decision maker has to consider organizational objectives and
working environment while taking decisions. For this, he has to use his
personal knowledge, skill, idea and experience to decide any matter.
In large organizations, the operational chief executive has the sole
authority to take decisions, which are of operational nature.
 In group decisions, a group of persons are involved in the decision
making process like the board of directors, management committee,
partners etc. Such decisions are taken in large organizations like in
 Joint Stock Companies, Partnership firms, co-operative organizations
etc. In such decisions, a group of authorities discuss the subject matter
in detail and finally come to a decision through mutual consent or
majority of votes.
5. Policy and Operational Decisions
 Policy decisions are taken by the top-level management and have
long-term impact in the organizational performance. These decisions
involve introduction of new rules, regulations and programs,
amendment of existing rules, introduction of new products or service
etc. generally, the top level management has to consider the impact
on future performance while taking such decisions.
 Operational decisions are taken by the lower level management and
are concerned with the day-to-day works of the organization. Such
decisions are taken for the implementation of plans and policies
formulated by the top level management. These decisions involve
change in schedule of works, amount of remuneration to employees,
set-up of machines and equipment etc.
Decision Making Conditions
There are different conditions in which decisions are to be made.
Managers sometimes have an almost perfect understanding of conditions
surrounding a decision, but in other situations they may have little information
about those conditions. Generally, the decision maker makes decision under the
condition of certainty, risk and uncertainty.
1. Certainty: Certainty is a condition under which the manager is well informed
about possible alternatives and their outcomes. There is only one outcome
for each choice. When the outcomes are known that their consequences are
certain, the problem of decision is to compute the optimum outcome.
Similarly, if there are more than one alternative, they are evaluated by
conducting cost studies of each alternative and then choosing the one which
optimizes the utility of the resources. the condition of certainty exists in case
of routine decision such as allocation of resources for production, payment
of wages and salary etc. There is little ambiguity and relatively low chance of
making an impractical decision.
 2. Risk: A more common decision making condition is a state of risk. In such a
condition, managers have knowledge about alternative course of action but
outcomes are associated with probability estimates. It is more difficult to
predict future conditions without full information, so the outcome of an
alternative cannot be accurately determined. Therefore, managers can guess
the probable outcome on the basis of their experience, research and other
available information. They can choose an alternative with highest expected
outcome. However, such decisions are largely subjective as no accompanied
by moderate ambiguity and chances of an impractical decision.
3. Uncertainty: A state of uncertainty occurs when managers are unaware of
the problem they face. They do not know all the alternatives, the risk
associated with them or the likely consequences of each alternative. This
uncertainty arises from the complexity and dynamism of contemporary
organization and their environments. Managers have limited information to
calculate the degree of risk, so statistical analysis is not possible. The
condition of uncertainty arises when the organization introduces a new or
innovative product or service; adopts new technology, selects new
advertising program etc.
Concept of Management by Objectives
Management by objectives (MBO) is a comprehensive management system
based on measurable and participatively set objectives. MBO has come a long way
since it was first suggested by Peter Ducker in 1954 as a means of promoting
managerial self-control.
Management by objectives (MBO) is a system in which specific performance
objectives are jointly determined by the subordinates and their superiors, progress
toward objectives periodically reviewed, and rewards are allocated on the basis of
the progress. It is also called "Management by results", "Management by Goals
and Results" and "Goals Management".
In short, the whole idea of MBO is based on assumption that
collaboratively set objectives elicit commitment of the subordinates that leads to
improved performance.
Factors Necessary for a Successful MBO Program
1. Top management support and commitment: It is essential that MBO should
have the support and commitment of the top management without this
support, MBO can never be a success. The superiors must be willing to
delegate and share the authority with the subordinates. They should
consider the subordinates as part of the team for decision making.
2. Clear goal setting: The objectives should be clearly formulated, must be
realistic and achievable. They should be clearly formulated, must be realistic
and achievable. The goals and target neither be very high nor very low.
3. Participative goal setting: The objectives and goals should be set with the
active participation of the subordinates. There should be effective two way
communication between the superior and the subordinates for setting the
goals, and for discussing the subordinates problems. These objective must
be properly communicated and clearly understood and accepted by all. MBO
works best when the goals are willingly accepted.
4. Overall philosophy of management: MBO should be treated as on overall
philosophy of management and the entire organization. It should not be
simply a performance appraisal technique or a divisional process. It should
change and replace all the old systems rather than just being added to them.
5. Decentralization of authority: MBO will not be effective if the manager is
not willing to delegate sufficient authority to the subordinates. The
subordinates who have been given challenging assignments through
discussion with the superior must be given adequate authority to accomplish
their goals otherwise they will resist the setting of clearly defined goals.
6. Revision and modification goals: The goals must be continuously reviewed
and modified, as the changed conditions require, to avoid inflexibility. The
review technique should be such that all deviations are caught early and
corrected.
7. Training and education about MBO: Being a comparatively new system of
management, MBO needs to be properly understood by the managers as
well subordinates so that the benefits and positive contribution of MBO can
be fully reaped. The organizational members must be educated about the
concept, purpose and mechanics of MBO.
 8. Integration of MBO with other organizational sub-systems: MBO cannot be
implemented as an isolated programme. It should be accepted as a style of
managing and should be synthesized with the organizational climate and
sub-system like planning, delegation of authority, performance evaluation,
rewards and benefits, and feedback and controlling. The system should be
absorbed wholly by all departments and members of the organization.
9. Allow sufficient time for MBO to mature and succeed: MBO is not a magic
wand that will solve all the problems of the organization instantly. It is a new
approach, a new thinking of managing organizations. It must be allowed
sufficient time to show results. It usually takes about 4 to 5 years for MBO to
evolve into a full-blown system that ties together such areas as planning,
control, performance appraisal and the reward system.
Group Decision Making
A group is collection of two or more individuals, working for a common goal
and is interdependent. They interact significantly to achieve a group objective. They
achieve greater (volume and quality) than the sum total of individual contribution.
Thus, group decision making refers to decisions taken collectively by a
group of people. In other words, if the decisions taken collectively, it is called group
decision making. It is collective way of making decisions.
Advantages of Group Decisions
The advantages of group decision making are as follows:
1. Increased acceptance: Those who play an active role in group decision
making and problem solving tend to view the outcomes as "ours" rather
than "theirs".
2. Greater pool of knowledge: A group can bring much more information and
experience to bear on a decision or problem than an individual acting alone.
3. Different perspectives: Individuals with varied experience and interests
help the group see decision situations and problems from different angles.
4. Greater comprehension: Those who personally experienced the give-and-
take of group discussion about alternative courses of action tend to
understand the rationale behind the final decision.
 5. Training ground: Less experienced participants in group action learn how to
cope with group dynamics by actually being involved.
Decision Making Process
Decision making is a continuous and dynamic process. It involves a series
of steps. Managers have to follow these steps while taking any decision:
1. Identification of problems: The first step of the decision making process is
to identify the main problems. Generally, problems arise when there is
deviation between actual and planned performances. The reasons for the
deviation may be external and internal factors. It is believed that
identification of problems is the completion of half of the decision making
process. It is similar to diagnosing a disease, which helps in providing the
right medicines to patients. Similarly, when a problem is correctly
understood, it becomes easy to solve.
2. Analysis of problems: After the recognition of problems, another step of
the decision making process is to analyze the problems. For this, a decision
maker has to accumulate all the facts, data and information related with
problems. The number of facts and the volume of information depend upon
the nature and complexity of the problem. It is the part of the decision maker
to study the main reasons of problems and their impact on short as well as
long-term organizational performance.
3. Development of alternatives: A problem may have various alternative
solutions. Therefore, all possible solutions should be identified and studied.
The decision maker should be creative and innovative to identify all the
alternative solutions. The identification of a wide range of alternatives
provides more freedom for brainstorming. The development of alternative
solutions is a mental and creative work which requires discussion and
creativity.
4. Evaluation of alternatives: After development of alternative solutions, each
alternative should be studied and evaluated in terms of the decision making
process. They should be studied by considering the efforts involved and
outcome expected. Generally, the following queries should be taken into
consideration while evaluating any alternative solution; firstly, whether the
alternative solution is feasible in terms of cost, time, legal constraints, human
 and other resources; secondly, whether the alternative is satisfactory for
solving problems; thirdly, whether the consequences of the alternative are
favorable to the organization.
5. Selection of best alternative: This is the final stage of the decision making
process after evaluation of various alternatives. In it, the management has
to select the best course of action from many alternatives. Management also
has to consider both short term as well as long term impact of alternative on
organizational performance. The evaluation of alternative should be made
on the basis of their volume of benefit and cost. The selection of the best
solution helps for implementation and to gain positive outcome in
organizational objectives.
6. Implementation of alternative: This is the operational part of the decision
making process. After the selection of the best alternatives, another task of
the management is to implement it. The decision maker should use his
alternatives and communication skills for successful implementation of the
decision. For this, the decision maker has to delegate authority to the
subordinates on the basis of given of responsibility. Management has to
consider that organizational objective can be achieved only if the course of
action is implemented in the best possible way.
7. Review of implementation: The outcomes of implementation should be
monitored and evaluated from time to time. This is essential to know about
the feedback of the performance. A follow up and review of the actual
achievement is essential. Therefore, an effective follow-up can control the
major deviation between work achieved and work planned
 CHAPTER -6 ORGANIZING FUNCTIONS
CONCEPT
Organizing is the second function of management. Organizing is the process of
making preparation to achieve the planned results by identifying the detailed
activities to be performed, classifying them into manageable units and
establishing productive relationship among various situations. Arranging the
activities in such a way that they systematically contribute to the
accomplishment of organizational goals. Therefore, organizing function involves
a series of activities consisting of:
 Identification of specific activities.
 Grouping of activities into jobs.
 Assignment of jobs to formal groups.
 Establishing a network of authority and responsibility relationship.
 Providing framework of measurement, evaluation and control.

Principles of Organizing
Principles are the fundamental truth and system which are applied in the
process of functioning. The major principles of organizing are discussed as
follows:
1. Unity of objectives: This principle implies that the objectives of various
departments and sections of the enterprise must be formulated in such a
way that every individual can contribute his/her efforts for a single
objective. This is essential to complete the work on time.
2. Specialization: Each individual of enterprise should be given specific
work on the basis of his ability. In such a situation, employee can
concentrate in single work with greater efficiency. And such a repetitive
functioning of a specific work builds-up confidence among the workers to
complete the work within determined standard, time and cost.
3. Co-ordination: Co-ordination is the process of organizing. All the
departments and persons involved in various activities have a common
goal. To achieve so, co-ordination among various departments and their
activities is one of the parts of organizing. The principle not only facilitates
to maintain harmonious working relation among departments and
 employees but also integrates the efforts of all individuals of the
enterprise.
4. Authority and responsibility: Authority and responsibility are two wheels
of a cart having a strong balance between authority and responsibility.
Without proper authority, an employee cannot fulfill his responsibilities
effectively. Likewise, sufficient authority to an employee without
responsibility may result in the misuse of authority. Therefore, there must
be a balance between authority and responsibility.
5. Unity of command: According to this principle, an employee should
receive orders and instructions only from one superior at a time., he
cannot fulfill his duties on time. He comes into confusion for taking
priority of instructions of superiors. Therefore, there must be unity of
command in the enterprise.
6. Scalar chain: This principle implies the unbroken line of authority from
top level to the lowest level of an enterprise. This principle clarifies the
authority responsibilities relationship among superior and subordinates.
The chain of command must be clear and short for its effectiveness.
7. Span of control: This principle refers that there should be a limited
number of subordinates so that their work can be effectively supervised.
The narrow span ensures close and effective supervision as there are
limited numbers of subordinates under a supervisor. In the similar
manner, wide span makes simple supervision of subordinates. Therefore,
depending upon nature and size of the enterprises, there must be
manageable number of subordinates under a superior so as to make
effective supervision.
8. Exception: This principle emphasizes that the top level management must
concentrate only on exceptional and creative issues. These activities
involve planning, policy making, setting long-term objectives and
formulation of strategies. The repetitive and operational activities should
be assigned to the subordinate levels.
9. Efficiency: The efficiency of an organization is measured by its capability
to achieve the predetermined objectives effectively and efficiently. For
this purpose, optimum utilization of available resources is most essential.
Management has to make plan and develop strategy for better utilization
of resources including manpower.
10. Balance: There must be equal division of work among all departments and
sections of an organization. There must be a balance between efficiency
 and efforts. The work should be entrusted to a particular department on
the basis of its capability. The feeling of overemphasis to a particular
department or person must be avoided.
11. Homogeneity: According to this principle every department should be
assigned only homogeneous functions. It means functions of a similar
nature and having the same objectives should be divided into one group.
12. Continuity: Organizing is a continuous process up to the existence of the
enterprise. Where organizational structure should be reviewed and
revised according to changing environment of the business.
13. Simplicity: This principle emphasizes that the management must design
the simple organizational structure. It should be designed in such a
manner that all the members of the organization can understand it easily.
14. Flexibility: the organizational structure must be flexible. It should be
designed in such a manner that it is adaptable to the changing
environment of the business. The management must provide flexibility
within the structure so that it would facilitate changes in organizational
structures as and when it is needed.
15. Personal ability: This principle focuses on the development of personal
ability of all the workers working in the organization. For this purpose,
there must be the proper system of recruitment, selection, appointment
and placement of appropriate workers in right place. Besides, there
should be the provision of training, workshop, supervision, seminar,
further education of the employees.

Process of Organizing
Organizing is the process of establishing relationship among the members of the
enterprise. The relationships are created in terms of authority and
responsibility. Each member is the organization is assigned a specific
responsibility or duty to perform and is granted the corresponding authority to
perform and is granted the corresponding authority to perform his duty. The
various steps involved in this process are:
1. Division of work: The first step is the division of work into specific jobs.
The main function is divided into sub-functions. Each function or job is
entrusted to suitable individual. Jobs may further be subdivided as per
requirement. The idea behind division of work is increasing output and
improving the efficiency and productivity of workers. It also helps in
the introduction of mechanization and specialization.
 2. Departmentalization: The second step of organizing is the grouping of
similar, identical and related jobs into larger units, called section,
department or divisions (i.e. departmentalization)
3. Hierarchy: The third step in the process of organizing is the certain of
authority relationship among different job positions. The organization
establishes hierarchy between superiors and subordinates, so that
organizational work could be carried on without any confusion,
disturbance and misunderstanding. Authority flows downward from
top managerial positions to lower rank in hierarchical order. The
authority goes on decreasing gradually at every downward step.
4. Coordination: In this step, activities are coordinated by setting up
mechanism for integration. Communication channels and committees
are used for coordination.

Approaches to Organizing
Organizing is the process of prescribing formal relationships among people and
resource to achieve organizational goals. There are different approaches to
organizing structure, jobs and assigning jobs to the people. Some of these
approaches are as follows:
1. Classical Approach: This approach is also known as classical theory of
organization. Under this approach, the classical writers have viewed
organization as a machine and human beings as different components of
that machine. It has its origin in the writing of Taylor.
2. Behavioral Approach: It is also known as neo-classical theory of
organization. It has introduced the human relations approach in the
classical theory of organization. The main prepositions of this theory are:
(1) The organization is general is a social system composed of several
interacting parts; (2) The social environments on the job affect people
and are also affected by them; (3) Besides formal organization, informal
organization also exists and it affects and is affected by formal
organization; (4) Integration between organizational and individual goals
is a must; (5) Man's behavior can be predicted in terms of social factors
at work; (6) Man is diversely motivated and social-psychological factors
are important; (7) Man's approach is not always rational; (8) Team-work
is essential for cooperation and sound organizational functioning; and (9)
Effective communication is necessary for sound organization.
 3. Contingency Approach: It is also known as modern organization theory.
Contingency approach states that organizing is depended on situational
factors. The most important is technology, environment, organization
size, organizational life cycle, etc. According to contingency approach
each situation is unique and demands unique organization structure.
There is no one best way. But, in practice, it is difficult to identify relevant
situational factors.

Departmentalization
Departmentalization is the process of logical grouping the similar
nature functions into manageable units for the purpose of overall coordination
of organizational resources. In an organization, many persons perform various
functions in different situations. It is not possible to perform all types of work at
a time and by same group of people. It is essential to classify activities into
manageable units. Therefore, departmentalization is the process of dividing
the large and complex organizational functions into small and flexible units to
complete the work in efficient and effective manner.

Types/Bases of Departmentalization
The following are the major basis of departmentalization in an
organization:
Departmentalization by Functions
This is the common and popular basis of departmentalization of an
enterprise. Under this form, various departments are created on the basis of nature
of functions to be performed like production, marketing, finance, sales etc. A
department head or manager is appointed to supervise and control the activities
of the concerned department. All departmental heads are specialists and experts
in their own area of business. Since the members working in a department have
similar background and interest, it gives rise to specialization which makes
manpower more efficient and skilled.
Departmentalization by Product/Service
This method of departmentalization is used specially by those
manufacturing firms that involve in large scale and various lines of product and
services. A separate department is created for a single product or product line and
all functions like production, finance, marketing, personnel etc. of one
department are brought together under the concerned department. Each
department is independent and responsible to improve and expand its business
performance. The department manager is responsible for its revenue, expenses,
profits, loss, failure, success.

Departmentalization by Customers
This type of departmentalization is applied to those organizations which
deal differently with different customers. Types of customers are the key basis of
departmentalization of the enterprise. Banking organizations create departments
on the basis of customer service like deposit, cash withdrawal, letter of credit,
loan etc. Similarly, business organizations can be divided into industrial product
buyers and consumer product buyers. Likewise, consumer product buyers again
can be classified into wholeseller, retailer and final consumers.

Departmentalization by Territory
This form of departmentalization is applied specially in those
organizations that involve in business activities in different geographical
locations. It is also appropriate for large scale enterprises which is geographically
spread out in many locations like insurance companies, banks, transport
company, chain stores. All activities of specified territory are assigned to a
particular department or regional manager. Activities are grouped into
development regions, zones, districts, provinces etc. In such departmentalization,
the local customers are served by the divisional managers while the plans and
policies are formulated by the head office.
Departmentalization by Process
This method of departmentalization is applicable in those organizations
where production activities need some distinct process. Specially, this method is
used in large scale manufacturing concerns such as textile, cement, chemical,
medicine, etc. The activities are grouped on the basis of process. The activities of
each process are assigned to a departmental head who is responsible for all the
functions of the concerned department. This is to maintain working efficiency of
each process and to economize productivity. For example, department of a textile
industry may be formed into ginning, spinning, weaving, dyeing and finishing
department.

Departmentalization by Time
Time is also a basis of departmentalization in many organizations,
especially, those that involve in public utility, production or service. Generally,
hospitals, hotels, telecommunications and other public utility organizations which
work around the clock from departments on the basis of time shift such as day,
evening and night shifts. Therefore, a separate department is created on the basis
of shift and a departmental head is appointed for each shift to maintain controlling
of the activities of the concerned shift.

Delegation of Authority
Delegation of authority is the process of assigning work to
subordinates and giving them necessary authority to do the work effectively.
It is the process by which managers assign a portion of their workload to
others. The concept of delegation has been developed due to the increase in the
business size and its complexities.
Thus, delegation of authority refers to the downward transfer of authority
from a superior (manager) to a subordinate. It is a pre-requisite to the efficient
functioning of an organization because it enables a manager to use his time on
high priority activities. It also satisfies the subordinate's need for recognition and
provides them with opportunities to develop and exercise initiation.
Steps of Delegation of Authority
The steps of delegation of authority comprises of the following steps:
1. Assigning Specific Duties
The first step of delegation of authority is assigning specific duties to the
individual. In all cases, manager must be sure that the subordinates assigned to
specific duties has a clear understanding of what these duties entail.
2. Granting Appropriate Authority
The second step of delegation process involves granting appropriate
authority to the subordinate – that is, the subordinate must be given the right and
power within the organization to accomplish the duties assigned.
3. Acceptance of the Assignment
At this stage, the subordinate either accepts or rejects the tasks assigned
to him/her by the superior or manager. If the subordinate refuses to accept the
duty and the authority to perform it, then the manager looks for the other person
who is capable of and willing to undertake the assignment.
4. Creating the Obligation
The last step involves creating obligation for the subordinate to perform
the duties assigned. Once the assignment is accepted by the subordinate, then
he/she becomes responsible for the completion of the duty and is accountable to
the superior for his/her performance. So, the subordinate must be aware of the
responsibility to complete the duties assigned and must accept that responsibility.

Obstacles (Barriers) of Delegation of Authority

A. Obstacles related to Supervisors and Managers
Despite knowing the importance of delegation of authority, superiors
sometimes do not delegate work to subordinates. This is because of the
following reasons:
1. Reluctance to delegate
Its first kind of obstacle of delegation of authority that is related to the
supervisors and managers. When they feel that they can do better, employees are
not capable enough, or take much time to explain, they will be reluctant to
delegate authority. Some managers are so disorganized that they are unable to
plan work in advance and as a result cannot delegate properly.
2. Fear of competition
The manager may not delegate authority due to the fear on his part that
the subordinate may excel in the work and may be promoted. Though this barrier
is usually unexpressed and unconscious, it is real.
3. Lack of Ability to Direct
In delegation, superior needs to direct and provide necessary instructions
and guidelines to subordinates. If the manager has no ability to direct, he may
hesitate to delegate authority.
4. Incompetence of Subordinate
Subordinates may lack of competence to do the delegated jobs in effective
manner. Lack of confidence is yet another serious problem standing in the way
of subordinate's accepting the authority.

B. Obstacles related to Subordinates

Subordinates present the following obstacles and barriers to effective
delegation:
1. Fear of Doing Mistakes
Some subordinates fear that if they make mistakes in carrying out the
delegated responsibilities, their superiors will criticize them for unfavorable
outcomes. This fear discourages them from taking added responsibilities.
2. Inadequate Motivation
Delegation of authority involves additional responsibility. Suitable
motivation (financial/ non-financial) and incentives must be provided to
encourage those subordinates who prove their spirit. Lack of motivation or
incentive is another reason why subordinates do not show any preference for
authority.
3. Lack of Information System
Subordinate may hesitate to accept a new assignment if they believe that
they lack the necessary information and resources to perform the job well.
4. Convenience
Sometimes subordinates prefer the work done by superiors rather than
assuming responsibility for the same, for the sake of convenience. They simply
want their bosses to make the decisions.

C. Obstacles Related to Organizations

Some of the obstacles related to organizations are:
1. Size of The Organization
A small-sized organization will not have too many jobs to delegate to
subordinates. It is, thus, not responsive to delegate of tasks.
2. No precedent of Delegation
Merely because organizations have not earlier been following the practice
of delegation sometimes makes them continue with the practice of not delegating
the jobs.
3. Degree of Centralization and Decentralization
Efficient delegation is affected by the degree to which organization
distributes the decision making power to various organizational units. A highly
centralized organization is obstructive to the process of effective delegation.
4. Lack of control
The success of delegation can be measured only if the organization has a
proper control system. The absence of such a system would only make delegation
a useless exercise.

ELEMINATING OBSTACLES TO THE DELEGATING PROCESS

Eliminating obstacles to the delegating process is important to managers
because delegating has significant advantage for the organization. Because of this
delegation the organization gets larger, assistance from subordinates in
completing tasks the manager simply wouldn't have time for otherwise. That’s
why managers need to eliminate obstacles to the delegation process. For this, they
can follow following ways:
1. Accept the need for delegation
When superiors are reluctant to delegate because they want to do things
themselves rather than allowing subordinates to do, they should realize the need
for delegation. In fact, more the delegation, more successful will be an
organization.
2. Confidence in Subordinates
Rather than feeling that subordinates are not capable of accepting
responsibilities so that delegator does not take the risk of delegation, the delegator
should understand that a person learns through mistakes and if he/she commits
mistakes, he/she will try to find solutions to the problems also. If subordinates
make mistakes, superior should guide them rather than not delegating at all.
3. Communication
Where delegation becomes ineffective because subordinates do not have
information for making decisions, an effective communication system should be
developed so that information flows freely from superiors to subordinates.
Delegatees should be allowed to freely discuss the problems with the delegators.
4. Motivation
Subordinates should be motivated to accept the responsibilities by
providing financial and non-financial rewards like status, recognition etc.
5. Effective Control System
Since ultimate responsibility for the work assigned is that of the delegator,
he/she should ensure that subordinates perform well by setting standards of
performance against which actual performance shall be measured. Delegator
should check the activities of delegates rather than not delegating.
6. Choose the Right Person for the Right Job
Lack of confidence in subordinates can be overcome by dividing the work
into units and sub-units and assigning to person most suitable for the job. There
should be proper matching of the job and the person performing it.
7. Clarity of Tasks
The responsibilities or tasks delegated to subordinates should be clearly
defined in terms of results expected out of those tasks. Knowing their job and
goals to be achieved out of them will enable the subordinates perform the
delegated task better.
8. Monitoring the Critical Situations
Subordinates may make mistakes, however efficient they are at work.
Superiors should overlook minor deviations with respect to delegated tasks and
focus on major deviations in the tasks assigned. This promotes better response
and a sense of responsibility amongst employees.

CENTRALIZATION
The systematic reservation of decision making authority at the top
level management is centralization. It reduces the role of subordinates and the
top level assumes full responsibility of the business. Top level managers have
direct control over each and every business activity of the organization while the
decision making authority is also vested on them.

ADVANTAGES OF CENTRALIZATION
The following are some of the advantages of centralization:
1. Facilitates unified direction
Top level managers take all the decisions in centralization. It is not
necessary to consult and take consent of subordinates while taking a decision.
The subordinates perform all the on the basis of instructions which facilitates for
the maintenance of uniformity and consistency in performance.
2. Simplifies Structure
In centralized organization, the structure tend to be simple and clear. It
involves two levels- managerial and operating levels. Managerial level is
responsible for decision making whereas operating level is responsible for
execution.
3. Facilitates quicker decisions
Centralization facilitates quicker decisions as one manager takes all the
decision. Managers can take suggestions and guidance from experts and
professionals, but the final decision is taken by him. Quick decision is essential
for the success of the business in this competitive environment.
4. Economy in Operation
In centralization, many levels and positions of management are reduced.
It minimizes overhead cost of the organization. It also helps in effective
utilization of skilled, qualified and experienced members.
5. Integrates Operation
Centralization helps to integrate and unify all the operations of the
organization. The top level manager maintains close supervision of the
subordinates and their functions. On the basis of requirement, a manager takes
quick decisions to maintain control over the activities of the employees.
6. Suitable for small firms
Centralization is highly appropriate for small business organizations
performing business in a competitive environment. In such organizations,
managers can personally look after the overall activities of the organization.

DISADVANTAGES OF CENTRALIZATION
The some of the disadvantages of centralization are;
1. Unsuitable for large organizations
Centralization is inappropriate and impractical in large organizations
having various branches in different locations. It is difficult to communicate
managerial decisions to different operating levels in the management hierarchy.
Top level managers cannot effectively supervise and control all the activities of
the organization.
2. Manager is overburdened
In centralization, top level managers are overburdened with authority and
responsibility while managing each and every activity of the organization. He
cannot devote sufficient time in other major issues. It tends to decrease working
efficiency in the organization.
3. Possibility of power misuse
Centralization of authority at the top level may result in under-utilization
of power. Top level managers may exercise their powers on the basis of their
personal judgement. This may lead to misuse of authority if the managers lack
proper skills and ability.
4. Low morale and motivation
In centralization, middle and lower level managers feel uncomfortable
while performing the assigned task. They do not have the required authority to
deal with the problems effectively. They do not get an opportunity to show and
develop their potentiality. The lack of motivation tends to affect the morale of
subordinates.
5. Lack of environmental adaptation
Business environment is dynamic, and, therefore, it changes according
to time. In business, it is essential to take quick decisions to resolve problems of
concerned departments or branches. Centralization is not applicable in dynamic
environment as flexibility will not come promptly from the top level.
6. Inappropriate for routine decisions
In centralization, top level managers devote maximum time in taking
routine decisions. Therefore, they cannot devote more time in non- programmed
decisions. This will have a negative impact on the long-term performance of the
organization.

DECENTRALIZATION
Decentralization is the philosophy of systematic and scientific
delegation of managerial authority to middle and lower level managers in
accordance with their responsibility. This philosophy states that the top level
management should keep limited authority and delegate maximum authority to
operating levels. Top level management has to play the role of supervisors.

ADVANTAGES OF DECENTRALIZATION
Brief discussion of advantages of decentralization are:
1. Relief to top level management
In decentralization, most of the routine managerial responsibilities are
delegated to middle and lower managers. It minimizes the excessive workload of
the top manager. It gives sufficient time to the top level managers to concentrate
on non- programmed decisions like planning, policy making, strategy
formulation etc.
2. Facilitates manager's development
In decentralization, appropriate responsibility and authority is delegated
to subordinate level managers. It gives them an opportunity to hone their skills
and efficiency so as to get promotions. Therefore, decentralization creates the
reserve of talency.
3. Possibility of better decisions
Decentralization delegates the decision making authority to the
managers nearest to the level of operation. The managers working nearest to the
operation are in a better position to understand the complexity of the problems.
This helps in taking a better decision to solve a problem.
4. Effective control
In decentralization, it is convenient to set standards of performance. This
helps to compare actual performance with the standard more quickly. This helps
in taking prompt decisions to correct deviations. This leads to maintaining
effective control.
5. High morale and motivation
Decentralization is highly motivational as it gives the subordinates the
freedom to act and take decisions. This develops among the subordinates a feeling
of status and recognition and ultimately a feeling of dedication, commitment and
belongingness. This, likewise, helps in maintaining high motivation and morale
of subordinates.
6. Facilitates diversification
The addition of new product lines or expansion of existing lines of
business develops complexity in an organization. This also develops a challenge
to the top level manager. The top level manager can meet such challenges by
delegating authority to his subordinates by. He can only play the role of coordinator.
7. Environmental adaptation
A dynamic environment may create problems in different units. In
decentralization, decision making authority is given to the operating level
managers. This facilitates quicker and flexible decisions on the basis of situation.

DISADVANTAGES OF DECENTRALIZATION
 Some of the disadvantages of decentralization are;
1. Increase in expenditure
Decentralization needs qualified, competent and skilled managers at the
middle and lower levels. They are to be paid remuneration on the basis of their
qualification on the basis of their qualification and experience. Besides, there is
the possibility of duplication of effort, which unnecessarily may increase cost of
production.
2. Conflict
In decentralization, the top level management puts more pressure on
departmental managers to increase output and revenue. In such a situation, every
department lays more emphasis on their own departmental goals instead of
corporate goals. This may give rise to inter- departmental conflict and too much
fragmentation creates problems in coordination and control.
3. Unsuitable for emergency situations
In decentralization, lower and middle level managers are assigned
authority only for routine decisions. Whenever they face complex and non
programmed problems they cannot take decisions due to limited authority.
4. Maximizes risk
The decision making authority is delegated to the subordinate level. If
subordinates are unskilled and incapable, they may take wrong decisions, which
may increase the risks and result in losses.
5. Difficulty in communication
In decentralization, different departments may be formed in various
locations and authority and responsibility are assigned to the departmental heads.
If the network system to communicate information is unclear, communication
will be distorted.
6. Unsuitable for specialized services
The concept of decentralization is not applicable in all types of services. It
is not suitable for specialized nature of services like accounting, human resource,
engineering, surgery etc.

MECHANISTIC ORGANIZATION
 Mechanistic structure, also known as bureaucratic structure, describes an
organizational structure that is based on a formal and centralized network. It is a
rigid and tightly controlled structure characterized by high specialization,
narrow span of control, high formalization and a limited information
network. The whole structure is organized like a well-designed machine.
Decision making is centralized at the top level management. Subordinates are
expected to follow the directions of management without any questions. The
mechanistic form is appropriate for traditional hierarchy way of organizing.

ORGANIC ORGANIZATION
Organic organization model is a structure that is highly adaptive and
flexible according to changing environment. They are more flexible and open.
Tasks are less rigidly defined allowing people to adjust to situational
requirements. It emphasizes on team specialization. Decision making is
decentralized to subordinate levels. Communication is lateral among various
functional departments. Work, over here, is frequently organized around team of
employees as it is needed. Though employees are highly trained and empowered
to handle various activities and problems independently, they need to consider
minimum formal rules and regulations and small direct supervision from
superiors.

ORGANIZATION ARCHITECTURE
Organization architecture refers to the structure by which an organization
integrates the human activities and capital resource utilization within a structure
of task allocation and coordination to achieve desired outcomes and performance
for both short and long run.
Organization architecture is the totality of a firm's organization, including
organization structure, control systems, incentive systems, culture and people. It
is a network of relationships among these elements of an organization. Thus,
effective organization architecture is essential for systematic and uniform
functioning of the organization.

(A) VERTICAL DIFFERENTIATION

 Vertical differentiation refers to the location of decision making
responsibilities within a structure (centralization/decentralization) and also to the
number of layers in a hierarchy (either tall/flat). It indicates who has the authority
to make decisions and who is expected to supervise which subordinates.
Basically, it determines reporting relationships and the nature of structure in
terms of tall or flat.
(i) Tall Hierarchy or Structure
The organization which constitutes of different hierarchy levels is tall
hierarchy or structure. With this structure, an organization will have a numbers
of managers, each of which will be responsible for controlling a portion of the
organization. The lowest layer includes employees with no managerial authority.
These employees report to the next layer, or the first layer of management. Large,
complex organizations often require a taller hierarchy. In its simplest form, a tall
structure results in one long chain of command similar to the military. As the
organization grows, the number of management levels increases and the structure
grows taller. In a tall structure, managers form many ranks and each has a small
area of control.
(ii) Flat Hierarchy or Structure
A flat hierarchy or structure refers to an organization structure with few or
no levels of management between management and staff level employees. The
management trusts the employees and authority is decentralized. The flat
structure is very beneficial in completely eliminating bureaucracy and
middlemen. It focuses on empowering employees rather than adhering to chain
of command. By encouraging autonomy and self-direction, flat structure attempts
to tap employees creative talents and to solve problems by collaboration. Mostly,
small companies use flat structure to get benefits such as faster response time to
changing conditions and customer preferences.

(B) HORIZONTAL DIFFERENTIATION

Horizontal differentiation refers to the formal division of the organization
into sub units. It is the basis for dividing work into specific jobs and tasks and
assigning those jobs into units. Departmentalization is the example of such
differentiation. The types of such differentiation are; functional, multidivisional,
geographic and matrix.

(i) Functional Organizational Structure

 Under functional organization structure, the organization is divided
into a number of functional areas. Each function is managed by an expert in that
area. Under it, various activities of the enterprise are classified according to
certain functions like production, sales, purchase, finance, personnel etc. and are
put under the charge of functional specialists who directs the subordinates in his
particular area of business operation.
(ii) Multi- Divisional Structure
Multi-divisional is structure composed of self-contained divisions based
on products, customers, technology and geographical areas. Each division
contains the major functional resources it needs to persue its own goals with little
or no reliance on other divisions. This structure is used when a company produces
many products or provides service to different types of markets. Here, the key
functional activities are present in each division.
(iii) Geographic Structure
Organizations having larger market and network of distribution use
territorial or geographical structure. It is an organization structure where company
hierarchy is divided on the basis of geographical location in which the company
operates which is headed by central head office.
(iv) Matrix Organization Structure
Matrix organization is a newly evolving organization structure which has
received considerable attention in the developed as well as developing countries.
This organization is formed to complete various types of project of specific and
unique nature. This is also known as project management structure. It requires
diverse technical and administrative experts to adjust efficiently with the dynamic
and rapidly changing environment of the business.
Each employee in a matrix unit reports to two bosses-a functional manager
and a product or project manager. This means that there are dual lines of authority
in the matrix organization.
A matrix structure is the most complex of all designs because it depends
upon both vertical and horizontal flows of authority and communication (hence
the term matrix). In contrast, functional and divisional structures depend
primarily on vertical flows of authority and communication. Despite its
complexity, the matrix structure is widely used in many industries, including
construction, healthcare, research and defense.
Modern Organizational Structures
(i) Team Based Structure
A team is a group whose individual efforts result in positive synergy through
coordinated efforts. It refers to two or more persons who interact and influence
each other toward a common purpose.
Teams facilitate employees' participation in opening decision. Nowadays,
business organizations are adapting such team in their organizational structure. A
team based structure attempts to combine both horizontal and vertical
coordination through structuring people into cross-functional teams. Cross-
functional teams consist of members from different departments and work areas.
For example, an information systems company might have development
teams, product teams and application teams who, respectively, are responsible
for: (a) new product development, (b) service and support of customer groups,
and (c) customizing products to particular customers (or customer groups). Each
of these teams will have a mix of specialists within it.
(ii)Network Structure
The network structure is a form of organizing in which many functions are
contracted out to other independent firms and coordinated through the use of
information technology networks. The network structure is a series of
independent firms or business units linked together by computers in an
information system that designs, produces, and markets a product or service. This
structure becomes most useful when the environment of a firm is unstable and is
expected to remain so. Under such conditions, there is usually a strong need for
innovation and quick response. Instead of having salaried employees, it may
contract with people for a specific project or length of time. Companies like Nike,
Reebok and Benetton use the network structure in their operations function by
subcontracting manufacturing to other companies in low-cost.
(iii)Committee Organization Structure
A committee is a group of persons formed to discuss and deliberate on
problems and to recommend or decide solutions. Thus, committee organization
structure is the structure where authority and responsibility are jointly held
by a group of individuals rather than a single manager. It represents a group
of people with knowledge in various fields. It is formally constituted to solve
specific problems. The primary function of the committee is to suggest and guide
the management in decision making procedures and solve the problems of various
departments. The types of committee can be Executive Committee, Advisory
Committee and Ad hoc Committee.
(iv) 360 Degree Structure
360 structure is a technique that is systematic collection of
performance data on an individual group, derived from a number of
stakeholders like immediate supervisors, team members, customers, peers,
and self. In fact, anyone who has information on how an employee does a job
may be one of the appraisers. This method is also known as multi-rater
feedback, multi-source feedback, full- circle appraisal and group
performance review. This structure is highly useful in terms of broader
perspective, greater self-development and multi- source feedback. It is
generally used for evaluating managerial performance.
 LESSON -7 LEADERSHIP
Concept of Leadership
Leadership is the ability to persuade others to seek defined
objectives enthusiastically. Leadership is an important and necessary skill for
achieving group performance. It is the art of influencing and inspiring the
behavior of others in accordance with requirement. It is the personal quality of
individual who organizes the efforts of individuals and directs them to achieve
common objectives.

Leadership is applicable to the managers. And a successful manager

must have leadership qualities to influence the behavior of his subordinates. He
has to lead his subordinates in such manner that organizational and individual
objectives can be achieved. Thus, the manager must have complete vision of
how to operate resources and achieve organizational objectives.

" Leadership is the art of process of influencing people so that they will stripe
willingly and enthusiastically toward the achievement of group goals."

- Knootz and Weihrich

Nature/Characteristics of Leadership

1. Process of international influence: Leadership is a process of

interpersonal influence. A manager is said to be a leader when he is able
to influence his subordinates in accordance with organizational
requirements.
2. Leaders and followers: There should be mutual relation between a leader
and followers. Followers are supposed to follow their leaders' foot/steps
only by getting inspiration from his conduct, ability and behavior.
Similarly, followers influence the leader through their performance, effort
and behavior.
3. Common goals: Leadership aims at the pursuit of common goals, in other
words, a leader and followers must have the common objectives. Leader
directs and guides the followers to gain planned objectives. Followers also
perform their activities accordance with the directions from the leader.
Thus, the interests of individuals and those of organization should be
same.
 4. Continuous exercise: Leadership is a continuous managerial process till
the existence of an organization. There managers have to influence the
behavior and performance of subordinates on a regular basis. Hence, it is
the responsibility of the manager to direct and guide the subordinates
regularly.
5. Leadership is situational: The role of leadership assumes significance in
critical situations. It is the duty of the leader to inspire subordinates to
overcome the critical situation and help them to lead to the destination
in a successful way. A leader must be innovative and creative to handle
difficult and unexpected situations.
6. Rest on power: Leadership rests on power rather than formal authority.
Here, power focuses on the personal outstanding qualities of the leader
through which he influences the followers. In the context of the manager,
some formal authority is rested due to managerial designation.
7. Blend of inspiration, motivation and communication: Leadership is a
blend of inspiration, motivation and communication. It is the process of
influencing the behavior and performance of followers by inspiring them.
A leader has to apply appropriate motivational tools (incentives) to inspire
subordinates. In the absence of any element, a leadership mission cannot
be successful.

Functions of Leadership

1. Goal determination: This is a primary function of a manager. As a leader

of the organization. It is the responsibility of the manager to establish
organizational objectives. He determines both short-term and long-term
goals of the organization. For setting goals, he might have to take
technical and logical support from skilled persons.
2. Coordinate organizational activities: A leader plays the role of
coordinator. Organizational are divided into different groups on the basis
of these nature. A separate department is created for each work and
handed over to a responsible person. It is the responsibility of the
manager to maintain coordination among all the departments and their
activities.
3. Represent the organization: As a leader, a manager represents his group
and also the organization. He makes agreement and contract with outside
organizations and authorities on behalf of the organization. He also
 represents the organization while participation in meetings, conferences,
seminar and other programmes.
4. Integrate objectives: A manager plays an important role in integrating
both individual and organizational objectives. In it the workers might see
their best performance when they feel that their personal objectives will
be fulfilled after the attainment of organizational objectives. This
objective is a part of managerial functions of the leader to develop such
an environment in the organizational. Thus, when employees perform
their best effort and efficiency, it will become easy to gain organizational
objectives.
5. Direct and motivate staff: The manager is responsible for implementing
plans. After designing the organizational structure, a manager has to
divide work among the staff and give clear instructions on how to
discharge the given responsibilities.
6. Organize activities: As a head of the organization, a manager has to
organize many activities of the enterprise. These activities involve
production, distribution etc. which are essential to achieve planned
objectives. At the initial stage, it is essential to identify various types of
activities to be performed in the organization. And again on the basis of
their nature, they should be divided into groups and delegated to
responsible employees.
7. Encourage teamwork: the feeling of teamwork among all the authorities
of the organization is a must to gain common objectives. It is the
responsibility of leaders to encourage all the subordinates to work as a
group. For this, he has to maintain coordination among all the
departments and individuals working in the organization.
8. Communication: Communication is an important tool for the flow of
information in and outside the organization. The manager provides
instructions, guidance and suggestion to the subordinates through
appropriate means of communication. In the similar manner, he gets
feedback of output and problems also through the means of information.
Thus, it is the responsibility of the manager to develop a proper
communication system in the organization.
9. Take initiation: Change in organization structure, procedures and process
of work is a must to adjust with the changing environment of business.
Therefore, a successful leader always initiates changes in accordance with
 requirements. He should overcome the resistance of change by showing
positive impact of changes on organizational affairs.
10. Control and supervision: Controlling is one of the important functions of
manager to measure actual achievement of work with that of planned
works and take corrective action. For this, it is the responsibility of the
manager to supervise the performance of subordinates according to time
and situation. But, a corrective action must be taken if any defect in the
activities is found.
Leadership Styles
Leadership is the process of influencing the subordinates so that they can
perform their works willingly and enthusiastically to achieve common goals. The
philosophy of leadership might either be superior oriented or subordinate
oriented. The widely accepted leadership styles are as follows:
1. Autocratic Leadership: this is also known as authoritarian and dictatorial
leadership. In this leadership, the leader has the sole authority to take a
decision. In other words, a leader believes in centralized power and
expects all decision from him without consultation with subordinates. He
always expects subordinates to accept his decisions without any
comment. In short, he behaves like a dictator.
As a leader, manager centralizes total power with him and enjoys full
authority and bears responsibility of the organization. He determines
plans and policies independently and implements them according to his
knowledge and logic. He never takes any suggestion and guidance from
his subordinates.
In autocratic leadership, there is the system of one-way communication.
In it the information of instruction and guidance only flows from top level
to the subordinate level. This autocratic leadership can be sub-classified
into two group strict autocracy and benevolent autocracy.
In strict autocracy, a leader always uses negative motivation. He
motivates the subordinates by threatening them with penalty,
punishment, demotion etc. A leader is all in all in each and every activity
of the organization. In benevolent autocracy, a leader uses positive
motivation. He encourages the subordinates by giving incentives like
promotion, more remuneration etc. in some situation, he also takes
suggestions and guidance from subordinates.
 2. Democratic Leadership: This is liberal type of leadership which is also
known as participative leadership. Under this type of leadership, a leader
believes in decentralization of power and invites subordinates in the
decision making process. This leadership style is suitable and practicable
where subordinates are trained, experienced and skilled. The upper level
of management is responsible for the preparation of plans and policies
whereas subordinates are responsible for their implementation. It
emphasizes participative management.
In democratic leadership, a two-way communication system exists. There
the information of instruction and guidance flows from the top level to
the subordinates whereas the information of achievement, problems and
suggestions flows from the subordinate level to the upper level. Here, a
leader always uses positive motivation and encourages subordinates by
providing rewards and incentives. The feeling of team is developed among
all the employees.
3. Laissez-Faire or Free Rein Leadership: Under this style, leaders avoid
power and responsibility. They grant authority and responsibility to
groups. The role of the leader, here, is to provide advice and direction as
requested by the subordinates. Group members perform everything
themselves. Leader behaves primarily as a group and plays the role of a
member only. The concept of management by exception promotes this
type of style, where subordinates themselves plan, control, evaluate and
decide and the manager interferes exceptionally. This style is suitable for
highly trained and professional staff.
4. Paternalistic Style: Under this style, the leader assumes paternal or
fatherly role. He works to guide, protect and keep followers, who work
together as a member of a family happy. He makes provision for good
working conditions and other necessary services. It is hoped that under
such leadership, workers will work hard out of gratitude.
In fact, each leadership style is effective when it matches the needs of the
situation, the attitude and belief of work group and leader. Practically, all
leaders have to involve themselves actively in the work of a group.
Approach to Leadership
Broadly, there are three approaches to leadership which are described
Below:
1. Trait Approach to Leadership
The trait approach to leadership is based on early research which assumes
that a good leader is born and not made. It is a modification of the great
man theory which assumes that leadership qualities can be acquired. The
trait theory of leadership emphasizes that there are certain identifiable
qualities that good leaders must possess. Trait approach considers
leadership as a set of qualities possessed by an individual. Leadership
qualities may be in-born or they may be acquired through higher
education, training and practice. Trait theory is useful in developing
training programmes for managers at various levels.
Some researchers on trait theory emphasizes on intelligence, initiative,
self-confidence, and individually being superior ability for leadership.
Others stress intelligence, scholarship, dependability, responsibility,
social participation and socio-economic status as the requisites of
leadership. However, the common traits necessary for successful
leadership are intelligence, initiative, imagination, optimism, enthusiasm,
courage, creativity, originality, communicative ability, self-confidence,
human understanding and a sense of fair play.
Brief description of some common traits that an effective leader should
possess are as follows:
i. Achievement drive: Leadership having such trait have clear vision
about the objective of the organization and procedures of
achieving predetermined objectives. They exhibit a high level of
effort. They have a relatively high desire for achievement. They are
ambitious, they have a lot of energy, they are tirelessly persistent
in their activities and they show initiatives.
ii. Leadership motivation: Leaders possess an intense desire to lead
others to achieve common goals. They have skill to encourage
subordinates to do the assigned job according to best of their
ability. They have knowledge about the needs and requirements of
subordinates and how to apply appropriate motivational tools at
the right time.
iii. Honesty and integrity: Successful leaders are trustworthy, reliable,
and open. They build trustworthy relationship between
themselves and with followers by showing true behavior. A
trustworthy leader can win the confident of subordinates. Besides,
leaders integrate both organizational objectives and individual
objectives of the employees.
iv. Self-confidence: Leaders belief in own-self and their ideas and
ability. They have confidence for any kind of work they are doing.
They have knowledge about the outcomes of decision and
activities. They guide and lead the subordinates along with most
enthusiastic lines of action. They take decision with full of
confidence by showing the subordinates that they have ability to
do things better.
v. Cognitive ability: Leaders are capable of exercising good
judgement, strong analytical abilities, and conceptually skilled.
They have the ability to maintain impartiality and judgement. They
take various types of decisions in different situations. But they have
ability to take the right decision at the right time.
vi. Job related knowledge: Leaders have technical knowledge on all
the activities done in the organization. They have knowledge about
how to start work, its procedures and accomplishment of task.
They are experts and they can technically guide the subordinates
towards the most efficient and economic completion of job.
vii. Emotional maturity: Leaders are well adjusted and never suffer
from severe psychological disorders. They are flexible and
dynamic. It is well known that social environment is changeable
according to time. Successful leaders need to adapt themselves
with the changing environment. For this, they need to modify
behavior on the basis of time and situation.
viii. Creativity and originality: A leader must be creative in generating
new ideas, concept, and knowledge for better performance of the
organization. He should maintain keep in touch with the changing
technology in the concerned areas of business. He should take
decision and action on the basis of own originality. Imitation or
copy from others must be avoided while taking any important
decision.
ix. Organizing ability: A leader must have an organizing ability. He
must have the ability to make appropriate division of works among
subordinates. Besides, he should possess ability to arrange physical
facilities and modern technology on the basis of requirement. He
needs to establish well defined productivity relations among all the
subordinates. It is essential to maintain coordination output within
minimum cost and efforts.
2. Behavioral Approach to Leadership
Behavioral theory attempts to describe what an effective leader should
perform in the day-to-day management. An effective leader is one who
performs those acts, and who supports group to achieve objectives. The
overall goal of the behavioral approach is to identify and measure
relevant leadership actions and behavior that leads to enhance
subordinates productivity and morale. Hence, the attention has shifted
from who the leaders are to what the effective leaders do, how they
delegate tasks, how they communicate try to motivate employees. The
four leadership behavior studies that attempt to identify the leadership
behavior are explained below:
A. The Ohio State Studies
A group of researchers at Ohio State University conducted and extensive
study of leadership behavior and effectiveness. The basic purpose of this
study was to identify independent dimensions of leader behavior and to
determine the effect of these dimensions on the work performance and
satisfaction. After considerable research and analysis, the researchers
concluded that there are two dimensions of leader's behavior: initiating
structure and consideration.
i. Initiating structure: Initiating structure refers to the extent to
which a leader is likely to set goals, define structure and organize
task. In this dimension leader is task oriented and concerned with
utilization of resources to accomplish group goals. The leader
involved in planning, coordinating, directing, problem solving etc.
Leaders scoring high initiating structure could achieve high
productivity or performance.
ii. Consideration: Consideration is described as the extent to which
the leader has supportive work relationship. In this dimensions,
leader is employee oriented and concerned with the quality of
relationship with subordinates. The quality of leadership is
characterized by warmth and mutual trust, good relations and a
respect for feelings, ideas and suggestions of group members.
There is a strong concern for followers' comfort, well-being, status
and satisfaction. The leader is friendly, approachable and treats
subordinates fairly.
The two leadership orientations discussed above are independent
of each other. However, the studies concluded that the
 combination of high consideration and high initiating structure in
leader behavior were likely to result in high productivity and
satisfaction at the same time.
B. The University of Michigan Studies
Researchers at the University of Michigan, leads by Rensis Likert began
studying leadership in the late 1940s. the purpose of this study was to
identify the behavior characteristics of leaders that were related to
performance effectiveness. After studying a large number of supervisors
in several factories, the Michigan group came up with two dimensions of
leadership behavior employee oriented. They also identified three critical
characteristics of effective leaders- task- oriented behavior, relationship-
oriented behavior and participative leadership.
i. Employee oriented: In this dimensions, leader emphasized on
interpersonal relations. Managers using employee oriented leader
behavior allowed sufficient freedom and provided necessary
assistance to subordinates. They take personal interest in the need
of employees. They emphasize on interpersonal relations, and took
a personal interest in the hands of their employees. Their primary
concern is the welfare of subordinates. Managers having employee
oriented belief that if good relation is maintained with employees
they do assigned job by developing the feeling of self -
responsibility.
ii. Production oriented: In this dimension leader emphasizes on
technical and task aspect of job. The main concern is to accomplish
group task. Leader paid close attention to subordinates' work,
explained work procedures and regarded group members as focal
point. They provide necessary resources essential for smooth
functioning of the organization. Managers having production
oriented belief that task is the primary concern of subordinates and
relationship is maintained with subordinates on the basis of task
performance.
However, Michigan researchers strongly favored employee-
oriented leadership behavior. Employee-oriented leaders are
associated with high group productivity and higher job satisfaction.
Production oriented leaders are associated with low group
productivity and lower job satisfaction.
C. The Managerial Grid
Industrial psychologists Robert R. Bake and Jane S. Mouton developed the
managerial grid to explain leaders' behavior. They popularized the Ohio
State Studies by restating manager-leader two major concerns as being
for people and for production. According to this theory, leaders are most
effective when they achieve a high and balanced concern for bot people
and task.
Building on the work of the researchers at these Universities, Robert Blake
and Jane Mouton (1990s) proposed a graphic representation of
leadership styles through a managerial grid. The grid involved two
dimensions of leader behavior, concern for people and concern for
production. Each dimension is ranging from low (1) to high (9), thus
creating 81 different positions in which the leader's style may fall. The
following figure shows the five dimensions of leadership approach that is
considered by the leaders:
Managerial Grid
High (1,9) (9,9)
Concern for People

(5,5)

(1,1) (9,1)

Low Concern for Production High

i. Impoverished leadership (1, 1): Leaders with this approach are low
on both for production and people dimensions and exercise
 minimum effort to get the work done from subordinates. The
leaders are considered ineffective wherein their action is merely
aimed at preserving job and seniority.
ii. Task management leadership (9, 1): This leadership also called
dictatorial or perishes style. The style is based on Douglas
McGregor's theory X of motivation. Leaders focus only on task by
planning and controlling the production environment. The leader
believes that efficiency can result only through proper organization
of work systems and through elimination of people wherever
possible. This dimension can definitely increase the output of
organization in short run but due to the strict policies and
procedures, there is the possibility of high labor turnovers.
iii. Middle-of-the-Road leadership (5, 5): This is basically a
compromising style wherein the leader attempts to maintain a
balance between goals of company and the need of people. Leaders
give equal value both for production activities and maintaining
good relation with employees. The leader does not push the
boundaries of achievement due to which average performance is
possible in the organization. Here neither employee satisfaction
nor production targets are fully achieved.
iv. Country Club Leadership (1, 9): This is a mutually respectful style
of leadership which is characterized by low task and high people
orientation. In this dimension, leader gives more attention to the
needs of employees and provides them a friendly and comfortable
working environment. The leader feels that such behavior with
employees will lead to self-motivation and they do assigned job
with full of enthusiasm.
v. Team leadership (9, 9): This dimension of leadership is
characterized by high people and task focus. It is based on Douglas
McGregor's theory Y of motivation. According to Blake and Mouton
it is taken as most effective style of leadership. The leader feels that
empowerment, commitment, trust, and respect are the key
elements for developing good working environment.
D. The Scandinavian studies
Swedish and Danish business leaders and academicians carried research
on leadership pattern for effective functioning of the organization. The
major foundation stone of Scandinavian leadership approach are respect
 for the individual, a holistic view, a humanistic and value based approach
with a multiple stakeholder focus.
The Scandinavian studies resulted in the emergence of a new dimensions
called development-oriented behavior. According to these studies,
leaders who embrace change and encourage new ideas and practices are
successful. These studies identified that in a changing world, effective
leaders would exhibit development oriented behavior which consists of:
 Value experimentation
 Seeking new ideas
 Generating and implementing change
 Respect for individual
 A holistic, humanistic and value based approach with a multiple
stakeholder focus
 Empowering and enabling environment which stimulates
creativity, innovation and collaboration
 Trust, care and concern as key values
3. Contingency Approach to Leadership
Contingency approach assumes that appropriate leader behavior varies
from one situation to another. The effectiveness of leadership depends
on the interaction of the leader's personal characteristics, the leader's
behavior and factors in the leadership situation. A successful leader must
be adoptive and flexible. As the situation changes, the leader must change
his style of leadership. The situation theory contends that there is no one
best style of leadership universally applicable for all situations. The
situational approach to leadership is based on the assumption that all
instances of successful leadership are somewhat different and requires a
unique combination of leaders, followers and situations. This interaction
is commonly expressed in formula:
SL= f (L, F, S)
Where SL stands for successful leadership, F stands for function, and L, F
and S are the leader, the follower and the situation respectively.
A. Fiedler Model
Fred E. Fiedler developed the first contingency model in 1967. Fiedler and
his associates made an extensive research for more than thirty years and
developed theory called Fiedler's Contingency Theory. He proposed that
effective group performance depends on the proper match between the
 leader's style of interacting with his followers and the degree to which the
situation allowed the leader to control and influence. The basic
characteristics of Fiedler's contingency theory are as follows:
1. Classification of leaders: Leaders have either a relationship-oriented
style or a task-oriented style.
 Relationship-oriented leaders are most effective in moderately
favorable situations.
 Task-oriented leaders are most effective in extremely favorable
or unfavorable situations.
2. Classification of situation: The situation is contingency dimension. It is
classified into:
 Very favorable situation
 Very unfavorable situation
 Moderately favorable situation
Fiedler identified three variables to determine the ideal leadership
style given below:
i. Leader-member Relations: They are the degree of confidence,
trust, and respect members have in their leader. The relations can
be good or bad depending upon the degree of cohesion, co-
operation and level of conflict prevailing between the leader and
led. Good relations contribute to very favorable situation to the
leader.
ii. Task Structure: It is the degree to which the job assignments are
procedurized. It can be structured or unstructured. High task
structure is related to a task where all actions required to taken are
explained in sequential manner and employees understand and
anticipate what is coming next. On the contrary when a task is
unstructured, the employees do not know as to how to handle the
work and group-member's role became ambiguous.
iii. Position Power: In this situation power derived by the leader from
his formal position and other power bases are not considered.
Fiedler feels that a leader having a strong power position can obtain
(wield) followership more easily than a leader not having a formal
power base.
3. Matching leaders and situations: Fiedler's theory concludes that
leaders and situation should be matched to achieve maximum
 leadership effectiveness. Leadership effectiveness is determined by
the fit between leader and the situation. Based on his research, Fiedler
concluded that:
 Task-oriented leaders tend to perform better in very favorable
situations and very unfavorable situations.
 Relationship-oriented leaders tend to perform best in
moderately favorable situations.
4. Improving implications: Leaders cannot easily change their style, so
Fiedler recommends changing situations to fit the leader or assigning
leaders to situations which they will be most effective. There are two
ways to improve leadership effectiveness:
 Change the leader to fit the situation.
 Change the situation to fit the leader.
B. Path Goal Theory
Path goal Theory was developed by Robert House in 1971. It is based on
expectancy theory of motivation. Like other situational models, the Path
Goal Theory attempts to predict leadership effectiveness in different
situations. The term path goal is derived from the belief that effective
leaders clarify the path to help their followers get from where they are to
achieve their work goal and make the journey along the path easier by
reducing road blocks. Path Goal Theory states that effective leaders
influence employees 's satisfactions and performance by making their
need satisfaction contingent on effective job performance.
Employees make optimum contribution to the organizational goals where
they perceive that their personal satisfaction is dependent on their
effective performance. He should provide guidance and support to
remove difficulties in achieving the goals. Path Goal Theory identifies four
types of leader behavior to motivate and satisfy employees.
i. Directive behavior: The leader clarifies performance goals of
employees. He specifies the means and procedures of achieving
those goals. He also specifies the minimum standard need to be
maintained in performance. It is the same as task-oriented and
initiating structure behavior. The leader tells subordinates what is
expected of them and provide specific guidance, rules, regulation
and standards.
ii. Supportive behavior: Such behavior provides psychological
support for subordinates. It refers to the degree of support that a
leader wants to extend to his subordinates to achieve goals. The
leader is friendly and approachable, makes the work more pleasant,
treat employees equally and shows concern for the status, needs,
and well-being of employees. The style is similar to the
consideration in Ohio State Studies.
iii. Participative behavior: It refers to the degree of encouragement
that a leader provides to subordinates to participate in decision
making and problem solving. Participative leaders actively consult
with employees, ask for their suggestions and take these ideas into
serious consideration before making a decision.
iv. Oriented behavior: it refers to the degree of encouragement that
a leader a leader provides to subordinates to reach their goals. In
order to make achievement in the organization, the leader sets
challenging goals, expects employees to perform at the highest
level to achieve predetermined goals. He believes that employees
do their best to achieve these goals. Leader expects continuous
improvement in employees' performance to maintain
predetermined standard.
Path Goal Theory proposes two classes of situational variables- personal
characteristics of group members and environmental conditions. An
effective leader is one who understands the characteristics of
subordinates and environmental situation and who matches his behavior
accordingly.
Path Goal Theory is more elaborate than Fiedler's contingency theory
because it takes into account both the personality characteristics of
subordinates as well as situational variables. It not only suggests what
type of leader may be effective in a given situation but also explains why
the leader is effective.
C. Hersey and Blanchard's Situational Theory (Life Cycle Theory)
One of the most widely followed leadership model is the situational
leadership theory developed by Paul Hersey and Kenneth Blanchard.
Situational leadership is a contingency theory that focuses on followers.
Successful leadership is achieved by selecting the right leadership style,
which they argue is contingent on the level of the followers' maturity. It
was originally known as "life-cycle-theory".
The theory is based on the inter-play among three major variables. They
are:
a. Task behavior: it is the extent to which a leader spells out to
subordinates what to do, where to do it, how to do it. Leaders who use
precise direction and light controls are engaged in close supervision of
their subordinates.
b. Relationship behavior: It is the extent to which a leader listens,
provides support and encouragement, and involves subordinates in
the decision making process.
c. Followers readiness (maturity): It is the follower's ability and
willingness to perform the prescribed tasks.
Four Leadership Styles and Followers Readiness (Maturity)
Hersey and Blanchard explain four styles of leadership that match
different maturity levels of subordinates telling (S1), selling (S2),
participating (S3) and delegating (S4). Similarly, the maturity level of
subordinates is divided into four levels: Low (M 1), Low to moderate (M2),
Moderate to high (M3), and High (M4).
Leadership Styles Appropriate for Various Maturity Levels
Maturity Level Appropriate Style
M1 S1
Low maturity Telling.
Unable and unwilling High task and
Or insecure. Low relationship behavior.
M2 S2
Low to Selling
Moderate maturity High task
Unable but willing or And High
Confident. Relationship behavior.
M3 S3
Moderate to Participating.
High maturity High relationship
Able but unwilling or And
Insecure. Low task behavior.
 M4 S4
High maturity Delegating
Able competent Low relationship
And willing/confident. and
Low task behavior.

Emerging Approaches to Leadership

Leadership is the skill or art of influencing and inspiring the behavior of others
in accordance with requirement. Several new approaches to leadership are
emerging which provide a new perspective on leadership. Some of the common
approaches are as follows:
i. Charismatic leadership: In charismatic leadership followers make
attributions of heroic or extraordinary abilities when they observe
certain behavior of leader. They are found to have extremely high
confidence, dominance and strong convictions in his beliefs. It is a
leadership characteristic that inspires and influences followers toward
actions to carry out a vision. The behavior attributions of charismatic
leader are vision and articulation, sensitivity to environment,
sensitivity to members' needs, personal risk taking, and performing
unconventional behavior. Subordinates believe that leader has vision,
communicate high performance expectation, convey new set of
values, and self-sacrifices. Some examples of charismatic leaders are
Abraham Lincoln, Mahatma Gandhi, Nelson Mandela, Steve Jobs etc.
ii. Transformational leadership: This approach consists of leaders who
provide individualized consideration and intellectual stimulation, and
who possess charisma. Transformational leaders guide and motivate
followers in the direction of established goals and clarifying role and
task requirements. They inspire follower to put extra effort to achieve
group goals. They shift values, belief and needs of their followers. They
are change agents who energies employees and direct them to a new
set of corporate values and behavior.
iii. Visionary leadership: Visionary approach is the ability of leaders to
create and articulate a realistic, credible, attractive vision for future
objectives and functioning of the organization. Leaders have clear
vision that can propose an innovative way to improve organizational
performance. They are optimistic and always see new opportunities to
 improve performance. Leaders are clear about where they are going
and what they will have to do to get there. They accept personal
responsibility for success or failure of performance.
iv. Substitutes for leadership: Substitutes for leadership theory states
that different situational factors can enhance, neutralize, or substitute
for leader behaviors. Substitutes are variables that make leadership
unnecessary for subordinates and reduce the extent to which
subordinates trust on their leader. Self-leadership can serve as a
substitute for leadership. This approach supports the subordinates to
become self-leaders. For this, purpose subordinates should be able
and professional oriented. In organization there should be the
provision of employee empowerment and self-managed work teams
that reduce leadership needs.
v. Coaching approach: coaching approach of leadership is becoming
recognized as a most effective method for developing of new leaders.
Individual coaching creates an open and accepting climate for
employees to solve tough problems, take decisions, learn more about
themselves, and develop their leadership skills. It is suitable for senior
employees because of their need for the most efficient, confidential
and personalized approach.
Coaching provides the level of confidentially that allows the real issues
to be tackled. Senior executives have very limited time available to
focus on their own development. It facilitates to reduce conflict, open
communication, more job satisfaction and an increased overall level of
job satisfaction and productivity.
Team Management
Concept of Team
A team is a small number of people with complementary skills
who are committed to a common purpose, common performance
goals, and an approach for which they hold themselves mutually
accountable. A work team generates positive synergy through
coordinated effort. Their individual efforts result in a level of
performance that is greater than the sum of those individual inputs.
Thus, team refers to a special type of group. Its members have
complementary skills and are committed to a common purpose or set
of goals for which they hold themselves mutually accountable.
Types of Team
 Work teams are responsible for a specific set of task. Based on
their objectives teams may be classified as problem-solving team,
cross-functional team, virtual team and self-managed team.
1. Problem-solving Teams: Problem solving teams are temporary teams
established to solve specific problems in the workplace. These teams
typically composed of 5 to 12 employees from the same department
who meet each week to discuss ways of improving quality, efficiency,
and the work environment. An example of problem solving team is
'quality circle'. Quality circle is a team of 8 to 10 employees and
supervisors who share an area of responsibility. They meet regularly to
discuss their quality problems, investigate causes of the problems,
recommend solutions, and take corrective actions.
2. Cross-functional Teams: Cross- functional teams are made up of
employees from about the same hierarchical level, but from different
work areas, who come together to accomplish a task. Such teams are
an effective way to allow people from diverse areas within an
organization (or even between organization) to exchange information,
develop new ideas and solve problems and coordinate complex
projects. Their early stages of development are often very time
consuming as members learn to work with diversity and complexity.
There are two types of cross-functional teams. They are:
 Task force: It is nothing other than a temporary cross-functional
team.
 Committees: Composed of groups made up of members from
across departmental lines.
3. Virtual Teams: With the introduction of advanced information
technology, the requirement that groups be made up of members in
face-to-face interaction is no longer necessary. Members can now
communicate at a distance through electronic means, such as e-mail,
chat rooms, phone conference, faxes, satellite transmission, and
websites. Also, those performing in telecommuting jobs often include
responsibilities to serve on virtual teams.
4. Self-managed Teams: Another type of teams commonly being used in
organizations is the self-directed or self-managed team. Self-managed
teams (SMTS), which are sometimes called process teams, are
responsible for producing an entire product, component, or services.
Employees are assigned to them on a full-time basis and they have a
 longer duration. Team members combine skills to produce an
important organizational outcome, such as an automobile engine
(production process) or the installation of a computer system for a
customer (customer service process).
Conflict
Meaning and Concept of Conflict
Conflict is a common occurrence in organizations. It is a process that
involves people disagreeing. Conflict is a process in which one party perceives
that its interests are being opposed or adversely affected by one or more other
parties. It is the result of misunderstanding among person, among groups and
among organizations.
Ricky W. Griffin: "Conflict is a disagreement among two or more individuals,
groups, or organizations."
Types of Conflicts
Conflict may broadly be classified into the following categories:
1. Functional and Dysfunctional Conflict
a. Functional Conflict: Conflicts that supports the individual and group
goals, which leads to higher performance is called functional conflict.
functional conflict is also known as constructive conflict. This conflict
is issue-oriented. It is of administrative or technical nature. It will have
positive effects on individuals, groups and organizations. Such conflict
surfaces during crucial organizational problems and helps decision
makes to work on these problems.
b. Dysfunctional Conflict: The conflict that hinders individual or group
performance is called dysfunctional conflict. It is the destructive form
of the conflict that affects individuals, groups and the organization as
a whole. This conflict is personality-oriented. It is based on animosities
and deep-rooted personal feeling and attitudes among members.
2. Task, Process and Relationship Conflict
a. Task Conflict: Task conflict refers to conflict regarding the goals and
content of the work. It results from task interdependence, task
ambiguity and the differences in work orientation. Task conflict can be
good in certain circumstances, such as in the early stages of decision
 making, because it stimulates creativity. However, it can interface with
complex tasks in the long run.
b. Process Conflict: Process conflict occurs when the parties agree on the
goals and content of work but disagree on how to achieve the goals
and actually do the work.
c. Relationship Conflict: Relationship conflict occurs when the parties
have interpersonal issues. It is based on interpersonal relationship. It
involves frictions and interpersonal hostilities.
3. Vertical, Horizontal and Line and Staff Conflict
a. Vertical Conflict: It refers to conflict that might take place between
different levels of hierarchy. Conflicts between subordinates and
superior occur due to incompatibility. It is generally caused because of
differences in perception, value systems, goals that may be assigned,
cognition and difference in individual behavior.
b. Horizontal Conflict: It is caused due to incompatibility of goals, sharing
limited resources and differences in time orientation. It leads to
tension, misunderstanding and frustration on the part of both the
parties. Horizontal conflict relates to employees or group at the same
level.
c. Line and Staff Conflict: This conflict has been tradition. Line authority
creates product and services and contributes directly towards the
revenue generation. While staff authority assists line authority and
acts in advisory capacity. Staff and line authority have a different
predispositions and goals. So, conflict occurs when there is
encroachment in each other's authority.
Managing Conflict in Organization
Conflict is a fact of organizational life. It is situational that arises when
one party perceives that its interests are being opposed or negatively influenced
by other parties.
Conflict has both negative and positive consequences in organization.
Management of conflict thus, involves conflict stimulation technique and
conflict resolution techniques.
A. Conflict Stimulation
Conflict stimulation is the creation and constructive use of conflict by
manager. Its purpose is to bring about situation where differences of
opinions are exposed for examination by all. The presence of too much
 satisfaction, low rate of turnover, shortage of new ideas, strong resistance
to change, concentration on compromise in decision making and
excessive efforts at avoiding conflict is indicative of the need for conflict
provocation. In such situations, the management would adopt a policy of
conflict stimulation. The techniques for stimulating functional conflict are
as follows:
1. Communication: Communication can be used to stimulate conflict in
organization. Ambiguous or threatening messages can be used to
increase conflict levels. Sometimes, managers can also repress
information or bypass traditional channels to encourage potential
conflicts.
2. Bringing in outsiders: Another useful method for stimulating conflict
is to bring in one or more outsiders who will shake things up and
present a new perspective on organizational practices. Outsiders may
be new employees. Current employees assigned to an existing work
group, or consultants or advisors hired on a temporary basis.
3. Firing an insider: Manager can fire current member of the group. It
creates employee dissatisfaction and that leads to conflict in
organization.
4. Organizational restructuring: Organization can be restructured to
stimulate conflict. Organizational restructuring can be done through
realigning work groups, altering rules and regulation, increasing job
interdependence, making structural changes through downsizing to
disrupt the status quo.
5. Appointing a Devil's Advocate: A 'devil's advocate' is a person who
purposely presents arguments that run counter to those proposed by
the majority or against current practice. Such a person plays the role
of critic in order to stimulate discussion.
6. Rewarding dissent: Rewarding the dissent can stimulate conflict in
organization. Individuals, who challenge the status quo, suggest
innovative ideas, offer divergent opinions, and demonstrate original
thinking need to be rewarded visibly with promotion, salary increase,
and other positive reinforces.
B. Conflict Resolution
When a potentially harmful situation exists, a manager needs to engage
in conflict resolution. The techniques for resolving conflicts are as follows:
 1. Accommodating: The accommodating approach emphasizes
cooperation instead of forcefulness. A person places his interests last
and allows the other party to put his interests. Sharing of opinions
removes misunderstanding and both parties realize that they are not
far apart. It may be useful when the conflict is associated with
aggressive feelings among the parties and temporary solutions are
needed in the short run.
2. Collaborating: the collaboration style involves parties working
together to resolve issues and problems themselves. Both parties
come to the table with win-win attitudes. This win-win approach
favored when both sides have important differences but everyone
agrees to work together. Manager may choose to collaborate by
showing a high degree of assertiveness and cooperativeness.
3. Avoiding: this approach involves one of the conflicted parties avoiding
communicating about or confronting the problem. This approach is
considered by hoping that it will be resolved automatically passing of
time. In certain situations, it may be appropriate to avoid a conflict.
This technique is useful when issues involved in conflict are of very
minor nature or when more important issues deserve attention.
4. Compromise: This is the traditional method of conflict resolution. It is
a process of bargaining where the parties negotiate on the basis of give
and take principle to arrive at a mutually acceptable agreement. It is
commonly used where the conflict involves differences in goals,
attitudes or values. There is no distinct winner or loser because each
party is expected to sacrifice something in exchange for a concession.
5. Confrontation: Conflict can be faced directly. In this approach,
management directly handles the situation and deals with conflicting
parties. Assertiveness is the main aspect of this approach. A mutually
satisfactory solution is found through face to face meeting of the
parties concerned. However, the specific techniques can be
organizational redesign and interactive problem solving through open
discussion.
Concept of Motivation
Motivational is a human psychological aspect. It is the process of
encouraging and stimulating the individuals to do the assigned job according to
the best of their ability. It is the process of creating willingness among the
employees to do the assigned work in the best possible way. It is the act of
inspiring employees to devote maximum effort to achieve organizational
objectives.
" Motivation can be defined as a willingness to work to expand energy to
achieve a goal or reward." - Dale S Beach
Therefore, motivation is the art of inspiring and encouraging
subordinates to do work in an effective way so that both organizational and
individual goals can be achieved.
Process of Motivation
The process of motivation is defined as:
1. Unsatisfied Need: Unsatisfied need is a state of having unfulfilled needs
which create tension. The process of motivation begins with an
unsatisfied need, which are anything that employee want and do not
have.
2. Tension: In common usages, the work tension has a negative connotation.
But some tension is absolutely necessary. For motivation to occur, we
must have functional tension. This is what gives us the energy to perform.
3. Action: Action refers to the outward action of individuals directed
towards some goal. These actions performed so that the required goals
can be achieved.
4. Need Satisfaction: It is by satisfaction of needs. It can be through reward
and punishment. This achieves goals.
5. Feedback: Feedback indicates how well the goal is achieved and needs
are satisfied.
It can be shown on diagram which is as:

Unsatisfied Need Tension Action Needs

Satisfaction

Feedback
Strategies for Motivating Employees
Management can use a variety of strategies and techniques to motivate
employees. Some important strategies to motivate employees are given below:
1. Financial incentives: Money is regarded as a symbol of social prestige,
recognition and achievement in the materialistic world. People satisfy
their higher order needs by money. Wages, salary, profit sharing, leave
with pay, medical reimbursement etc. motivates employees to perform
better. These facilities help to retain productive employees.
2. Participation: Participation refers to involvement of employees in
planning and decision making. This helps to fulfill esteem needs to
employees. Participation is one way of developing initiatives among
employees. Participation encourages brainstorming which helps for
developing innovative ideas to solve complex problems.
3. Delegating of authority: Delegation of authority is assigning certain part
of work to subordinates and giving them the required authority the
assigned task effectively. It helps for training and development of
subordinates. It helps to develop high moral and motivation of
subordinates.
4. Job security: Job security implies that employees would continue on the
same job in the same organization. They enjoy economic and social
security through health and welfare programs, security against sickness,
disability and old age provision. Employees will be motivated towards
their job if they have a feeling of job security and future provision.
5. Job enlargement: Job enlargement is concerned with addition of extra job
responsibility of same level to the employee. It refers to mounting
complexity of the job. Job enlargement allows opportunity to make use of
their minds and makes them able to perform varieties of task
independently.
6. Job enrichment: Job enrichment is concerned providing higher level job
responsibility to employees. In other words, it refers to vertical expansion
of a job by adding planning and evaluating responsibilities. Employees are
empowered to assume some tasks typically done by their managers. It
increases freedom, responsibilities and independence.
7. Job rotation: Job rotation refers to shifting an employee from one job to
another job. It reduces the boredom and disinterest through diversifying
 the employees' activities. The basic purpose of job rotation is to increase
the skill and knowledge of employee about related jobs.
8. Reinforcement: Reinforcement is a formal and powerful tool for
motivation. Behavior which appears to lead a positive consequence needs
to be repeated while behavior that leads negative consequence not to be
repeated. Reinforcement can be positive and negative. People' s behavior
can be motivated by providing rewards.
9. Quality of work life: Quality of work life is an attempt to develop a formal
program to integrate employee needs and well-beings with the intension
to improve productivity. Quality of work life ensures greater worker
empowerment, adequate and fair compensation, safe and healthy
working conditions and higher level of job satisfaction.
10. Competition: Competition is widely used tool for motivation. Employees
in organization compete with each other to fulfill their ego needs. The
person who is considered the best is awarded with the popular prize.
Competition may be in terms of sales, production, safety measures and
so on.
Lesson-8 Fundamental of Influencing and Communication

Influencing
Fundamentals of Influencing
Influencing is the capacity or power of persons or things to be a compelling
force to produce effects on the actions, behavior, opinions, etc., of others. It is
the process of guiding the activities of organization members in appropriate
directions.
Influencing involves focusing on organization members as people and
dealing with such issues as morale, arbitration of conflicts, and the development
of good working relationships. In fact, the ability to influence others is a primary
determinant of how successful a manager will be.
Influencing People
Influencing is one of the basic functions within the management process. This
function is also commonly referred to as motivating, leading, directing, or
actuating. An appropriate direction is any direction that helps the organization
move toward goal attainment. The ultimate purpose of influencing is to increase
productivity.
Influencing Subsystem
Like the planning and organizing functions, the influencing function can be
viewed as a subsystem within the overall management. The following figures
shows the elements of the influencing subsystem.
1. Input: The input of this subsystem is composed of a portion of the total
resources of the overall management system. Mainly, people, money, raw
materials and machines are the key inputs in this subsystem that help to
generate outputs.
2. Process: The process of the influencing subsystem involves the
performance of six primary management activities such as:
 Leading
 Motivating
 Considering groups
 Communicating
 Encouraging creativity and innovation
  Building corporate culture.

3. Output: Managers transform a portion of organizational resources into

appropriate organization member behavior mainly by performing these
activities. So, the output of influencing subsystem is creating appropriate
organization member behavior.
Concept of Communication
Communication is the process of transferring information from one
person to another having common interest or objectives. It is the exchange of
facts, opinions, ideas, suggestion and other information from one person to
another. In other words, it is the transfer of meaning and understanding
between people through verbal and non-verbal means in order to gain affect
behavior and achieve results.
"Communication is "an exchange of facts, ideas, opinions or emotions by two or
more persons." - Newman and Summer
" Communication is the transfer of information from a sender to receiver with
the information being understood by the receiver." - Knootz and Weihrich
Communication is continuous function till the existence and functioning
of the organization. It is the basis of organizational function. Thus,
communication is the process of transmitting information from one person to
another in a clear and meaningful manner. In business organization it is essential
to maintain coordination among the group force and their efforts.
Nature/ Characteristics of Communication
The nature and characteristics are as follows:
1. Two-way process: Communication can take place only when there are at
least two persons. One person has to convey some message and another
has to receive it. For example, in a classroom, the teacher conveys
information to a group of students.
2. Knowledge of Language: For communication to be successful, the
receiver should first of all understand the message. For this, the sender
must speak in a language that is known to the receiver. For example, if
the receiver cannot understand English and the sender the message
conveys his ideas in English, the communication will be a failure.
 3. Meeting of Minds Necessary: The receiver must understand the message
in the way the sender wants him to understand. For this consensus is
required.
4. Message: The sender of message must have somethings really
worthwhile for the receiver. For example, if certain botanical names are
explained to a student learning commerce, he may not show any interest.
5. Gestures: Communication need not necessarily be made orally or in
writing. Certain gestures or actions may also convey one's willingness or
understanding of a given problem. Nodding of heads, rolling of eyes,
movement of lips etc., are some of the gestures normally used to convey
certain ideas.
6. Pervasive: Communication is found in all levels of management. The top
management conveys information to middle level and vice-versa.
Similarly, the middle level management conveys information to the
supervisory staff and vice- versa. There is a flow of communication in all
directions in a workplace.
7. Continuous Process: In any workplace, someone will be conveying or
receiving some information or the other always. Sharing or exchanging
information is an ongoing activity.
8. Basis of action and co-ordination: Communication is the most important
element of action and coordination. The managers provide direction to
subordinates through the use of means of communication. It helps to
implement plans and policies. Besides, it contributes to maintain
coordination among work groups to develop the concept of team spirit.
Structure of Communication
Communication structure is an established network in which the
information flows to many directions on the basis of requirement. It is helpful
to determine speed, accuracy and smoothness of information flow. It acts as
linkage among employees. The structure of communication in organizations are:
1) Downward Communication
2) Upward Communication
3) Two – way Communication
4) Horizontal Communication
5) Diagonal Communication
( NOTE: These communications are explained on the topic of
TYPES OF FORMAL COMMUNICATION briefly )
Process of Communication
Communication is the process of exchanging information from one person
to another. The process of communication begins when one person (sender)
wants to transmit a fact, idea, opinion, and other information to someone else
(receiver). Generally, the following are the steps essential to fulfill the
communication process: sender or source, message, encoding, medium,
decoding, receiver, feedback and noise.

Sender Message Encoding Medium

Noise

Feedback Decoding Receiver

i. Sender: The sender is the source of information. He may be the

manager, non-manager, departments or organization itself. A
manager may communicate to other managers, subordinates,
supervisors, clients, and customers and to outsiders. Basically, the
sender is the initiator of the process of communication. Therefore, the
sender must conceptualize the message before it is encoded.
ii. Message: It is the subject matter of communication which the sender
wants to convey to the receiver. It may consist of facts, opinions, ideas,
request, and suggestion etc. of the sender. The sender expresses his
views, ideas and facts in terms of messages either in written or verbally
to the receiver.
iii. Encoding: It is the process of giving a form and meaning to the
message. It is concerned with systematic presentation of subject
matter of communication. When the sender expresses message in
terms of words, symbols, gestures, drawing, or other means are forms
of encoding. The main purpose of encoding is to translate thoughts
and feelings into a code that others are able to understand.
iv. Medium: It refers to the selection of channel of communication to
convey encoded messages to the receiver. It bridges the gap between
the sender and the receiver in communicating message of common
interest. For instance, an oral communication can be made through
telephone, mediator, group discussion etc. whereas written
 communication can be made through the means of letter, memo,
report, newspaper etc.
v. Receiver: The receiver is the second person in the communication
process. He receives messages, understands the same, and takes
necessary steps for response. From the technical point of view,
communication becomes complete only when it is received and
understood by the receiver. Therefore, an effective message
communicated must be receiver-oriented, not sender oriented.
vi. Decoding: Decoding refers to the process by which receivers translate
the message into terms meaningful to them. It is the process of
interpreting messages by the receiver. It is essential to get the
knowledge or meaning of message as per the intension of the sender.
The effectiveness of communication ca be realized only when the
receiver is able to decode message in accordance with the sender's
intensions.
vii. Feedback: It is the final stage in the communication process. Feedback
determines whether the message is clearly understood and whether
required action is taken by the receiver as intended by the sender.
When the receiver is able to decode messages received from the
sender, he provides the response on time. The feedback to the sender
completes the process does not fulfill the objectives of communicating
message.
viii. Noise: Noise is any element or condition that disturbs or interferes in
the effectiveness of communication. It disturbs the free flow of
information from one person to another. Noise consists of sound of
radio, loudspeaker, machines, vehicles etc. It also involves sloppy
handwriting, slow voice, soft speech etc.
Types of Communication
Communication can be classified into different types on different types
on different basis. The following are the basis of classification of communication:
 Formal Communication
 Informal Communication
 Interpersonal Communication
 Non-verbal Communication
Formal Communication
 It is an authentic and officially written communication with documentary
evidence and passing through established channels. The formal communication
is controlled and regulated by the organization. It decides which information to
share, with whom, and when. Official letters, memos, notices, newsletter,
reports, sales-force meetings etc., are the examples of formal communication.
Formal communication follows a prescribed path. It can be of following types:
1. Downward communication: The flow of information from superior to
subordinates in the management hierarchy is known as downward
communication. Basically, information of instruction, plans, policies and
direction formally flow from the upper level to the lower level. Such
information is essential to maintain regular operation of the organization
and to meet planned objectives.
2. Upward Communication: The flow of information from subordinates to
superiors in an organization is known as upward communication.
Generally, information of achievement of work done, problems faced in
performance, suggestions, grievance etc. are communicated from the
lower level to the upper level. Such information enables the management
to know what is actually happening in all the departments of the
organization. It helps the manager to maintain effective control over
organizational performance and which is a must to complete managerial
job.
3. Two-way communication: It is the communication from both ways
between superiors and subordinates. It is used in direct marketing. It can
be used for coordination and inter-departmental problem solving.
4. Horizontal communication: It is the sideward flow of information among
the employees having equal level of authority. In such a communication
system, employees of the same level exchange their ideas, views,
experience, and knowledge among each other. For instance, exchange of
information between a marketing manager and a production manager.
5. Diagonal communication: In such a communication system, employees
of the different levels exchange their ideas, views, experience, and
knowledge among each other. For instance, exchange of information
between a marketing manager with a production supervisor and vice-
versa.
Informal Communication
 Informal communication is not planned by the organization , hence no lines
of communication exist. This type of communication takes place due to absolute
desire of an individual to communicate with others. This type of communication
takes place during lunch, or coffee/tea breaks and during social gatherings. This
type of communication is also called "grapevine". This major types of grapevine
chains can be:
1. Single Strand: Person X tells something to person Y, who tells it to person
Z, and so on in the line. In this chain, each person tells to the one next to
him or her.
2. Gossip: One person seeks out and tells everyone the information of an
interesting but non-job-related nature. In this chain, one person tells the
information to all.
3. Probability: Individuals offer information to others indifferently. In this
chain, one person randomly tells the information to others.
4. Cluster: Person X conveys the information to a few selected others. In this
chain, the person tells the information to the selected ones.
Interpersonal Communication
Interpersonal communication is the communication between two or more
persons. It includes face-to-face, telephone, group meetings, formal
presentation, memos, traditional mail, e-mail, fax, hot lines, teleconference,
videoconferences, etc. Interpersonal communication can be oral or written.
They are as follows:
1. Oral communication: It is direct interpersonal contact between
communicator and communicate. The communication is expressed by
words of mouth. Oral communication is used when both (sender and
receiver) are present. It is face to face communication. It is more effective
than written communication because the receiver not only hears the
contents of the message but also is influenced by the tone, pitch,
gestures, speed and even volume of conversation.
It is direct, simple form of communication which is the least expensive and
yet the most effective. Feedback is spontaneous and any error in the
message is corrected immediately.
2. Written communication: It is a system by which the communicator
establishes indirect relationship with the communicate through written
documents. This is one of the formal communication systems. This
includes written words, graphs, diagrams, picture, etc. Written
 communication is extensively used in organizations. The circular,
magazines, notes and manuals are some common force of written
communications.
Non-verbal Communication
Non-verbal communication is sending and decoding messages with
emotional content. The transmission and receipt of messages by some medium
other than oral or written is non-verbal communication. It is very useful to
express feelings, attitude and emotions. Basically, friendliness, respect,
acceptance, rejection, dominance, submissiveness, anger, fear, and humor are
conveyed primarily by nonverbal signals. A good and efficient manager should
be aware of the importance of non-verbal communication and recognize its
potential impact.
Important dimensions of non-verbal communication are follows:
1. Body postures: It consists of different postures of the body that convey
certain meaning. Gestures can add or detract from the verbal message.
hands gestures help emphasizes points, but fidgeting sends the message
that the speaker is nervous and lacks confidence. In the United States,
holding the thumb and first finger in a circle means OK. In Brazil it is an
insult and may provoke a fight.
2. Facial expression: Emotions such as happiness, satisfaction, anger, fear,
and confusion are signaled by facial expressions. Smiling conveys
happiness and warmth. Along with the handshake, a smile a probably one
of the most effective ways to establish a positive connection with a new
acquaintance.
3. Verbal intonation: It refers to the tone in a voice. Emotions such as
attentiveness, friendliness, anger, or fear are transmitted by the tone in a
voice. Aspects of the tone of voice that communicate different emotional
states include pitch, loudness, speed, clarity of speech, and inflection.
Therefore, it is a good practice to speak clearly, emphasize key words, and
use variable speed and inflection at appropriate times to keep the
audience interested.
4. Eye movement: Eyes are the most expressive component of facial
expressions, a glance, a stare, a smile or some provocative movement of
the body conveys a lot. In business communication, it is important for
both parties to make some eye contact, but prolonged eye contact may
be interpreted as aggressiveness or inappropriate intimacy.
 5. Touch: Touch signals liking, acceptance, and friendship. Even more than
eye contact, touch should be used sparingly in business situations.
Unwanted touching in Nepalese workplace is a form of sexual
harassment. For example, in France it is common for employees who are
good friends to greet each other with a kiss on the cheek.
Barriers to Effective Communication
Communication is regarded as providing a basis for the operational life of
the organization. However, in practice some barriers emerge in communication,
which may create problems in its effectiveness. Effective communication may
be interrupted in any organization are as follows:
A. Organizational Barriers
In some case, organizational system and belief itself creates problems for
free flow of information. It creates difficulty in transforming information
to targeted authority which also creates problem to meet objectives.
i. Organizational Policy: Organizational policy regulated by the
management regarding communication system provides overall
guidelines to the members to use the defined network. The policy
may be in written form or it is understood from the behavior of the
top management. Therefore, in the absence of supportive policy of
the top management, information cannot reach the direction
where it is required, so the communication flow will not be smooth
and adequate.
ii. One-way Communication System: In an organization, if the
communication system is only one-way-from top level to
subordinates there is the possibility of development of grievances
among subordinates.
iii. Lack of Confident in Subordinates: Some conservative managers
perceive that their subordinates are not skilled and competent to
bear responsibility. Such a belief may distort the free flow of
communication in the organization.
B. Physical Barriers
Internal structure of the organization and layout of office machine and
equipment also create barriers in the transformation of information.
These create difficulty for free, clear and smooth flow of information.
Brief explanations of these barriers are as follows:
 i. Physical Distance: The location of departments and branches in
different geographical and regional distances may breakdown
communication flow of an organization. It is difficult to
communicate the required information to different locations if
appropriate communication network is not developed in the
organization.
ii. Structure: Hierarchy structure creates status difference among the
members of an organization. Generally, the members at the
subordinate level fear and hesitate to communicate message to the
upper level. This also breaks down communication flow in an
organization.
iii. Noise: Noise from external environment creates problem in
understanding the messages in accordance with the sender's
intentions. When the receiver is unable to understand the message
he can't provide a response. Therefore, noise also breaks down
communication feedback.
C. Psychological Barriers
These barriers are generated due to human perception, lack of skill and
negative thinking of top level managers. Such psychological factors create
difficulty for productive flow of information and create problems in
meeting defined objectives. A brief explanation of these barriers is as
follows:
i. Distrust of Communication: Many subordinates do not belief on the
superior's messages thinking that they might change, cancel, or
modify to their own view and ideas. In such superiors is not taken
seriously by the subordinates.
ii. Superiority Complex: Superiority complex of the higher authority
also creates barriers in the free flow of information. Such managers
feel themselves superior and would not like to talk and
communicate with subordinates thinking that it is below their
dignity.
iii. Premature Evaluation: Premature evaluation is concerned with
evaluating the subject matter before getting detailed information.
Generally, employees at the subordinate level go for premature
evaluation of communication.
D. Semantic Barriers
 These barriers created due to use of difficult and insensitive language by
the sender. Brief explanations of these barriers are as follows:
i. Harsh Language: The use of harsh or poor language will emotionally
affect the sentiment and ego of the receivers. In such cases,
receivers try to resist the senders and may not provide any
response. An egoistic receiver may respond in a negative way,
which may be the reason of misunderstanding and conflict.
ii. Misleading translation: Wrong translation of messages received also
creates barriers in communication. For instance, middle level
managers receive communication from the top level which has to
be translated by them in simple language for the use of first line
managers. But if they translate the messages in a wrong way it
creates confusion to the first line managers.
iii. Technical Language: Some managers use technical terms in
communication. The use of such technical terms creates confusion
to the ordinary receivers; therefore, they do not provide any
response to the sender.

E. Technological Barriers
These barriers are formed due to defect in technology used and overload
in information. Brief explanations of these barriers are as follows:
i. Mechanical Barriers: IN some cases, mechanical devices used in the
communication process may suffer mechanical defects, for
instance technical faults in telephone line, defects in computer
software, internet network problems etc. create serious
communicating problems.
ii. Loss of transmission: Generally, a verbal message when it is in course
of transmission may lose some of its main contents. In a similar
way, due to limited memory power of the receiver, there is also a
possibility of loss of content of the message.
iii. Information Overload: Manager may receive information from
various sources. In fact, because of advance in communication
technology difficulty may arise not from the absence of information
but from excessive information. In such a situation, he cannot
absorb adequately all messages directed to him. He may leave a
majority of important messages, which in fact means that these
messages are not studied in detail.
Measures overcoming Communication Barriers
Communication is regarded as a basis for providing the operational life of
an organization.it is important for securing smooth functioning of an
organization to achieve organizational goals. Many barriers arise in course of
communication, however, all attempt must be made by the management to
minimize these barriers. The following common measures can be applied to
minimize barriers and to enhance effective communication:
i. Effective Listening: Effective listening is a must to understand the
message. The manager responds to the message only if he is able to
listen the message properly and understands its meaning. For this, it is
essential to encourage someone to express his true feelings, desires,
and emotions. An effective listening helps to understand the messages
in a said manner. Clear message also helps the receiver to provide
response in a systematic way.
ii. Utilizing feedback: Feedback is an important element of effective two-
way communication. Communication process is incomplete without
feedback, as the sender has no way of knowing whether his
communication has been successful or not. It is essential both in
written, verbal and non- verbal communication. Direct and immediate
feedback is possible in face to face communication. An organization
must develop a two-way communication system for effective
utilization of feedback.
iii. Regulating information flow: Regulating the flow of communication
ensures an optimum flow of information to managers. It reduces
communication overload to the managers. Optimum flow of
information provides sufficient time for managers to make a detailed
study of each and every message. For this, exceptional principal should
be taken into every message. For this, exceptional principle should be
taken into consideration. This principle states that information which
is significant from the policies and procedures of the organization
should only be brought to the attention of the manager.
iv. Two-way communication: Two-way communication is essential in
every organization to make communication more effective. Both the
sender and receiver should give more attention to fulfill its objectives.
In management hierarchy, there must be two-way systems of
communications i.e. from top level to subordinates and vice versa. Top
managers should get information from subordinates to know the
 progress of jobs and problems in performance. This is helpful in taking
right decisions in proper time.
v. Simplifying language: As far as possible the sender should use simple
language in communication. The sender should use the word and
sentences considering the level of knowledge of the receiver. The use
of complex, multi meaning words and proverbs must be avoided
because it may create confusion in the minds of the receiver. He may
interpret the communication differently and also respond in a
different way. Such wrong interpretation and response will not meet
the objectives of the sender.
vi. Avoid information overload: A manager receives many information
from various sources. This information is the basis of office operation.
However, all these information are not equally important in
organizational performance. In fact, because of advances in
communication technology, difficulty may not arise from the absence
of information but from excessive information. Therefore, important
information should be taken into consideration and useless
information should be discarded.
vii. Create an Environment of Trust and Confidence: In communication,
there must be an environment of trust and confidence between the
sender and the receiver. In an organization, top management must
create the environment of trust and confidence. It requires that the
management must develop sound policies and put them in writing in
front of subordinates. Further, the policies should be administrated
judiciously and fairly without fear or favor.
viii. Reduce Psychological Barriers: Psychological barriers consist of
distrust of communicator, superiority complex, individual perception,
premature evaluation, no attention etc. subordinates should believe
in the superior's messages and implement his instructions and
guidance properly. The top level manager should avoid the feeling of
superiority complex in communication information with subordinates
there must be the same perception between the manager and
subordinates regarding organizational performance and goals. The
manager and subordinates must avoid both premature evaluation of
the message. The receiver must pay proper attention on information
to understand it.
Chapter-9 Control and Quality Management

Concept of Control
Controlling is the process of measuring and comparing actual
performance achieved with that of planned performance and taking corrective step
if any deviation is found between actual and planned performance.
In other words, controlling is the function of management, which
measures consistency between actual achievement and pre-determined goals.
" Controlling is determining what is being accomplished, that is, evaluating
performance and if necessary, applying corrective measures so that performance
takes place according to plans." -George R. Terry

Characteristics of Control
1. Management function: Controlling is important function of management. It
is the controlling function that brings about a balance between planned and
actual performance. Without controlling, other functions of management
becomes worthless.
2. Pervasive function: Controlling is pervasive function in all levels of
management from top level to the first line. However, the degree of control
depends upon the nature of management and level of responsibility and
authority. Generally, the chief executive controls departmental managers,
departmental managers control supervisors, supervisors control the
operating level employees.
3. Continuous process: Controlling is a never ending process and lasts till the
organization is in existence. It involves a continuous analysis and study of
implementation of standards, policies and procedures of the organization.
4. Dynamic process: The standards of operation of an organization will be
reviewed on the basis of the changing environment of the business. The
procedures and system of control must be changed to adapt with the
changing standards of operation. The manager has to introduce new
 techniques and strategies so that he is able to control the performance in a
systematic way.
5. Forward looking: Controlling is not concentrated on the past and present
performance only; it also focuses on future performance. The early detection
of weakness and errors in work contributes in taking corrective action in
time. This leads to effectiveness in future performance and will prevent such
repetition of defaults in the future.
6. Measurement and comparison: Controlling is the managerial tool which
compares actual performance achieved with planned performance.
Frequently, the authority concerned measures actual performance with
planned performance and it takes necessary steps of correction if there is
any deviation.
7. Corrective action: Controlling is the management function through which a
manager takes necessary steps if actual work done is not in accordance with
a plan. Tactful action at the right time is the essence of controlling.
Process of Control
Managers need to study various factors before taking any action. It is necessary
to consider some process for taking the right decision. The following are the major
steps in the process of controlling.

Establishment
of standards

Taking Measurement
remedial of actual
action performance
PROCESS OF
CONTROL

Analyze the Comparison

causes of of actual
deviation performance
1. Establishment of standard: The process of controlling starts with the
establishment of a standard of performance. The standard of performance
must be practically attainable and should be the basis of comparison with
actual performance. The standard of performance may either be tangible or
intangible. Tangible standards can be expressed in numerical terms. Again,
tangible standard may be classified as: quantitative standard, monetary
standard, time standard and financial standard. Intangible standards involve
competency of managers, employees' morale, reputation of enterprise,
good public relation and so on. Therefore, managers need to set both
quantitative and qualitative standard of performance of the organization.
2. Measurement of actual performance: The second step in the controlling
process is the measurement of actual performance achieved with that of
planned performance. The measurement of actual performance must be
done in accordance with the standard laid down. It makes measurement
easier and meaningful. Therefore, there must be a provision of measurement
from time to time even when the actual performance is still in operation.
3. Comparison of actual performance: This step of controlling process focuses
on the detailed study actual performance and comparison against standard
performance. Such comparison shows the range of deviation of actual
performance achieved from that of the standard defined. If the range of
deviation between actual and standard deviation, it can be ignored.
However, if the range of negative deviation is more than the standard, it is
essential note such steps deviation for necessary steps. Hence, comparison
of actual performance is helpful to identify weaknesses and strengths in any
part of performance.
4. Analyze the cause of deviation: A detailed study of each and every part of
performance guides in finding out the cause of deviation in actual
performance. The causes of deviation of actual performance gained against
the standard defined might be due to external environment, internal
environment, defects in planning, organizational defects, and others.
Therefore, it is essential to detect where the problem lies so that corrective
action can be taken in the right time.
5. Taking remedial action: The final step of controlling process is to take
corrective action so that actual performance come to the level of standard
performance. The management must have a strategy to remove limitation in
 internal environment through modification and to adjust itself with the
external environment. Generally, remedial action might involve modification
and improvement in planning, betterment of internal environment,
organizational structuring, placement of right person to the right job, the
betterment in directing techniques.
Types of Control System

Input Processes Output

Pre Control Concurrent Post Control

Control

Anticipates Corrects Corrects

Problems problems as problems after
they happen they occur

1. Pre-control: The pre-control is also known as feed-forward or preventive

control. It is specified at the time of formulation of planning. It is future
directed control. It allows management to prevent problems rather than
solving them occurs. It predicts problems that the management may face in
future and identifies the steps to be taken to resolve them. It also tries to
anticipate deviation in advance and allows corrective action to be taken
before the problem arises. Organizational plans such as strategies, policies,
and procedures are pre-control devices.
2. Concurrent control: Concurrent control is also known as real time or
steering control as the technique of controlling activates in the process of
functioning. In this system, supervisors direct the work of subordinates so
that they perform their work properly. In this process of functioning, if any
problem takes place, it is identified and analyzed and corrective measures
are taken before any major damage occurs. It is a continuous process and
necessary adjustments that are made in activities to meet the desired
standard. Examples of concurrent control are quality control chart in an
industry, inventory control, production control, etc.
 3. Post control: Post control is also known as post-action control or feedback
control. It takes place after the activity is over. Management, under which,
can take corrective action after analyzing deviation from the planned results.
In other words, it is the process of adjusting future action on the basis of
information about past performance. Post control technique in fact provides
corrective feedback which facilitates the management to take necessary
steps to improve future performance. For example: When a sales goal is set,
the sales team works to reach the goal for three months and at the end of
three month managers review the results and determine whether sales goals
was achieved.
Characteristics of an Effective Control System
Controlling system is necessary in all types of organization. But a good control
system should ensure achievement of every objective of the organization. Some of
the major feature of a good controlling system are as follows:
1. Suitability: A better control system should be appropriate according to the
needs of the organization. It must be adjustable according to the nature,
type, size and requirement of the organization. Similarly, control system of a
manufacturing concern may vary from the control system of a trading house,
service and so on.
2. Simplicity: Controlling system must be simply so that it is easy to understand
and operate. The management has to introduce a simple controlling so that
every levels of authority can understand and operate it easily. The new
scientific type of controlling, if possible, should be introduced in clear and
understandable way.
3. Objectivity: A good control must meet the objectives of the organization.
Every organization is established for specific goals and for this, standards of
performance are determined. Therefore, a controlling system should be
ensured that actual performance must be in accordance with the standard
defined. The concept of personal likes and dislikes should not be taken into
consideration.
4. Economical: A controlling system must be within the financial capability of
the organization. It must be economical in design and in the implementation
 process. Therefore, controlling system must consider the cost benefit
concept. It means, the output of controlling must be more that its input.
5. Comprehensive: A good controlling system must cover all the key functional
areas of the organization. It must be comprehensive in design and
functioning. More concentration should be given on those functional areas
where controlling is essential.
6. Capable to communicate: A better control system must be capable to
communicate with the concerned authority. In other words, communication
system must be clear, effective and scientific. It needs not only the mere flow
of information from top level to the subordinates but the flow of information
must be in the right time.
7. Suggestive: A good control system must be suggestive in its motive. It
involves the measurement of actual performance with that of planned
performance and finds out the deviation. Therefore, the controlling system
must commence from the measurement of actual performance against
planned performance to suggest remedial action.
8. Flexibility: A good control must be flexible. This is a must to adjust with the
changing environment. The controlling system of today may not be effective
for tomorrow as objectives, plans, activities, people, external, conditions,
etc. changeover time.it needs to be amended according to the time and the
situation.
9. Forward looking: The control system should be directed towards the future.
If controls details do not relate to future, they are of no use as they will not
be able to suggest the measures to be taken to avoid recurrence of variations
in the future.
Potential Barriers to Successful Controlling
Effective control system is essential to maintain a balance between the
standard set and actual performance achieved. Many problems may arise in the
course of functioning. The following are the potential barriers to successful
controlling:
1. Over control: Unnecessary pressure on employees' s behavior and their
functions may create problems in effective control. Problems arise when
employees perceive that the management attempts to limit their freedom
 unnecessarily. This can increase employees' frustration and thereby reduce
their morale.
2. Inappropriate focus: Focus on a certain aspect while taking decisions may
create problems in effective control. For example, unnecessary focus on
increasing sales volume to maximize profit without considering quality of
product or services may decrease goodwill in the long run. Employees
oppose such narrow focus.
3. Reward for inefficiency: Employees should be rewarded on the basis of their
efficiency and skill. Rewarding employees without considering their
efficiency creates problems in control. If more incentive is given to an
inefficient employee as compare to an efficient employee, it creates
frustration among the efficient employees.
4. Maximum accountability: When an employee or group of employees
complete their given job and report to the concerned authority, it is said that
they have fulfilled their accountability. But without setting standards and
delegating authority, if more responsibility is given to an employee, it may
create problems on work effectiveness.
5. Coordination problem: In an organization, many departments are formed
on the basis of nature of works. Each department is independent to perform
its activities. However, works of one department is inter-related to the works
of other departments. If interdependent departments perform their
functions without considering the functions of other departments, it is more
difficult to maintain coordination.
6. Imbalance in authority and responsibility: Authority is related to power that
is inherent in managerial positions whereas responsibility is the obligation t
be fulfilled by subordinates. If there is lack of balance between authority and
responsibly it is more difficult to implement the control in an effective way.
When subordinates have given more authority than responsibility, there is
possibility of misuse of authority. Similarly, when subordinates have more
responsibility than authority they cannot accomplish assigned job
effectively.
7. Ineffective communication: Effective communication ensures smooth
functioning in the organization. It is essential to develop a formal system of
communication to pass information within and outside the organization.
However, if managers are unable to minimize communication barriers, it
 becomes difficult to maintain effective control over the activities of
subordinates.
Quality Control System
Concept of Quality
Quality is the perception of excellence viewed by customers to satisfy their
needs. It is a sense of appreciation that a product or service is better than others.
" Quality is the degree of excellence at an acceptable price and the control of
variability at an acceptable cost." - Robert A Broh
" Quality is the totality of features and characteristics of a product or service that
bear on its ability to satisfy stated or implied needs."
- American Society for Quality Control
In conclusion, quality is the excellence of the products in terms of its
performance, reliability, durability, serviceability, and so on.
Factors Affecting Quality
Quality is the level of excellence viewed by customers to satisfy their needs.
The greater the perceived value of product or service, the higher is customer
expectations for quality. The effective management of quality depends upon a
number of factors consisting of:
1. Policy: The top management establishes policies regarding product quality.
These policies specify the level of quality to be achieved in a product or
service. Managers generally consider three factors in determining policy for
quality. The product and services market, its competition and image. Quality
levels in competitive market also affect policy because the company's
product must have the quality to succeed in the market. Production of
inferior quality product may spoil long term interests of the organization.
2. Information: The top management must acquire the right information about
customer needs and expectation and the competitors' s quality standards.
Nowadays, advanced computer technology is facilitating organizations to
quickly obtain and evaluate information about the quality of products.
 3. Engineering and design: Product engineering and design ensures new
products in less time with better quality at lower cost. The production
department has to produce a product at a reasonable cost with better
quality. It is the engineer or designer who must translate the policy into
actual product or service. Innovation and creativity helps to design a product
having superior quality. The basic purpose of designing is to avoid defective
production.
4. Materials: The top management must realize that quality product can be
produced only by using good quality raw materials. They need to terminate
contract with lower quality vendors and maintain long term relationships
with better ones.
5. Equipment: The use of automatic machines, computer software and robotics
makes the output uniform and qualitative. Machines, equipment and tools
used in the production process should be advanced and automatic.
6. People: Employees are very important components for maintaining and
improving quality. Well experienced and dedicated employees can
contribute more to improve quality. Functioning independently, or in a
group, they can improve the quality of a product and service. Therefore, the
management has to guide employees on total approach of quality.
Total Quality Management (TQM)
Total quality management is a management strategy that is designed to bring
awareness of quality in all organizational processes. Total quality management
consisting of quality of return to satisfy some specific needs of shareholders, quality
of products and services to satisfy some specific needs of the employees in the
organization.
TQM ensures that things that are done rightly for the first time, and defects
and waste are eliminated from operations. An organization that adopts TQM must
implement changes in all areas of management.
TQM has four objectives:
 Better, less variable quality of product or service.
 Quicker less variable response in process to customer needs.
 Greater flexibility in adjusting to customers shifting requirements.
  Lower cost through quality improvement and elimination of non-value
adding work.
Tools for TQM
Organizations can apply several tools and techniques to improve quality. The
popular among them are benchmarking, outsourcing, speed. ISO 9000 and
statistical quality control techniques.
1. Benchmarking: Benchmarking is an evaluation and comparison of own
products and process against the very best in the market. Benchmarking
involves looking similar firms to examine how they have achieved the best
performance levels and to understand the process they use. Application of
benchmarking involves four steps.
 Understand in detail the existing business practice.
 Analyzing the business process of others.
 Compare own business performance with that of others analyzed.
 Implementing the steps necessary to close the performance gap.
2. Outsourcing: Outsourcing is the process of providing some parts of jobs to
other organizations to bring quality and cost benefit. If an organization
performs each and every activity by itself, they may not be able to perform
it in an efficient manner and the quality of products and service will also be
inferior. Therefore, the organization needs to identify certain areas that can
be outsourced to minimize the cost of operation and to produce higher
quality.
3. Speed: Speed is the time required to perform specific activity for an
organization. It is required in every area including development, production
and distribution of products or services. Many organizations are using speed
for competitive advantage today. Increasing speed will give organizations a
strategic advantage and helps them to complete the task more effectively. It
involves not only doing the same thing faster but also rethinking and
redesigning the whole business cycle.
4. ISO 9000: ISO 9000 is the international standard set for the product and
service by the international body. It was founded on 23 February 1947. Its
headquarters is in Geneva, Switzerland. There are five sets of standards
covering areas such as product testing, employee training, record keeping,
 supplier relations and repair policies and procedures starting 9000 to 9004.
Firms that meet these standards apply for certification and are audited by a
firm's domestic affiliate organization. Nepal Bureau of Standards and
Metrology adopts this standard in Nepal. This office reviews every aspect of
the firm's business operation in relation to standards and grant ISO 9000
certificate who meet the standards.
5. Statistical Quality Control (SQC): Statistical quality control is asset of specific
statistical techniques which is applied to monitor the quality of goods or
services. It is based on statistical and probability theories. It seeks to control
the quality through incoming materials, processing and outputs produced.
Control charts are constructed to set the acceptable lower and upper limits
of an aspect that we want to control in an item. All finished products may
not be exactly the same and therefore, some limits or tolerance must be set
so that if the finished product falls within these set limits, it can be
considered of acceptable quality.
6. Just-In-Time(JIT) Inventory Management: This is the inventory system
control method. Under it, inventories are received just-in-time to be used up
by production.
7. Right the First Time : Under this, employees ensure quality while they work.
They do the right things first time. The result is zero defects. Do it right the
first time approach focuses on designing and building quality into the
product. This approach is much less costly than fixing or throwing away
substandard parts and finished products.
Deming Management
Deming management is the application of the principles of W. Edwards
Deming an American scholar, in management. According to Deming, management
is the creation and continuous improvement of organizational systems. The
implementation of such creative and improved management system leads to
increase in value in the management system in its products and services.
Continuous improvement is essential in the management system in this
internationally competitive world characterized by rapidly changing technology
and customer demand for higher levels of the values. Deming believes that the
manager's job is to seek out and correct the causes of failure, rather than merely
identify failures after they occur.
Principles of Deming Management
Robert Kreitner has suggested the following four principles of Deming's quality
management:
1. Quality improvement drives the entire economy: quality improvement is
essential to reduce waste and inefficiency. It helps to increase higher
productivity, greater market shares and new business and employment
opportunities.
2. The customer always comes first: Satisfied customer is essential for
organizational success. As such, an organization must produce goods and
services on the basis of customers' needs and expectations.
3. Do not blame the person, fix the system: Deming disagreed on blaming a
particular person or department for inferior quality. Management, work,
rules, technology, organizational structure and culture, all are responsible for
inferior quality. Employees will produce superior quality if the system is
redesigned to improve it.
4. Plan- Do- Check- Act: He suggested a four step process for the application of
TQM which is popularly known as PDCA cycle. Plan is ahead for change which
involve analyze and predict result. Do involve execution of plan as pilot
project. Check involves the study of result of pilot project. Act is concerned
with implementation of plan for improving products or services.

Deming's Quality Management Techniques

The following are the fourteen techniques suggested by Deming to maintain total
quality management:
1. Create constancy of purpose: The management must make all efforts of
constant improvements in products and services to remain competitive in
the market. Quality and not profit should be the organization's purpose.
According to Deming, profit is automatically had when the organization is
able to maintain quality.
2. Adopt the new philosophy: According to Deming, modern method and
advanced technology should be applied to improve product and service
quality. All organizational members should support new culture and dedicate
themselves to improving quality.
3. Cease dependence on mass inspection: Quality can be maintained by
improving the process and not by inspecting. Inspection on faulty products
is unnecessary if quality is maintained from the very beginning. According to
Deming, once errors occur, efficiency and effectiveness are already lost.
4. End the practice of awarding business on price tag alone: Purchasing
department normally gives orders to the lowest price vendors. But they do
not ensure quality materials and supplies. Therefore, it is essential to
maintain long term loyal and trusting relationship with a single supplier who
deals with quality.
5. Seek continuous improvement: Management must continuously improve
the production process for better productivity and lower cost. In other
words, it is the responsibility of the management to innovate alternatives to
reduce waste and to improve quality.
6. Institute modern methods of training on the job: Generally, junior workers
learn their job from seniors who were never trained formally. It may not
develop the new scientific knowledge and skills among them. On the other
hand, on-the-job training helps them to increase the required knowledge
and skills to complete a given job.
7. Institute leadership: The responsibility of managers and supervisors is to
help workers to reach their full potentiality. They need to adopt and institute
leadership to help workers to do a better job. Management must ensure that
immediate action is taken on reports of inherent defects, poor tools, unclear
operational definition.
8. Drive out fear: The feeling of fear of employees to express their views,
opinions, and ideas must be avoided. For this, the management needs to
encourage effective two-way communication.
9. Break down barriers between staff areas: The management must break
down barriers between departments and staff areas. The practice of team
work and group efforts must be encouraged. Employees can improve
productivity by learning from one another and coordinating efforts
regardless of their functional expertise.
10.Eliminate slogans and targets: Deming suggested that signs, slogans and
targets to motivate and inspire employees must be eliminated. It is necessary
to focus on continuous improvement on quality. Effective leadership and
continuous improvement of the system helps to meet the target.
 11.Eliminate numerical quotas: Deming advocates that only focus on numerical
quotas may diminish the quality. Manager should focus on quality instead of
blindly pursuing numbers.
12.Remove barriers to pride of workmanship: The management should support
the employees to overcome the obstacles that may arise in course of
functioning. It is necessary to improve continuously the management
system, inadequate instruction, faulty equipments and defective materials.
13.Institute a vigorous program of education and training: According to
Deming, both management and workers must be educated and trained in
the new methods to improve quality. Introducing a teamwork culture and
the philosophy of TQM is helpful to improve quality.
14.Take action to accomplish the transformation: According to Deming, all
organizational members must understand these 14 points and work together
to reach quality goals. The management must develop strategic plans in
order to achieve the highest level of quality. Neither the worker nor the
management alone can improve the quality.
Quality Improvement Process
Edward Deming, who developed total quality management, has recommended
four steps for improving quality of products and services. These four steps involve
Plan, Do, Check, and Action (PDCA). Sometimes it is also known as by Plan, Do,
Study and Action (PDSA).
1. Plan: At the beginning stage, managers need to identify and understand their
problems or the opportunity that they can take advantages. For this purpose,
they need to explore information for generating and screening ideas which
is essential for developing rational plan. Plan should be formulated by
focusing objectives. Customers' needs and expectations are the primary
consideration for formulation of planning for quality improvement.
2. Do: Once managers have identified a potential solution of problem it is
essential to test it with scale as pilot project. The pilot project test program
can be organized in a geographical area or with a particular demographic.
This will support the managers to assess whether their proposed changes
achieve the desired outcome. If any problem is identified in pilot project
phase, necessary steps must be taken to solve the problem in the do phase.
 3. Check (Study): In this step, managers analyze result of their pilot project
against the expectations that ids defined in plan. It facilitates to assess
whether the idea has become effective or not. If the pilot project idea is
become success, the managers can think for implementation. If it becomes
failure, managers need to work again from plan and do. It is helpful in finding
out the cause of deviations and evaluating their impact on the final product
and market share.
4. Act: This is implementation part of quality improving. This is where managers
implement their solution as far possible in effectively. It focuses on taking
proper action to maintain standard and to improve process. This step deals
with market research and aims to prevent problems rather than correct
them.
Managers need to focus on continuous improvement pf quality of product and
service to meet the changing expectation of customers. Therefore, PDCA/PDSA is
taken as continuous task as moving circle. It is not only a process with a beginning
and an end. Deming's PDCA cycle aims at developing teamwork with respect to
product development, manufacturing, sales and market research for betterment of
organization and customers.

The following are the steps of the quality improvement process:

1. Choose an area of improvement: At this first step, an area of improvement
is chosen, which often is called the improvement "theme". Either
management or an improvement team may choose following area or theme
for quality improvement:
 Reduction of production cycle time.
 Increase in the percentage of non- defective units produced.
  Increase in on-time delivers.
 Reduction in employee absenteeism.
2. Organize a quality improvement team: At this step, quality improvement
team is organized. This team may include following types of members.
 One or more associates directly responsible for the work being done.
 One or more customers receiving the benefits of the work.
 One or more suppliers providing input into the work.
 A member of management.
 Perhaps one or more experts in areas particularly relevant to solving
the problem and making the improvement.
3. Identify "Benchmarks": At this step, quality improvement team identifies
benchmarks (i.e. the best performance). The team compares with best
performers and identifies how much improvement is required to match the
best performance, for example, a pizza company may discover in this step
that the benchmark (i.e., the fastest average time between the moment an
order is taken until the moment of front-door delivery) established by a
competitor is 20 minutes. Suppose the company's current average delivery
performance is 35 minutes. That leaves a minimum possible improvement pf
15 minutes on the average.
4. Perform analysis of current performance: At this step, the team performs
an analysis to find out how current performance can be improved to meet,
or beat, the benchmark. It can current performance can be improved to
meet, or beat, the benchmark. It can analyze the factors such as potential
problems related to equipment, materials, work methods or people etc.
5. Perform pilot study: The team performs a pilot study to test the selected
remedies to the problem. It tries to find out the area for further
improvement such as customer service, company's overall sales capacity,
new delivery, system standard, etc.
6. Management implements the improvements: Finally, the management
implements the improvements. Such incremental improvements can greatly
enhance a company's competitiveness. The key, therefore, is to continually
improve both product and process.
Chapter- 10 Managing in the Global Arena

Concept of Globalization
Globalization is the tendency of businesses, technologies and philosophies
to spread throughout the world. It ensures free flow of ideas, goods and services
all over the world. It also increases the global connectivity and interdependence
in political, economic, cultural, technological and environmental spheres.
Globalization brings the concept of keen competition among the entrepreneurs
of the world.
Globalization makes the business environment increasingly global even
for domestic firms. Globalization creates opportunities for all. It stimulates
economic growth; raises the income of consumers, and helps to create jobs in
all countries that participate in the global trading system.
" Globalization is the process by which an activity or undertaking becomes
worldwide in scope." - Sundaram and Black
However, the concept of globalization may be studied at two levels i.e.
macro level and micro level. Macro level globalization focuses on world
economy. According to this view, globalization is a process of development of
the world into a single integrated economic unit. On the other hand, micro level
globalization emphasizes on globalization of business. This concept views that
the entire world is a single market and the corporate strategy of a business
should be modified on the basis of changing global business environment.
Nature of Globalization
Globalization has the following features:
1. Integration: Globalization integrates the economic, political, and cultural
systems across the globe. It helps to combine national economy with
international business. It supports a shift towards a more integrated and
interdependent world economy.
2. Open market economy: Globalization emphasizes on open market
economy. It facilitates liberal and private economy. The role of the
government in business is minimized. It brings the concept of keen
competition among entrepreneurs of the world.
 3. Modern communication and transportation: Globalization needs the use
of modern means of communication and transportation system. It also
provides importance to the use of modern means of transportation for
quick delivery of products and services.
4. Free movement of factors of production: Globalization emphasizes on
free and open market economy where private entrepreneurs have a
major role in business. It facilitates free movement of factors of
production consisting of capital, manpower, materials, management and
technology at the international level.
5. International operations: In globalization, business activities are done at
the international level. Goods and services move in any part of the world
without legal restriction and barrier. Entrepreneurs having quality goods
and services can perform business activities in any part of the world on
the basis of economic gain.
6. Formation of multiple units: Globalization facilities to establish many
manufacturing company establishes its production units in different
countries in accordance with commercial advantages. However, product
quality is maintained in products produced in all the units.
7. Advanced technology: Globalization facilitates free movement of
products and factors of production worldwide. It raises competition
among national and international entrepreneurs.
Effects of Globalization
There is a great debate on whether globalization is good or bad. Some
pessimists have viewed that it has increased interdependence upon while
optimists say that it is a means of better lives for all. Globalization can have
positive and negative effects on cultural, political and economic life. It affects
internal and external policies. Therefore, the effect of globalization can be
studied both from positive and negative angles:
Positive Effects
The following are the positive impacts of globalization:
1. Maximize productivity: Globalization facilitates easy access to
international market. It gives more priority to specialization and
economies of scale. Quality products or service can entire the
international market easily. The expansion of trade transaction of a
business organization provides pressure to increase production. Large
 scale of production ultimately minimizes per unit cast which helps to face
competition in the market.
2. Develops living standard: Globalization is considered to be an important
means of developing the living standards of people. Global business
facilitates the people to understand culture, tradition, customs, education
system, health facility, and economic condition etc. of different countries.
People try to accept the good concepts of other communities which helps
to develop their living standard.
3. Transfer of capital and technology: Many big business houses of
developed countries have started establishing their production units in
developing countries. They invest their huge capital to install plants and
also to operate production activities. Therefore, globalization benefits
developing countries by transferring capital and new technology.
4. Increase in employment: Multinational countries are important sources
of employment. They provide employment opportunities to the people of
the host country both in administrative and technical work according to
their skill and knowledge. This helps the people of the host country to
obtain new knowledge, ideas, experience, skills and efficiency. Besides, it
also helps in raising the living standards of the people.
5. Elimination of trade barriers: Multinational companies help minimize
trade barriers in the international level. They play important roles in
eliminating trade barriers and obstruction in international trade.
Multinational companies perform business under an efficient
management system using the latest technology in various parts of the
world. As a result, they put pressure on the authorities of host countries
to eliminate trade and other administrative barriers. World Trade
Organization(WTO) has been playing a major role in eliminating
unnecessary trade barriers and other obstructions for business activities
at the international level.
6. Promote international co-operation: Multinational companies play
important role in the development of mutual co-operation among various
countries of the world. Today, international relation and co-operation is
based on financial assistance and economic development. For this,
multinational companies contribute more to developing mutual co-
operation among friendly nations.
7. Support for industrialization: Industrialization is a must to upgrade the
economic level. Globalization supports industrialization of a country in
 two ways, firstly by creating a new market and secondly by transferring
capital and technology. Globalization initiates an open marketing
economy where quality products and service can entire freely in any part
of the world. Similarly, it creates a great scope for investment in friendly
nations. Therefore, globalization supports industrialization in many
developing countries.
8. Growth in Export: Export is one of the common methods of globalization.
Labor intensive products are exported from developing countries and
capital intensive products are exported from developed countries. Thus,
globalization helps increase trade, especially increases exports from
developing to developed countries.
9. Utilization of Local Resources: Globalization promotes local resource to
global market. Multinational company, by using its technical and
management skills, makes best use of natural, materials, and human
resources of different countries.
Negative Effects
The following are the impact of globalization:
1. Displacement of local industries: A major limitation of globalization is
displacement of medium and small scale local industries. Local industries
cannot compete with multinational companies because the latter
produce in large scale and use advanced technology. Medium and small
scale cottage industries of the host country either displace or surrender
to the multinational companies.
2. Economic exploitation: Globalization opens the world market for all
business organizations. In an open market economy, multinational
companies are the main players in world economy. They utilize raw
materials and labor force of host countries at cheap price. They pay fewer
wages to local employees as compared to the employees of the parent
country. But they charge a high price for their branded finished products.
3. Deterioration of national sovereignty: In an open market economy,
multinational corporations gain economic power. They may apply
unnecessary pressure to political parties and even to the government of
the host country to modify their rules and policies for their own benefits.
In some situation, globalization may deteriorate the sovereignty of host
countries.
 4. Initiates monopoly power: Globalization initiates monopoly power to the
multinational corporations. The product specialization and efficient
management system of multinational corporations contribute to
developing their monopoly power even in a competitive market.
5. Creates threats to social and cultural values: Globalization facilitates
free movement of goods and services in any part of the world. It also
carries the cultural and social norms and values of one country to another.
Such transformation of culture and social system from one community to
another may overlap with the cultural norms and values of one
community. Therefore, globalization creates a disorder in cultural norms,
beliefs and values in many countries.
6. Increases competition: Globalization is a threat to domestic industries of
developing countries. It creates competitive environment even in the
domestic market. Medium scale and small scale end even large scale
national companies cannot compete with multinational corporations.
7. Environmental Degradation: Since global companies are temporary
tourists of the country, they do not have long-term commitment in
economic upliftment of the people of the country. They take
opportunities from the country, but do not care about long- term negative
effects. For example, they empty natural resources such as gas, oil, forest
and mineral, do not feel it necessary to take into account environmental
degradation, safety of workers, local welfare and health. Thus, global
companies damages natural environment of developing countries.
8. Unequal Partnership: Economic liberalization, privatization, equality are
the bases of globalization. Developing countries should work with
developed countries. Actually it is unequal partnership. Developing
countries do not have competitive power. Greater benefits are raped by
developed countries.
Fundamentals of International Management
The international management involves systematic operation of business of
an organization that conducts business in two or more countries. The
management of a business organization involved in international business can
face more complexity while doing business activities as compare to internal
business. Managers need to understand various factors within the country, host
country and of internal levels that can affect in the business activities of the
organization. The following are the fundamental understanding necessary in
international management:
1. Social and cultural values: One of the fundamental requirement of
international management is to understand social and cultural values of
the people of host country and region. The components of socio-cultural
values involve language, religion, regional values, demographic
constitution, tradition, customs, cost structure, labor mobility etc. of host
country. For example, customers of a country may not be interested in
the same products and service as those living in another country.
Managers involve in international business management need to
understand socio-cultural value of the people of host countries.
2. Economic condition: The economy has direct impact on business so
before planning for global business it is essential to do detail research
about the economic condition the countries where to operate business.
The fundamentals of economic factors involve gross domestic products,
per-capita income, economic class structure, supply and demand
condition, inflation rate, financial transactions and banking facility, etc. of
host country.
3. Political and legal environment: The political and legal environment of
foreign countries has a direct effect on business. These factors can vary
from one country or region to another. Management of a business must
comply with the laws, rules, policies and other requirements of the
countries where it wants to do business. Some of the fundamentals of
political legal environment affecting international business are law,
provision of licensing and permits, taxes and fees system, import-export
tariffs, currency risks in host country. Other political and legal risks and
restrictions involve investment restriction, operational restrictions,
discriminatory restrictions, quota system, etc. A manager managing
international business should consider these factors while doing business
in host country.
4. Geographical factors: The change in geography can create some
challenges in international business. It is essential to make detail study
about the impact of change in geographical situation before involving in
any international business. Geographical factors provide impact on
climatic conditions, transportation facility, communication system, water
supply, electricity supply, etc. Thus, knowledge of geographical
distribution of places is necessary for managing international business.
5. Technological development: Technology is a fundamental element that
managers should consider before expanding business at international
 level. The availability of skilled manpower in host country for operating
technology adopted by the organization should be studied. Moreover, it
is essential to maintain close observation over the technology created and
adopt by the competitors.
6. Capability of the organization: For entering into the global market the
management should carry out an audit of its resources and capabilities.
The organization should have competitive advantages in terms of market
knowledge, technology, portfolio of products and services, strategic
partners, and other factors. An organization having sufficient resources,
modern technology, good market research, network of communication
and distribution can involve in global business.

Multinational Company
The concept of multinational company is the outcome of the development
of the mutual cooperation among friendly nations, development of new
technology, mass production and development of global company. Generally, a
company that performs its business in two or more countries is a multinational
company. Multinational companies are incorporated in a country but they
perform their business in many countries of the world. Especially, they perform
business operations throughout the world through their branches, subsidiaries
or agents. The business activities are managed and controlled by the head office
of the company which is situated in the mother country.
"Multinational companies are corporations which have their home in one
country but operate and live under the laws and customs of other countries as
well." - David E. Lilenthal
Therefore, we may conclude that a multinational company is acorporation
which performs business at the international level under its ownership,
management and control.
 The united Nations recognizes around 650 companies or corporations as
multinational companies in the world, whose transactions were above a certain
level specified by the UN. Some of them are:
 IBM Corporation, USA
 General Electric, USA
 Coca-Cola company, USA
 Pepsi-Cola company, USA
 Nestle company, Switzerland
 Hitachi, Japan
 Dunlop, UK
 Ford Motor Corporation, USA
 Panasonic Corporation, Japan

The development of multinational companies in the world also encourages

many multinational companies to launch their production units in Nepal. Some
examples of joint-ventures multinational companies in Nepal are:

 Unilever Ltd.
 Colgate-Palmolive
 Union Carbide (Nepal Battery)
 L.G. Television
 Radisson Hotel
 Surya Tobacco Co. Pvt. Ltd
 Bottlers Nepal (Coco-Cola)
 Nepal Arab Bank Ltd.
 Standard Chartered Bank
 Himalayan Bank
 Nepal SBI Bank Ltd.
 Dabur Nepal (P) ltd, etc.
 Tuborg Beer
 San Miguel Beer
 Life Insurance Corporation Nepal
Characteristics of Multinational Company
The major characteristics of a multinational company may be studied under the
following headings:
1. Large scale operation: Large scale operation is the most important
feature of a multinational company. It performs large scale business
operation by investing a huge capital. The large scale production
minimizes per unit cost and helps to face competition in the market.
2. Advance technology: Advancement is modern science and technology is
one of the major features of a multinational company. Multinational
companies establish research and development departments for the
research and invention of new technology in production, distribution and
for promotion of business activities. They also transfer new technology in
to developing countries through their branches and subsidiaries which are
helpful for industrialization.
3. Mass Production and Distribution: A multinational company is
established with huge capital and high technology. It has massive
production and distribution network of goods and services. Multinational
company produces capital and consumer goods in larger quantities and
distributes them all over the world.
4. Efficient management: Efficient management is one of the main reasons
for the successful operation of a multinational company. It hires efficient
and skilled manpower. It has the capacity to hire professionals by paying
high remuneration.
5. Ownership and control: The ownership of multinational companies
remains both with parent company and the subsidiary company.
However, major shares of the subsidiary companies established in various
countries are contributed by the parent. Therefore, the parent company
plays a major role in the management and control of the subsidiary
companies.
6. Multiple Currencies: Since multinational company operates in two or
more countries, it deals in multiple currencies. The values of currencies
keep changing. The risks of future exchange rate shifts are high.
7. Monopoly market: The product specialization and efficient management
system of multinational companies contribute to developing their
monopoly power even in a competitive market. The use of latest
 technology, own trade mark, goodwill, along with better distribution
system and promotional network are the main components of
multinational companies.
Types of Multinational Company
Multinational companies may be of various types on the basis of their
nature business. The following are the common types of multinational
companies (Shapiro, 1996).
1. Raw material seekers: These are the earliest forms of multinational
companies. These multinational companies spread in different parts of
the world in search of raw materials. They purchased the raw materials
from local markets in the cheapest price, processed the raw material
locally and delivered them to their local home country for production of
finished products. In the colonial era, multinational companies of Western
European countries exploited maximum raw materials found in many
overseas countries. The present multinational companies involve in raw
material dealing are crude oil, gas and mining companies. These
companies purchase raw materials from the international market and
deliver them to their home country for processing.
2. Market seekers: These are common types of present day multinational
companies. They enter the foreign market to produce and sell their
products. The main motive of such multinational companies is to expand
their business at international level. At present many multinational
companies of the US, Japan and other developed countries have started
investing in India and China by considering the huge market.
3. Cost minimizers: These multinational companies seek to invest in
countries where the production cost is low. The main motive of such
companies is to minimize cost of product and service. They install plants
in the countries where labor and energy cost is low. This helps to meet
the purchasing power of customers of host countries. For example, many
Japanese companies like Sony, Toyota, National Panasonic, Honda,
Suzuki, etc. have established their production plants in China, India,
Malaysia, Singapore, Taiwan, Thailand, etc. this is helpful in minimizing
cost of Japanese branded products because comparatively these
countries have low labor and energy cost.
Advantages of Multinational Company
The advantages of multinational company may be studied under the following
headings:
1. Huge capital and modern technology: Investment of huge capital and
introduction of modern technology in the host country is one of the most
important advantages of a multinational company. It helps to minimize
the scarcity of capital in the host country. Similarly, modern technologies
are introduced in production of goods and services.
2. Mass and qualitative products: The main advantage of multinational
company is that it produces goods at a larger scale. It maintains
international standard in its products and services. It lays emphasis on
quality. For mass and quality productions, it mobilizes skilled and efficient
manpower and modern technology.
3. Efficient management: The success or failure of an organization totally
depends on its management system. Multinational company gives priority
to efficient and up-to-date management system. For this, it hires skilled
and technical employees and introduces modern system of management.
4. Minimum cost of production: The huge investment and mass production
helps to minimize per unit cost of products because the fixed cost remains
constant at any level of output. Therefore, a multinational company lays
emphasize on mass production of goods and services. Such technique
helps minimize the per unit cost of production and can supply quality
products in the competitive market.
5. Research and development: Research and innovation is essential for the
development of an organization. Research and investigation help discover
new knowledge and ideas. These innovations and discoveries help in
introducing new products, services, and knowledge. Investment in
research and development is the main reason for the success of
multinational companies.
6. Employment opportunities: Multinational companies are important
source of employment. They provide employment opportunities to the
people of host countries both in the administrative and technical jobs.
7. Maximize government revenue: Multinational companies contribute
more to the increment in government. They involve in mass production
and distribution activities throughout the country. As a result, they earn
 more profits and pay income tax. Besides income tax, multinational
companies pay various taxes to the government like added tax, export
duty, etc.
8. Elimination of trade barriers: Multinational companies play important
roles in eliminating trade barriers and obstructions in international trade.
Multinational companies perform business under an efficient
management system using the latest technology and sell quantity
products at moderate price. As a result, they put pressure on the
authorities of host countries to eliminate the trade and other
administrative barriers.
9. International cooperation: Multinational companies play important role
in the development of mutual cooperation among various countries of the
world. Today, international relation and cooperation is based on financial
assistance and economic development. For this, multinational companies
contribute more in developing mutual cooperation among friendly
nations.
10. Balance of Payment: Multinational companies contribute to maintain
balance of payment by balancing international trade of the host country.
They introduce products in host countries which may substitute for
import. This helps minimize import from foreign countries and can save
foreign currencies.
Disadvantages of Multinational Company
The major disadvantages of the multinational company may be studied under
the following headings:
1. Displacement of local industries: Displacement of local industries is the
major disadvantages of a multinational company. Local industries cannot
compete with multinational companies because the latter produce goods
and services at a larger scale by using modern technology. Medium and
small scale cottage industries of the host country are either displaced or
the surrender to the multinational companies.
2. Outflow of capital: Generally, in the initial stage, multinational companies
bring in huge capital in the host country. They invest capital for
establishment of plants and to manage working capital. But as
professional business concerns, their main objective is to earn maximum
profit. Therefore, in the long run, multinational companies earn more
 profit by implementing their efficiency and network. They transmit huge
profit to their parent country after the payment of necessary taxes.
3. Economic exploitation: To earn maximum profit, a multinational
company utilizes raw materials and labor force of the host country at a
cheaper price. It means, it purchases raw materials at a minimum cost.
Similarly, it pays minimum wages to employees as compared to
employees of the parent country.
4. Consumer exploitation: Multinational companies enjoy monopoly in the
market. They capture the market by using various techniques like
developing network for promotion, product differentiation, maintaining
brand image and fame, etc. they can charge any price for the products
and exploit customers by charging a high price.
5. Inequality to staff: A multinational company appoints staff both from the
parent country and the host country. It hires higher level authority from
the parent country and their remuneration, allowances and other
facilities are also high. However, it appoints lower level employees from
the host country who are paid less remuneration and facilities. Therefore,
a multinational company treats the local employees as second grade
citizens by providing minimum remuneration and allowances.
6. Influence in politics: multinational companies are financially strong. As a
result, they may influence policy makers of developing countries in
introducing rules and regulations in their favor.
7. Social inequality: Multinational companies never think about the needs
and wants of the poor people. Their aim is to attract the higher income
group of society towards their luxury products. The poor section of the
society cannot buy their products. As a result, they create the gap
between the rich and the poor.
8. Transfer of Inferior Technology: Technology transfer to the host country
is one of the parts of multinational companies. But in practical sense, the
multinational companies never transfer the up to date technology. They
handover only dated or inappropriate technology to the host country.
Digital Dimensioning and Planning, Organizing, Influencing, and Controlling
The development of information technology emerges the concept of
digitization in business operation. Entrepreneurs started to invest more
resources on online activities which have shifted business emphasis to digital
sources of revenue and digital channels. The growth of the digital economy has
made people more familiar with digital products and services.
Many business organizations consisting of manufacturing trading, service
and even retail shops started to involve in digital system for promoting business.
It supports to improve working efficiency through automation, create better
customer experiences, and improve employees' productivity. Digital
information system provides support for accomplishment of managerial
functions such as planning, organizing, influencing and controlling.
1. Digital dimensioning and planning: There is close relation between digital
dimension and planning. Planning is the process of determining objectives
and selecting a best course of action for achieving predetermined
objectives. Managers can anticipate future course of action by analyzing
past and present information. Digital dimension of business supports to
the managers to collect and analyze information within time and in
systematic way.
2. Digital dimensioning and organizing: Organizing is the process of
maintaining structural relationship among various positions of an
enterprise. It involves proper division of work, assigning job to employees,
formulation of rules and regulation, developing working procedures and
system. It also involves defining authority and responsibility of all the
employees of the enterprise. Digital dimension of business can provide
such information in systematic way which facilitates the mangers for
effective organization of business.
3. Digital dimensioning and influencing: Influencing is an ability or power of
a person that is used for changing the behavior and activities of other
individuals in accordance with requirement. It is an important element of
a successful leadership. Digital dimensioning of business helps to
managers to gain knowledge of how to do business by using information
technology and network system. It facilitates the managers to influence
upon the behavior and activities of subordinates.
4. Digital dimensioning and controlling: Controlling is a process of
measuring actual performance achieved with that of planned
performance and taking corrective step if any deviation is found between
actual and planned performances. The deficiency in actual can be due to
various reasons such as inefficiency of employees, insufficiency of capital,
shortage of raw materials, defects in machines and equipment or due to
unexpected change in external environment. The digital system of
business supports to the managers for identifying them to take corrective
measure in time.

THANK YOU
Chapter- 11 Management Trends and Scenario in Nepal

Growth of Business Sectors in Nepal

The history of institutional of business in Nepal is not so very old. Many
traditional cottage and small scale industries were started from the very
beginning of civilization which is still in existence. The growth of business sectors
in Nepal may be studied under the following stages:
1. Pre-unification stage: Organized industries were lacking before the
unification of small states by the king Prithvi Narayan Shah in Nepal.
However, small scale and agricultural based industries were available in
those scattered states. Lichhavi and Malla dynasty are known as the
golden age of traditional products, specially handi-craft products.
2. Unification stage: The unification of various scattered regimes
contributed for the institutional development of the industry. It
contributed for expansion and diversification of production, especially in
domestic and cottage industries. The unification of regimes created more
areas for business operation and as a result the development in industrial
productivity also increased to fulfill the needs of the people of the
country. It contributed for the expansion and diversification of business
activity not only throughout the nation but also to the China and northern
territories of India.
3. Post-unification stage: Post-unification period is the age of modern
industrialization. An industrial Boards was established in 1935 A.D., viz.
"Udhyog Parishad", to produce goods under medium and large scale
industry. The first company act was enacted in 1936 A.D. and the same
year, Nepal's first Joint Stock Company, Biratnagar Jute Mill was
established. Nepal Bank Ltd. Was established in 1937 A.D. to provide
financial support to industry and commerce. In between fifteen years of
period about 63 industrial units were opened with a total capital
investment of Rs.72millions. However, most of those industries went into
liquidation after Second World War due to lack of proper plan and
feasibility.
Nepal sign a trade treaty in 1923 with British Government of India. After
independence of India, the democratic government of both the countries
signed a trade and commerce treaty in 1950. A new treaty between two
countries was signed in 1971 for five years. In 1978 three new agreements
 were signed: the treaty of trade, the agreement of checking unauthorized
trade and treaty of transit. In 1991, Nepal and India signed two separate
treaties on trade and transit and agreed on a new arrangement for
corporation in controlling unauthorized trade. The treaty of trade of 1991
was amended later in December 1996 to increase the traditional
connection between the markets of the two countries.
The formal trade and payment agreement between Nepal and China was
signed in 1974. In 1981, the authorities of both the countries had signed
another agreement to strengthen the economic and trade relation
between the two countries.
4. Trade diversification stage: Nepal has traditional trade relation with India
and China form earlier period. However, after 2007 B.S. democratic
government has taken trade diversification policy to expand trade
transactions at international level. For this purpose, government had
taken some steps for the development of infrastructure facilities. It had
enacted export import control act 2013; Nepal Agency Act 2014, Private
Firm Registration Act 2016, Foreign Act 2035, etc. Prior to 1969, Nepal's
foreign trade was confined to India, but at present due to trade
diversification policies of the government, it has gradually diverted to
third countries. Liberal policy of government has contributed more for the
development of productivity in private sectors.
Up to now, Nepal has trade relation with near about hundred friendly nations
of the world. From 2004 Nepal has become member of World Trade
Organization. The industrial policy 2010 has been enacted to attract domestic
and foreign investment. Bilateral Investment Promotion and Protection
Agreement(BIPPA) have been signed between the Nepal and India to
promote investment in industries and commerce.
Major Industries of Nepal
Industrialization is essential for economic prosperity of the nation. All
developed countries are developed because of their emphasis on
industrialization. The institutional development of industries in Nepal has a
short history. Biratnagar Jute Mill, which was established as a joint venture
industry in 1993 B.S., is considered the first institutional industry of Nepal
However, in 1990, the government enacted economic liberalization policy
and started to privatize public enterprises. Many industries and companies were
established under the joint venture of Nepalese entrepreneurs and foreign
investors in different sectors like banking and finance, cigarette, cement, textile,
hotel, tourism, etc. The major industries of Nepal may be classified into four
forms:
1. Manufacturing Industries
 Food, beverage and tobacco industries
 Textile and garment industries
 Leather and foot wear industries
 Non-metallic industries
 Chemical industries
 Mechanical industries
 Electrical and electronic industries
2. Export Oriented Industries
 Carpet Industry
 Garment industry
 Leather industry
 Handi-craft industry
 Agro and forest based industries
3. Import Substituting Industries
 Pharmaceutical industries
 Food and beverage industries
 Chemical industries
 Iron and steel industries
 Tobacco industries
 Electrical industries
 Electronic industries
 Cement industries
 Paper industries
 Sugar industries
4. Tourism Sector Industries
 Tourism industry
 Transportation industry
 Information and communication
 Construction industry
 Financial Institutions
Existing Management Practices in Nepalese Organization
Management practice refers to all activities and procedures that managers
follow to perform managerial functions. A number of organizations of different
nature are operating in Nepal. Some are manufacturing, while others service
organizations. All the activities and procedures that these organizations follow
to perform managerial functions are known as existing management. Practices
in Nepal.
Studied conducted in Nepal indicate a number of managerial features and
practices. These features and practices can be characterized by the following
ways:
1. Planning Practices: Planning involves the process of making decision to
select the future course of actions. Some of the practices of planning in
general are as follows:
 Organizations set planning to decide the future direction. In Nepal,
'top-down' approach of planning is commonly practiced. Managers
plan and give instructions which are implemented by lower level
staffs. 'Bottom-up' approach of planning is rarely used.
 Nepalese managers tend to dislikes pre-determined courses of
action is based on their experience and interest.
 In Nepal, most of organizations prepare annual budget and
operational plans of one year only. Long term strategic plans are
lacking.
2. Decision making practices: Decision making is the process of
identifications of problems, analyzing the problems, development the
alternatives, evaluations of the alternatives and selecting the best
alternatives. Some of the practices of decision-making in general are as
follows:
 Decision making is highly centralized in public enterprise and
private enterprises. It is due to the politically appointed managers
in public enterprises and friends and relatives in private
enterprises.
 In Nepalese organization, top managers are very powerful and
highly authorized, middle and lower level managers have to be
dependent on top level managers in making decision. Middle and
lower level managers have to wait for orders to impart their
duties.
  Decision-making in Nepalese organizations are not effectively
implemented. Implementation lack effective monitoring,
evaluation and follow-up. Feedback system is not used properly.
 Nepalese managers usually postpone the decisions for tomorrow
and tomorrow never seem to come. This is the great art of
decision avoiding.
3. Organizing practices: Organizing is the process of combining together all
the organizational resources and establishing the productive relations
among them. It prescribes formal relationship among people and
resources, to achieve organizational goals. Some of the practices of
organizing in general are as follows:
 The authority is generally centralized at the top. Various positions
are arranged in hierarchically. Organizational structures are
unnecessarily long and rigid.
 Authority is based on the classical view that it originates at the top.
Managers tend to delegate responsibility without authority.
Accountability is generally missing in Nepalese organizations.
 Resources are allocated on the direction of powerful managers.
Since organizations bureaucratic design, delegation of authority
and responsibility are done at the whim of top level managers
rather than in a way to solve organizational goals.
 In many organizations there is no matching of people, job and
departmental needs. Objectives of different functional
departments are not properly integrated with marketing plans or
organizational goals.
 There is lacking of use of informal groups, boundaryless
organization, virtual organizations and learning organizations.
4. Staffing practices: staffing is one of the basic functions of every
organization. It involves manpower planning, recruitment, selection,
orientation and placement, training and development, remuneration,
performance evaluation, promotion and transfer etc. Some of the
practices of staffing in general are as follows:
 Nepalese managers have little faith in the capacity of
subordinates. There is no environment of trust and teamwork.
 Participative management is lacking in Nepalese organization.
 Public enterprise use advertisement for recruitment in private
organization. However, selection in both public and private
 organization is heavily influenced by 'source-force and
favoritism'.
 Appointing the new staff is depending on the top level managers'
institution.
5. Motivation practices: Motivation is the act of inspiring the organizational
members to devote maximum efforts to achieve the common goal of the
organization through different means.
 Managerial effectiveness is low in Nepal. Managers lack requisite
skills and training.
 Motivating has not received adequate attention in Nepalese
organizations.
 Managers assume that employees work for money and are lazy.
The low level of wages increases the dissatisfaction among them.
6. Leadership practices: Leadership is an ability of influencing people after
developing organizational vision and goals. Some of the practices of
leadership in general are as follows:
 Most of Nepalese organizations have autocratic leadership style.
They have highly centralized authority structures.
 Leader in major enterprise is appointed politically. Managers
change with changes in the government. Hence, they do not feel
accountable for the development of organization.
 Managers are weak in leadership capabilities, employees are weak
in communication and interpersonal skills and workers lack
vocational knowledge.
 Some multinational companies are practicing democratic
leadership style in Nepal. They encourage participation in decision
making and assume responsibility.
7. Conflict management practices: Conflict refers to all kinds of oppositions
or antagonistic interaction between and among individuals and groups. It
is the responsibility of managers to recognize the positive and negative
effects of conflicts and try to handle them in time. Somme of the practices
of conflict management in general are as follows:
 Conflicts are so common in Nepalese organizations. They are
viewed as harmful, destructive and unnecessary. Nepalese
managers do not believe in the necessary of conflict. They do not
stimulate and manage conflict.
  Mostly conflicts are personality based. It lacks issue-orientation.
Departmental managers are concerned about the interest of their
own departments.
 Communication breakdown and misunderstanding, personality
clashes, statue and role inconsistencies are some of the major
cause of conflicts in Nepalese organizations.
 Unclear authority-responsibility relationship and competitions for
limited resources are also the causes of conflicts.
8. Communication practices: Communication is the process of the
transmitting ideas and thoughts from one person to another for the
purpose of creating understanding on the thinking of the person receiving
the communication. Some of the practices of communication in general
are as follows:
 Effective communication is lacking in Nepalese organizations. Their
managers lack communication skills. They regard communication
as a less important aspect of management.
 The high centralized organization structures in Nepal favor
communication from top to bottom. Upward communication is
often ignored.
 The communication process generally suffers from unclear and
contradictory messages. The decoding tends to lack mutual
compatibility. The meaning gets distorted.
 Semantic problems also serve as barriers to communication
because Nepal has multiple languages and jargons.
9. Control practices: Control is the major management function to ensure
that resources are utilized properly in the direction of achieving pre-
determined plans and objectives. Some of the practices of control in
general are as follows:
 In Nepal, control is generally used for threat and punishment
rather than correction of poor performance to achieve planned
goals.
 Setting rational standard measuring actual performance against
the predetermined plan is really practiced. So, there is no proper
system of the controlling mechanism in Nepal.
 Increasing organizational politics of holding power and favoring
only the employees with the same ideology and political beliefs are
common in most of the organizations.
  More emphasis is laid on post-control rather than pre-control.
 Managers do not show seriousness in quality control.
Business Culture
Concept of Business Culture
Culture involves accepted norms, values and traditional behavior shown by
individuals or groups. In other words, culture can be defined as an evolving set
of collective beliefs, values and attitudes of individuals and groups. The culture
of each country has shown by its own beliefs, values and activities. However,
culture also evolves over time.
Business culture is the part of culture which involves norms and values
considered by the managers while doing business activities. Culture provides
impact on management practice, decision making procedures and all business
functions from business planning day-to-day business operation.
Managers and subordinates of an organization must learn how people
interact, do activities; realize which is good or bad. The impact of culture at the
organizational level ranges from investment and organizational design to
strategy formulation.

Nepalese Business Culture

The following are the common overview/features of Nepalese business culture:
1. Traditional operation: Most of Nepalese business organizations have
traditional operation system. They do not consider modern approach of
management for enhancing quality of product and service. They lack
modern technology in production, distribution, promotion and other
operational activities. It is the reason that they unable to face competition
in market.
2. Family owned enterprises: Major portion of private business enterprises
are owned and managed by the family members. It is the reason that all
the executive posts of business are hold by them. They maintain
centralized decision and control over the operation of the enterprise.
They have not given decision making authority to subordinate level staff.
Employee cannot show their skills, efficiency and creativity while doing
job. Therefore, there is lack of motivation among staff.
3. Low share of corporate entities: In Nepal, corporate entities have
minimum share in volume of business. Public enterprises have investment
only in limited areas of business. They involve tele-communication,
airlines, banking, insurance, petroleum, cement, food supply, and other
selected business operation. Major portion of business volume is covered
by private enterprises. They only consider for short term return on
investment. They do not deem for term business operation.
4. Influence on socio-culture values: Business culture also provides
influence on socio-culture values of the people. Development of private
sector enterprises and multinational companies in Nepal provide impact
on socio-culture values of Nepalese people. They introduce new concept,
ides, model, design, structure and strategy to promote business activities.
They do such activities to draw the attention of new customers. It is the
reason that western culture stared to influence Nepalese culture.
5. Problem of integration: Most of the business enterprises of Nepal have
lack of integration of organizational objectives with that of plans, policies,
programs and strategies. Managers set high optimistic and imaginary
objectives which are not achievable in practices. Besides, they do not
formulate strategies, plans and policies by focusing predetermined
objectives. It is the reason that most of the objectives are not achieved in
practice.
6. Lack of trust: There is lack of trust among the stakeholder of Nepalese
business organizations. Managers do not belief on subordinates and they
do not provide decision making authority to them. Similarly, shareholders
have no complete trust over the activities and performance of managers.
There is lack of mutual relation with government authorities and business
communities.
7. Difference in code of ethics: Ethics involves the norms, values and
morality that are taken into consideration while doing business. It directly
focuses on right or wrong, good or bad. However, in Nepal there are
differences in code of ethics among the managers and among other
stakeholders. For example, some managers do business activities only for
fulfillment of short term expectation of investors.
8. Autonomy: The decision making authority is highly centralized. Major
portion of business are owned and managed by families. Therefore,
executive level positions of the organizations are vested to family
members. They do not decentralize decision making authority to
 subordinate level employees. In some case autonomy decision may be the
reason of wrong decision that would not give expected outcome.
9. Resistance to change: Change is natural and inevitable because social
environment in changeable. Management needs to introduce new
concept, idea, working procedures, and technology to adapt with
changing environment of the society. Nepalese culture is that most of
employees create resistance to change. They do not accept change due
to feeling of job insecurity, decline in status, lack of knowledge, negative
attitude about change, etc.
10. Lack of delegation of authority: Most of Nepalese business are owned by
private enterprises there is the system of centralized authority. Managers
never delegate decision making authority to subordinates. They do
decision based on their skill, efficiency, knowledge and requirement.
Therefore, subordinates have no scope for development of managerial
skills. However, some corporate enterprises have provision of delegation
of authority to subordinates on the basis of their skills and job
responsibility.
Major Problems Facing Business in Nepal
The following are the common problems of Nepalese industries:
1. Policy related problems: There is inconsistency in government policies
and regulations regarding industrial development. This has become a
hurdle in the management practice of major industries. The contradictory
provisions mentioned in the industrial and fiscal policies create problems
in industrial development. The regular change in tax rules and procedures
also creates problems to the managers. Uncontrolled open border with
India has promoted unauthorized trade which creates major problems to
Nepalese industries.
2. Demand related problems: The per capita income of a majority of
Nepalese people is very low. Therefore, their purchasing power is also
limited. As such, Nepalese industries are not operating at their full
capacity due to low demand of their products. They are also unable to
compete with cheap Indian and Chinese products. Nepalese products are
even not accessible in all parts of the country due to unavailability of
transportation facilities.
3. Human resource problems: Many Nepalese institutions are suffering
from a lack of skilled manpower. Human resource is important for
 mobilizing the capital, machines, and technology to maximize
productivity. Capable and skilled executives who would manage business
in a competitive environment are scarce in Nepal. Insufficient managers
cannot develop new strategies and policies to promote business.
4. Capital and technological problems: Many Nepalese business institutions
are suffering from shortage of capital and advanced technology. They
need capital to establish and operate industries. High rate of interest and
demand of collateral by the banks are major difficulties in securing loans
for business. Similarly, unnecessary and time consuming administrative
procedures are responsible for not getting bank loans easily. Many
industries are not in a position to incorporate the latest technology for
production and quality enhancement.
5. Infrastructure problems: Nepalese industries are suffering from a
problem of infrastructure facilities. Infrastructure facilities involve facility
of road transport, electricity, water supply, communication, drainage, etc.
These facilities are must for the establishment and operation of
industries. In road transportation, only trucking service is available. This
service bears more cost and also suffers from many problems like highway
blockade, strike, syndicate system etc. At present, the irregular supply,
load-shedding and low voltage of electricity is a major problem for
industries. Besides, per unit cost of electricity is also very high in Nepal.
For communication of information, government postal service is not
reliable and private courier service is expensive. Poor drainage for
industrial wastage has resulted in pollution in industrial areas.
6. Labor union problem: Lack of mutual trust between labor unions and
management has created problems in many industries. Labor unions and
affiliated to political parties. In some cases, the create problems not for
their legitimate demands, but they are motivated from their political
parties. Many industries are closed and many are diverted to other
countries due to strike, lockout illogical demands of the labor unions.
7. Raw material problems: Many industries are suffering from the problem
of unavailability of quality raw materials. In some cases, raw materials
available in Nepal become more costly than those imported from other
countries. Many industries import raw materials from India for their
industries. The quality of imported raw material may not meet the
international standards. Besides, it bears more transportation costs.
 Therefore, Nepalese industries are unable to face competition even in the
national market.
8. Lack of mutual trust: Mutual trust between government authorities and
the private sector is lacking. After the 1990s, the government introduced
a liberal and free market economy where private sectors could play an
important role in the in the industry and commerce sector. However, the
government' s emphasis is only on formulation of policies and controlling
the activities of private entrepreneurs. The attitude of the government
authorities is not helpful. They rather create problems to managers in
many situations.
9. Security problem: Many industries feel insecure while operating their
business activities. Political stability is necessary for industrial
development of any country. Political instability has created many
problems in the business communities. Managers feel insecure by theft,
crimes, donation, raids and other unsocial activities. The government is
unable to provide security to industries.

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